<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TELESENSORY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
CALIFORNIA 3698 77-0208927
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
455 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 960-0920
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
LARRY ISRAEL
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
TELESENSORY CORPORATION
455 NORTH BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 960-0920
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE OF PROCESS)
----------------
COPIES TO:
MARIO M. ROSATI EDWARD M. LEONARD
MICHAEL J. DANAHER BROBECK, PHLEGER & HARRISON LLP
WILSON SONSINI GOODRICH & ROSATI TWO EMBARCADERO PLACE
PROFESSIONAL CORPORATION 2200 GENG ROAD
650 PAGE MILL ROAD PALO ALTO, CA 94303
PALO ALTO, CA 94304 (415) 424-0160
(415) 493-9300
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ----------------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.02
par value................. 3,105,000 $14.00 $43,470,000 $14,990
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 405,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) of the Securities Act of 1933, as
amended.
----------------
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 AUGUST , 1996
PROSPECTUS
2,700,000 SHARES
[L O G O]
COMMON STOCK
-----------
Of the 2,700,000 shares of common stock, $.02 par value (the "Common Stock"),
offered hereby (the "Offering"), 2,075,000 shares are being sold by Telesensory
Corporation, a California corporation ("Telesensory" or the "Company"), and
625,000 shares are being sold by the Selling Shareholders. The Company will not
receive any of the proceeds from the sale of shares by the Selling
Shareholders. See "Principal and Selling Shareholders." Prior to this Offering,
there has been no public market for the Common Stock. It is currently
anticipated that the initial public offering price for the Common Stock will be
between $12.00 and $14.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company has applied to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "TLSN."
-----------
SEE "RISK FACTORS," BEGINNING ON PAGE 6 HEREIN FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
-----------
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>
<CAPTION>
UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PRICE TO PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDERS
--------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share......... $ $ $ $
Total (3)......... $ $ $ $
</TABLE>
- -------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $800,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
405,000 additional shares of Common Stock on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. Of the shares
subject to this option, all 405,000 shares will be sold by the Company. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ , respectively.
See "Underwriting."
-----------
The shares of Common Stock are offered by the Underwriters, subject to prior
sale, when, as and if issued to and accepted by the Underwriters and subject to
approval of certain legal matters by counsel for the Underwriters. It is
expected that delivery of the Common Stock will be made against payment
therefor on or about , 1996, in New York, New York.
-----------
JEFFERIES & COMPANY, INC. VAN KASPER & COMPANY
, 1996
<PAGE>
Low Vision Products
ALADDIN FAMILY OF VIDEO
MAGNIFIERS
The Aladdin family of [Picture of Aladdin and
video magnifiers uses user with screen showing
closed circuit television recipe.]
technology to provide
high magnification,
improved contrast, image
reversal and an enhanced
field of view.
The Aladdin enables Writing becomes possible
severely visually for visually impaired
impaired persons to read persons when they can see
very fine print. Even what they are writing.
small objects such as Here, the Aladdin is
pill bottles, food being used to help write
packages, stamps and a check.
coins can be easily read
when the image is
magnified and enhanced.
[Picture of Aladdin and
user with screen showing
check being signed.]
COMPUTER DISPLAY [Picture of computer with
MAGNIFICATION Super Vista screen shot.]
Super Vista provides 2x-
16x magnification of text
and graphics displays for
most PC-compatible
software applications.
Here, Super Vista is used
with Microsoft Word and
Windows 95.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
Aladdin(R), OsCaR(R), PowerBraille(TM), ScreenPower(R), Visualtek(R),
VTEK(R), the Telesensory logo and Telesensory(TM), and Vista(R), are
trademarks of the Company. This Prospectus also contains trademarks and
tradenames of other companies.
<PAGE>
Explanatory Note: The following language appears in braille in the printed
prospectus.
Telesensory Corporation manufactures innovative electronic and computer-
based products to assist people with severe visual disabilities to achieve
general independence and privacy. The Company's products for people with
severely impaired vision ("Low Vision Products") include the Aladdin family of
video magnifiers. The Company's products for blind people (the "Blindness
Products") include braille devices which allow blind people to use personal
computers.
This page is printed in braille, a pattern of raised dots which provides
blind people with a means of reading character information using their
fingertips. For this sheet, interpoint braille has been used, which saves
paper and space by embossing braille on both sides of the sheet. The
characters are "interpointed" so that the embossed dots on each side do not
interfere with each other.
The braille language was originally developed by Frenchman Louis Braille in
the late 19th century. It is adaptable for virtually any written language.
Many versions of braille are now used by blind people worldwide.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including information under "Risk Factors." Except as
otherwise noted, all information in this Prospectus, including financial
information, share and per share data, assumes (i) a five-for-four stock split
of the Company's outstanding Common Stock to be effected prior to the closing
of this Offering, (ii) the issuance of 118,269 shares of Common Stock upon the
net exercise of all outstanding warrants, and (iii) no exercise of the
Underwriters' over-allotment option. See "Underwriting." This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from the results discussed in
these forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those set forth in the Section entitled "Risk
Factors" and elsewhere in this Prospectus.
THE COMPANY
Telesensory Corporation ("Telesensory" or the "Company"), founded in 1970,
develops, manufactures and markets innovative electronic and computer-based
products to assist people with severe visual disabilities to achieve greater
independence and privacy. The Company is the leading provider of such products
in North America, and one of the two leading companies worldwide. The Company
makes video magnifiers and other electronic and computer-based assistive
devices for people who are severely visually impaired (the "Low Vision
Products") and various braille-related and other electronic and computer-based
assistive devices for those who are totally blind or without useable light
perception (the "Blindness Products").
Severe visual impairment is defined by the National Center for Health
Statistics as the inability to read ordinary newspaper print even when wearing
glasses or contact lenses. Such people also have difficulty with daily
activities such as reading mail and prescription bottles, balancing checkbooks,
viewing photographs and working with small objects. The number of people in the
United States who are severely visually impaired is estimated at 4.3 million. A
much smaller population, estimated at 100,000 in the United States, is either
totally blind or lacks useable light perception. Populations in other developed
countries are believed to exhibit similar rates of visual impairment. Age-
related macular degeneration, which has no known cure, is the leading cause of
visual impairment and currently affects 20% of individuals over age 65. Other
leading causes of visual impairment and blindness include diabetes and
glaucoma.
Disabled people, including those who are visually disabled, are increasingly
seeking to participate fully in workplace, recreation and other daily
activities enjoyed by non-disabled people. There is also a growing awareness of
the need to enhance the quality of lives of disabled people. For example, the
Americans with Disabilities Act (the "ADA") mandates that public facilities and
services be accessible to disabled people, including those with visual
impairments. The Company believes that these trends, combined with an aging but
active population that desires to preserve its independence, have contributed
to a growing demand for devices to assist visually disabled people and the
development of a consumer market willing and able to purchase assistive devices
without government assistance. The Company believes that only a small
percentage of visually impaired people are familiar with or own electronic
assistive devices. For example, the Company estimates that annual unit sales of
all electronic and computer-based magnification systems in the United States
are made to fewer than 0.5% of the 4.3 million people who are severely visually
impaired.
Low Vision Products accounted for 71% of the Company's net revenue in 1995.
Low Vision Products consist of video magnifiers and computer screen
magnification systems, which provide adjustable magnification, enhanced
contrast and a larger field of view. In 1994, the Company introduced the
Aladdin, a highly innovative, advanced video magnifier. In 1995, the Aladdin
won the American Society of Aging's Gold Award for outstanding product design
for mature consumers. Primarily as a result of the introduction of the Aladdin,
unit sales of video magnifiers increased 53% in 1995 over the prior year, to
11,091 units, and increased 18% in the first half of 1996 as compared to the
first half of 1995. The Company believes that its sales of video magnifiers, in
both units and dollars, represented approximately 55% of the market in the
United States in 1995 and significantly exceeded comparable figures for any of
its competitors worldwide.
3
<PAGE>
Blindness Products accounted for 29% of the Company's net revenue in 1995.
The principal product line consists of refreshable computer-controlled braille
displays that enable blind persons to operate personal computers. Other
Blindness Products include optical character reading systems with synthesized
speech or braille output, and braille printers. The Company believes that it is
one of the top three manufacturers worldwide for the majority of its Blindness
Products.
Telesensory believes that it has the largest worldwide distributor and dealer
network of any company marketing assistive devices to severely visually
impaired people. For distribution of its Low Vision Products, the Company uses
a network of approximately 110 United States and 30 international distributors
and dealers. For distribution of its Blindness Products, the Company uses
approximately 37 United States and generally the same 30 international
distributors and dealers that distribute its Low Vision Products, as well as an
in-house sales team. International sales represented approximately 35% of total
sales in 1995. The Company and its distributors sell to government agencies,
institutions, schools, corporations and individuals. The Company estimates that
government funded purchases accounted for approximately 40% of domestic sales
and a higher percentage of international sales in 1995.
Since 1994, the Company has taken a number of steps to enhance net revenue
and profitability. These steps included the appointment of Larry Israel as
President and Chief Executive Officer in July 1994, the implementation of a
cost reduction program, the closure of the Company's manufacturing facility in
Ireland, the reorganization of the Company into two operating divisions, the
adoption of a continuous flow manufacturing program for its Low Vision Products
and the introduction of the Aladdin line of video magnifiers. The Company also
strengthened its international operations by acquiring its distributors in the
United Kingdom and France in March 1996. Pre-tax earnings have increased from a
loss of $1.3 million in 1993 to a profit of $2.3 million in 1995 and a profit
of $1.4 million for the first six months of 1996. See "Selected Consolidated
Financial Data."
The Company's goal is to be the market leader in the development,
manufacture, and marketing of electronic and computer-based assistive devices
for visually impaired individuals. To achieve this goal, the Company is seeking
to: (i) increase consumer demand for electronic and computer-based assistive
devices by increasing consumer awareness of the Company's products and
expanding distribution channels, (ii) develop new products and enhance existing
products, (iii) continue to reduce manufacturing costs, (iv) develop new
markets and business opportunities through strategic alliances and acquisitions
both in the United States and internationally, and (v) develop new applications
for the Company's products.
The Company's principal executive offices are located at 455 North Bernardo
Avenue, Mountain View, California 94043, and its telephone number is (415) 960-
0920.
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company.......... 2,075,000 shares
Common Stock offered by the Selling
Shareholders................................ 625,000 shares
Common Stock to be outstanding after this
Offering.................................... 5,085,091 shares(1)
Use of Proceeds.............................. For repayment of bank indebtedness and
other general corporate purposes, including
working capital, marketing, product devel-
opment and possible acquisitions. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol....... TLSN
</TABLE>
- ----------
(1) Excludes 623,494 shares of Common Stock issuable upon the exercise of stock
options outstanding as of June 30, 1996, at a weighted average exercise
price of $2.98 per share. See "Management -- Stock and Employee Benefit
Plans," and Note 9 of Notes to Consolidated Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents, for the periods and dates indicated, summary
consolidated historical financial data for the Company. This information should
be read in conjunction with "Capitalization," "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's consolidated financial statements and the
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............... $ 27,083 $ 27,588 $ 30,671 $ 15,317 $ 17,240
Cost of revenue........... 14,697 15,332 16,670 8,455 9,770
-------- -------- -------- -------- --------
Gross profit............. 12,386 12,256 14,001 6,862 7,470
-------- -------- -------- -------- --------
Operating expenses:
Product development...... 2,876 2,617 2,286 1,170 1,134
Sales, general and
administrative.......... 10,303 9,020 9,374 4,634 4,860
Restructuring............ 507 332 -- -- --
-------- -------- -------- -------- --------
Total operating
expenses............... 13,686 11,969 11,660 5,804 5,994
-------- -------- -------- -------- --------
Operating income (loss)... (1,300) 287 2,341 1,058 1,476
Other income (expense),
net...................... (8) (178) (83) (53) (27)
-------- -------- -------- -------- --------
Income (loss) before
income taxes............. (1,308) 109 2,258 1,005 1,449
Income taxes.............. 21 268 867 386 245(1)
-------- -------- -------- -------- --------
Net income (loss)......... $ (1,329) $ (159) $ 1,391 $ 619 $ 1,204(1)
======== ======== ======== ======== ========
Net income (loss) per
share(2)................. $ (0.36) $ (0.04) $ 0.41 $ 0.17 $ 0.36(1)
Shares used in per share
calculation(2)........... 3,715 3,738 3,376 3,567 3,300
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------
ACTUAL AS ADJUSTED(3)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents..................................... $ 317 $21,809
Working capital.......................................... 4,020 27,724
Total assets............................................. 14,713 36,205
Short-term borrowings and long-term debt................. 2,945 150
Shareholders' equity..................................... 6,000 30,287
</TABLE>
- ----------
(1) The Company's effective tax rate for the six months ended June 30, 1996 was
affected by a one-time tax valuation allowance adjustment, which reduced
income tax expense and correspondingly increased net income for that period
by $312,000 or $0.09 per share. Without that adjustment, for the six months
ended June 30, 1996, income taxes would have been $557,000, net income
would have been $892,000 and net income per share would have been $0.27.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of shares used in computing net income (loss) per share.
(3) Adjusted to reflect the sale of 2,075,000 shares of Common Stock offered by
the Company hereby, at an assumed public offering price of $13.00 per share
and after deducting the estimated underwriting discount and offering
expenses, and the anticipated application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Underwriting."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
specific factors should be considered carefully by potential investors in
evaluating an investment in the shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in these forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those set forth in
the following risk factors and elsewhere in this Prospectus.
FLUCTUATIONS IN OPERATING RESULTS
Although the Company has sustained revenue growth and operating profits
before restructuring expenses for the last eight quarters, the Company's sales
and operating results have fluctuated on a quarterly basis and may do so in
future periods. The Company's operating results are affected by a number of
factors, many of which are beyond the Company's control. Factors contributing
to these fluctuations include the timing of the introduction and market
acceptance of new products or product enhancements by the Company and its
competitors, changes in pricing by the Company and its competitors, order
cancellation or deferral by a customer, the failure to receive an anticipated
order, the relatively long sales cycle for the Company's products to
government agencies, governmental budget constraints and the level of
government funding, the cost and delays in delivery of components and
subassemblies and delays in delivery of services by suppliers, unexpected
manufacturing and other difficulties, increased product development costs and
fluctuations in general economic conditions. The Company typically ships
products within a short time after receipt of an order and does not usually
have a significant backlog. As a result, backlog at any point in time is not a
good indicator of future net revenue, and net revenue for any particular
quarter cannot be predicted with any degree of accuracy. Accordingly, the
Company's expectations for both short- and long-term future net revenue are
based in large part on its own estimate of future demand and not on firm
customer orders. Expense levels are based, in part, on these estimates and,
since the Company is limited in its ability to reduce expenses quickly,
operating results would be adversely affected if orders and net revenue did
not meet expectations in a particular period. Due to all of the foregoing
factors, it is possible 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 would likely
be adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
FAILURE TO EXPAND CONSUMER MARKET
The Company's future success will depend upon, among other factors, its
ability to increase levels of consumer awareness of and demand for the
Company's products. The Company believes that only a very small percentage of
the available customer base for the Company's products currently own
electronic or computer-based assistive devices for visual impairment. The
Company has invested and is continuing to invest in advertising and
promotional campaigns to increase consumer awareness of and demand for its
products. There can be no assurance that such advertising and promotional
campaigns will be successful. If the Company failed to increase consumer
awareness of and demand for its products and failed to increase penetration of
the consumer market, or if the consumer market failed to grow or grows more
slowly than anticipated, the Company's business, financial condition and
results of operations would be materially adversely affected.
DEPENDENCE ON DEVELOPMENT OF NEW PRODUCTS AND PRODUCT ENHANCEMENTS
The Company's future success will depend upon, among other factors, its
ability to develop, manufacture, introduce and successfully achieve market
acceptance of new products and product enhancements. The extent and rate at
which market acceptance and penetration are achieved by future products is a
function of many variables, including price, features, reliability, marketing
and sales efforts, the development of new applications for these products,
competitive factors and general economic conditions affecting purchasing
patterns. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful
6
<PAGE>
development, introduction or marketing of new or enhanced products or that
such products will achieve market acceptance. The failure of the Company to
successfully develop and introduce new products or product enhancements would
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMPETITION
The Company competes worldwide with a number of manufacturers and
distributors of electronic and computer-based assistive devices for people
with severe visual disabilities. The Company's principal competitors based in
the United States include Optelec, Inc., HumanWare, Inc., Xerox Assistive
Technologies, a division of Xerox Corporation and Arkenstone, Inc. The
Company's principal competitors based outside the United States include Tieman
B.V., Alva B.V., Reinecker GmbH, Metec GmbH, Low Vision International, KGS,
and Pulse Data International. Most of these companies compete with the Company
on a worldwide basis, and some of these companies have substantially greater
financial and operating resources than the Company. There can be no assurance
that the Company's competitors will not develop enhancements to, or future
generations of, competitive products that offer superior price or features
than the Company's products. Furthermore, there is no assurance that other
companies will not develop and market alternative technological approaches for
meeting the needs of severely visually impaired and blind people. Some of the
Company's markets have low cost barriers to entry, and there can be no
assurance that other companies that are not currently competitors of the
Company will not enter the Company's markets.
In addition, the Company's competitors outside the United States have cost
structures and product prices based on foreign currencies. Accordingly,
currency fluctuations could cause the Company's dollar-priced products to be
less competitive than competitors' products priced in other currencies.
Currency fluctuations could also increase the Company's costs relative to
those of its competitors, which could make it more difficult for the Company
to maintain its competitiveness in such foreign markets. Additionally, certain
foreign countries that offer reimbursement for assistive devices favor local
manufacturers, which could limit the Company's ability to compete successfully
in those countries. Furthermore, the Company believes that a number of
companies may be currently researching and testing various medical treatments
and procedures to reduce the incidence of severe visual impairment or arrest
vision deterioration. In the event such treatments or procedures prove to be
effective, demand for the Company's products could be reduced, which would
have a material adverse effect on the Company's business, financial condition
and results of operations.
DEPENDENCE ON LIMITED SOURCES OF SUPPLY; MANUFACTURING RISKS
The Company's products have a large number of components produced by outside
suppliers. In certain instances the Company is dependent upon a sole supplier
or a limited number of suppliers, or has qualified only a single or limited
number of suppliers, for certain key components or sub-assemblies utilized in
its products. The Company's reliance on a limited group of suppliers, and
particularly on sole source suppliers, involves several risks, including the
potential inability to obtain an adequate supply of components and reduced
control over price and delivery time. Any prolonged inability to obtain
adequate deliveries could require the Company to pay more for components,
parts and other supplies, seek alternative sources of supply, delay shipment
of products and damage relationships with current and prospective customers.
Any such delay or damage could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company conducts substantially all of its manufacturing activities at
its leased facilities in Mountain View, California. The Company may experience
delays or technical and manufacturing difficulties in future product
introductions or in achieving volume production of new products or
enhancements to existing products. The Company may also incur substantial
unanticipated costs in connection with the development of new products or
product enhancements, such as greater-than-expected tooling costs and other
purchasing inefficiencies. In addition, the Company's Mountain View facility
is located in a seismically active area. A major catastrophe (such as an
earthquake or other natural disaster) could result in a prolonged interruption
of the Company's business. Any of the foregoing events could materially
adversely affect the Company's business, financial condition and results of
operations. See "Business -- Manufacturing."
7
<PAGE>
DEPENDENCE ON INTERNATIONAL SALES
The Company derives a substantial portion of its revenues from international
sales. In 1993, 1994, 1995 and the first six months of 1996, the Company's
international sales were $8.9 million, $8.8 million, $10.8 million and $6.9
million, or 33%, 32%, 35% and 40%, respectively, of net revenue. As a
consequence, the Company is subject to risks associated with international
sales, including fluctuations in foreign currency exchange rates, shipping
delays, generally longer receivables collection periods, changes in applicable
regulatory policies, international monetary conditions, domestic and foreign
tax policies, trade restrictions, duties and tariffs, and economic and
political instability. Each of these factors could have a significant impact
on the Company's ability to deliver products on a competitive, profitable and
timely basis. A substantial amount of the Company's international sales are
denominated in United States dollars. Accordingly, an increase in the value of
the United States dollar relative to various foreign currencies could make the
Company's products less competitive in foreign markets, or require the Company
to reduce its prices to remain competitive, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. For those international transactions denominated in local
currencies (both sales and purchases of components), trade receivables and
accounts payable arising from international operations may contribute to
fluctuations in the Company's operating results. Additionally, future
imposition of, or significant increases in the level of, customs duties,
import quotas or other trade restrictions, could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business -- Sales, Distribution and Marketing" and "--
Customer Service and Support."
DEPENDENCE ON INDEPENDENT DISTRIBUTORS
The Company is substantially dependent on the efforts of its independent
distributors and dealers for sales of its products and for customer service
and support. The Company's distribution and dealer agreements generally grant
exclusive territorial rights, exclusive market segment rights or some
combination thereof, and generally are terminable by either party on notice
periods ranging from three months to one year. In the event of a termination
of any such distributor or dealer relationship, there can be no assurance that
the Company could quickly find alternative distributors or dealers. In
addition, if a distributor or dealer terminates its relationship with the
Company and begins to distribute competitive products, the Company's ability
to compete in the former distributor or dealer's territory could be materially
adversely affected. Thus, the loss of one or more of the Company's
distributors or dealers could have a material adverse effect on the Company's
business, financial condition and results of operations. Additionally, the
Company has in the past extended significant amounts of trade credit to its
distributors and dealers, which, in one instance, was approximately $1,000,000
as of June 30, 1996. The failure of a distributor or dealer to repay trade
credits could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Sales,
Distribution and Marketing."
DEPENDENCE ON REFERRAL BUSINESS
As part of its mix of marketing strategies, the Company and its distributors
and dealers maintain close working relationships with many low vision clinics,
blindness service agencies, rehabilitation organizations, ophthalmologists,
optometrists, rehabilitation counselors or similar advisors to people with
visual problems. A significant amount of the Company's business is derived
from referrals from such people, organizations and agencies. Sometimes such
relationships are a matter of contract, but more often they are informal
relationships developed over an extended period of time. The Company's
competitors compete with the Company for such referral sources. The loss of
one or more of these referral sources could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Sales, Distribution and Marketing."
GOVERNMENT FUNDING AND REIMBURSEMENT
Historically, in the United States approximately 40% of the Company's
products have been purchased by institutions, agencies and other service
providers that are heavily dependent on federal, state and local
8
<PAGE>
government funding. In the United States, the purchase of the Company's
products is typically not covered by private health insurance or reimbursable
under Medicare or other publicly-funded insurance programs. However, federal
block grants, augmented by state funding, are generally available to state
rehabilitation and education agencies to purchase the Company's products. Many
other countries have social welfare systems that provide reimbursement for the
procurement of the Company's products. In recent years, primarily as a result
of budget constraints, the level of government funding has been subject to
wide fluctuations or cutback, which has resulted in the delay or cancellation
of orders and has had an adverse effect on the Company's business, financial
condition and results of operations. If government funding were to be reduced,
it would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Reimbursement and Third-
Party Payment."
ACQUISITIONS
The Company's business strategy includes seeking to acquire businesses that
would enable it to better meet the needs of its customers. The Company
acquired two of its international distributors in March 1996. The Company may
pursue additional acquisitions in the future. The Company is not currently
negotiating any potential acquisition, and there is no assurance that the
Company will be able to conclude any such transactions. Acquisitions involve
numerous risks, including difficulties in the assimilation of the acquired
company's employees, operations and products, uncertainties associated with
operating in new markets and working with new customers, the potential loss of
the acquired company's key employees and the costs associated with completing
the acquisition and integrating the acquired company. Furthermore, any future
acquisitions may result in potentially dilutive issuances of equity
securities, increased debt, cash payments and contingent liabilities and
amortization expense related to intangible assets acquired, any of which could
materially adversely affect the Company's business, financial condition and
results of operations. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
INTELLECTUAL PROPERTY AND RISK OF THIRD PARTY CLAIMS OF INFRINGEMENT
The Company has two issued patents, neither of which is believed to provide
significant protection against competition. There can be no assurance that
competitors, some of which have substantial resources and have made
substantial investments in competing technologies, will not seek to apply for
and obtain patents that will prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the United States or in
international markets. Furthermore, the laws of certain foreign countries do
not protect the Company's intellectual property rights to the same extent as
do the laws of the United States. Litigation or regulatory proceedings, which
could result in substantial cost and uncertainty to the Company, may also be
necessary to enforce intellectual property rights of the Company or to
determine the scope and validity of other parties' proprietary rights. One
competitor of the Company has claimed that the Company and several of the
Company's competitors are violating both a United States and a European patent
with respect to a function of the Company's PowerBraille product. The patent
holder has been making these claims for more than three years, but has not yet
filed any legal action against either the Company or, to the Company's
knowledge, against any other company with respect to their allegations of
patent infringement. The Company believes the claims are without merit and
intends to vigorously contest the allegations that it is infringing the
subject patent. However, there can be no assurance that the Company will be
able to successfully defend itself from this or any other allegation of
infringement or claims of invalidity. It is also possible that the Company may
need to acquire licenses to, or contest the validity of, issued or pending
patents of third parties relating to the Company's technology. There can be no
assurance that any of such licenses would be made available to the Company on
acceptable terms, if at all, or that the Company, if it were to contest the
validity of any issued or pending patents, would prevail. In addition, the
Company could incur substantial costs in defending itself in suits brought
against the Company on its patents or in bringing suits against third parties.
The Company primarily relies on trade secret or proprietary process
protection, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements with its employees and
consultants. There can be no assurance that the proprietary
9
<PAGE>
information or confidentiality agreements will not be breached, that the
Company will have adequate remedies for any breach, or that the Company's
trade secrets and proprietary know-how will not otherwise become known to or
be independently developed by others. Furthermore, there can be no assurance
that other companies with significantly greater financial resources will not
enter the Company's markets. See "Business -- Patent and Proprietary Rights."
DEPENDENCE ON KEY PERSONNEL
The Company's operating results depend to a significant extent upon the
continued service of a number of key executive, engineering, marketing, sales,
and technical personnel, particularly its Chairman, President and Chief
Executive Officer, Larry Israel. Except for the Company's Vice President,
European Operations, none of the Company's employees is subject to any
employment agreement. Consequently, most of the Company's employees may
voluntarily terminate their employment with the Company at any time.
Furthermore, the Company does not maintain key person life insurance policies
on any employee. The loss of the services of one or more of the Company's key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company also believes that
its future success will depend in large part on its ability to attract and
retain qualified personnel. The competition for such personnel is intense, and
the loss of such persons, as well as the failure to recruit additional
personnel in a timely manner, could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business-- Employees" and "Management -- Employment Contract."
GOVERNMENT REGULATION
In the United States, many of the Company's products are regulated as
medical devices by the Food and Drug Administration ("FDA") under the Federal
Food, Drug and Cosmetic Act. The Company's products are exempt from the 510(k)
premarket notification process. However, the Company is required to register
as a medical device manufacturer with the FDA and state agencies such as the
California Department of Health Services, to list its products with the FDA,
and to adhere to applicable FDA regulations regarding good manufacturing
practices ("GMPs"), which include testing, control and documentation
requirements. The Company is also regulated by the FDA under the Radiation
Control for Health and Safety Act, which requires companies who produce
electronic products to comply with certain standards, including design and
operation requirements, and to certify product labeling and submit reports to
FDA that their products comply with such standards. A failure of the Company
to comply with GMP or any other applicable requirement could result in the
issuance of warning letters, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production and criminal
prosecution, any one of which would have a material adverse effect on the
Company's business, financial condition and results of operations. Regulations
regarding the manufacture and sale of the Company's products are subject to
change and there can be no assurance that the Company's current or future
products will continue to be exempt from the 510(k) premarket notification
process. If the Company's products were to become subject to the 510(k)
premarket notification process, the Company could experience substantial cost
increases, including product development costs, as well as substantial delays
in new product introductions, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country,
including the "CE" mark, which is a symbol indicating that the product
complies with international safety standards and with applicable European
electronic device directives. The time required to obtain clearance or
approval for sale internationally may be longer or shorter than that required
for FDA clearance or approval, and the requirements may differ. Failure of the
Company to comply with international regulatory requirements could have an
adverse effect on the Company's ability to sell its products in these markets,
which would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Government
Regulation and Safety Requirements."
10
<PAGE>
MANAGEMENT OF GROWTH
The Company has recently experienced, and may continue to experience,
significant growth in the scope of its operating and financial systems. This
may result in additional responsibilities for many management and staff
personnel, and may place a significant strain on the Company's management,
operating and financial systems, and resources. To accommodate sustained
growth, compete effectively, and manage planned future growth, the Company may
be required to implement and improve operational, financial and management
information systems, procedures and controls. The Company's future success,
and maintenance of a sustained growth rate, will be heavily influenced by its
ability to undertake and manage these activities in a successful manner. The
Company's failures in these areas could have a material adverse effect on the
Company's business, financial condition and results of operations.
OWNERSHIP BY MANAGEMENT AND AFFILIATES; ANTI-TAKEOVER EFFECTS
Immediately following this Offering, assuming no exercise of the
Underwriters over-allotment option, the Company's executive officers,
directors and their affiliates will beneficially own approximately 19% of the
outstanding shares of the Company's Common Stock, including options held by
them that are exercisable within 60 days of June 30, 1996. As a result, such
persons, acting together, would have the ability to exercise significant
influence over all matters requiring shareholder approval, including the
election of directors and approval of significant corporate transactions. Such
concentration of ownership might have the effect of delaying or preventing a
change in ownership of the Company. In addition, the Board of Directors has
the authority to issue up to 5,000,000 shares of undesignated Preferred Stock
and to determine the powers, rights, preferences and restrictions granted to
or imposed upon any unissued series of undesignated Preferred Stock, and to
fix the number of shares constituting any series and the designation of such
series, without any further vote or action by the Company's shareholders. The
Preferred Stock could be issued with voting, liquidation, dividend and other
rights superior to the rights of the holders of Common Stock. The issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of delaying
or preventing a change in control of the Company, and may affect the market
price of the Common Stock, and the voting and other rights of the holders of
Common Stock. See "Principal and Selling Shareholders" and "Description of
Capital Stock."
NO PRIOR TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common Stock
of the Company, and there can be no assurance that an active trading market
will develop or be sustained after this Offering. The initial public offering
price will be determined through negotiations among the Company, the Selling
Shareholders and the Representatives of the Underwriters based on several
factors and may not be indicative of the market price of the Common Stock
after this Offering. See "Underwriting." The market prices for securities of
companies similar to the Company have been highly volatile. Announcements
regarding technological innovations or new commercial products by the Company
or its competitors, government regulations, or developments concerning
proprietary rights have historically had and are expected to continue to have,
a significant effect on the market prices of the stocks of similar companies.
The market price of the shares of Common Stock may be highly volatile and may
be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of
technological innovations, new products, or new contracts by the Company or
its competitors, developments with respect to copyrights or proprietary
rights, general market conditions or other factors. In addition, the stock
market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the Common
Stock of similar companies and that have often been unrelated to the operating
performance of particular companies. These broad market fluctuations may also
adversely effect the market price of the Company's Common Stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has occurred against the issuing company.
There can be no assurance that such litigation will not occur in the future
with
11
<PAGE>
respect to the Company. Such litigation could result in substantial costs and
a diversion of management's attention and resources, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Any adverse determination in such litigation could also
subject the Company to significant liabilities. See "Dilution" and "Shares
Eligible for Future Sale."
The Company has been advised by the Representatives that the Representatives
presently intend to make a market in the Common Stock offered hereby; however,
the Representatives are not obligated to do so, and any market making activity
may be discontinued at any time without notice. There can be no assurance that
an active public market for the Common Stock will develop and continue after
this Offering.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET
PRICE; DILUTION
Sales of substantial numbers of shares of Common Stock into the public
market after this Offering could adversely affect the prevailing market price
of the Common Stock. As of June 30, 1996 and after giving effect to the sale
of 2,075,000 shares of Common Stock by the Company and 625,000 shares of
Common Stock by the Selling Shareholders offered hereby, and the net exercise
of a warrant to purchase 118,269 shares of Common Stock, there were 5,085,091
shares of Common Stock outstanding, of which 2,385,091 are "restricted" shares
(the "Restricted Shares") under the Securities Act of 1933, as amended (the
"Securities Act"). Other than the 2,700,000 shares of Common Stock offered
hereby, shares of Common Stock will be eligible for immediate sale in the
public market as of the date of this Prospectus. Approximately shares of
Common Stock will become eligible for sale 90 days after the effective date of
this Prospectus (the "Effective Date") and approximately shares of Common
Stock will become eligible for sale 180 days after the Effective Date upon
expiration of certain lock-up agreements with Jefferies & Company, Inc.,
of which shares will be freely tradeable without regard to volume and other
restrictions under Rule 144. The Company intends to file a registration
statement covering the sale of 1,327,500 shares of Common Stock reserved for
issuance under its 1985 Incentive Stock Option Plan, 1993 Stock Plan, 1995
Stock Plan, and Employee Stock Purchase Plan. As of June 30, 1996, options to
purchase 623,494 shares of Common Stock were outstanding and 329,006 shares
were reserved for future issuance under the Company's stock plans. Subsequent
to June 30, 1996, the Company approved an increase in the number of shares
reserved for issuance under the 1995 Stock Plan of 250,000 and adopted the
Employee Stock Purchase Plan and reserved 125,000 shares of Common Stock for
issuance thereunder. Approximately shares of Common Stock subject to
outstanding options may be sold 180 days after the Effective Date upon
expiration of certain lock-up agreements with Jefferies & Company, Inc. The
initial public offering price is substantially higher than the net tangible
book value per share of the Company's Common Stock. Investors purchasing
shares of Common Stock in this Offering will therefore incur immediate and
substantial net tangible book value dilution. See "Dilution" and "Shares
Eligible for Future Sale."
MANAGEMENT DISCRETION OVER PROCEEDS OF THE OFFERING
The Company intends to use the net proceeds of this Offering to finance the
Company's planned growth, to repay outstanding indebtedness and for other
general corporate purposes, including working capital, marketing and product
development. A portion of the net proceeds may also be used for acquisitions
of complementary businesses and technologies, although the Company currently
has no agreements or commitments with respect to any such transactions.
Accordingly, the Company will have broad discretion as to the application of
such proceeds. An investor will not have an opportunity to evaluate the
economic, financial and other relevant information which will be utilized by
the Company in determining the application of such proceeds. See "Use of
Proceeds."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
being offered hereby, after deducting the underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$24.3 million ($29.2 million if the Underwriters' over-allotment option is
exercised in full) at an assumed offering price of $13.00 per share.
The Company intends to use the net proceeds of this Offering for (i) the
repayment of short-term borrowings that as of June 30, 1996 consisted of $1.7
million under its revolving line of credit, which bears interest at the bank's
prime rate plus 1.25% and expires on October 1, 1996 and long-term debt that
as of June 30, 1996 consisted of $0.2 million under two term loans, which bear
interest at the bank's prime rate plus 1.5% or at a fixed rate of 10%, and
approximately $0.9 million under a term loan due March 1999, which bears
interest at the bank's prime rate plus 1.5% and (ii) for general corporate
purposes including working capital; expenses incurred in connection with the
expansion of the Company's marketing and product development activities and
possible acquisitions of complementary businesses and products, or to obtain
the right to use complementary technologies, although no such acquisitions or
investments are being negotiated by the Company at the present time and there
can be no assurance that such acquisitions or investments will be made.
Pending the use of the net proceeds for the above purposes, the Company
intends to invest such funds in United States government securities or other
investment-grade securities, including short-term, interest-bearing money
market funds. The Company will not receive any of the proceeds from the sale
of Common Stock by the Selling Shareholders. See "Principal and Selling
Shareholders."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate doing so in the foreseeable future. The Company
currently intends to retain its earnings for use in the operation of the
business. In addition, the Company's current credit agreements with its
domestic bank prohibit the payment of cash dividends on its capital stock
without the bank's prior written consent. See Note 7 of Notes to Consolidated
Financial Statements.
13
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 30, 1996 (i) on a historical basis and (ii) as adjusted to give effect
to the receipt of the net proceeds from the sale of 2,075,000 shares of Common
Stock offered by the Company hereby at an assumed offering price of $13.00 per
share and after deducting the underwriting discount and estimated offering
expenses payable by the Company, and as adjusted to give effect to the
issuance of 118,269 shares of Common Stock issuable upon the net exercise of
all outstanding warrants.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and equivalents........................................ $ 317 $21,809
====== =======
Short-term borrowings and current portion of long-term
debt....................................................... $2,237 $ 25
====== =======
Long-term debt.............................................. $ 708 $ 125
------ -------
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized, none issued
and outstanding, actual and as adjusted.................. -- --
Common stock; 10,000,000 shares authorized, 2,891,822
shares issued and outstanding, actual; 5,085,091 shares
issued and outstanding, as adjusted(1)................... 58 102
Additional paid-in capital................................ 3,314 27,557
Accumulated translation adjustment........................ 13 13
Retained earnings......................................... 2,615 2,615
------ -------
Total shareholders' equity.............................. 6,000 30,287
------ -------
Total capitalization.................................... $6,708 $30,412
====== =======
</TABLE>
- ----------
(1) Excludes (a) 623,494 shares of Common Stock issuable upon the exercise of
stock options outstanding as of June 30, 1996, at a weighted average
exercise price of $2.98 per share. See "Management -- Stock and Employee
Benefit Plans" and Note 9 of Notes to Consolidated Financial Statements.
14
<PAGE>
DILUTION
At June 30, 1996, the pro forma net tangible book value of the Company was
$4,211,000, or approximately $1.40 per share of outstanding Common Stock. "Pro
forma net tangible book value per share" represents the Company's
shareholders' equity, less intangible assets of $1,789,000 for the excess of
purchase costs over net assets of businesses, Sensory Systems Limited and
Teletec SARL, acquired in March 1996, and a covenant not to compete, divided
by 3,010,091 actual shares of Common Stock outstanding as of June 30, 1996,
including shares of Common Stock issued in connection with the exercise of
outstanding warrants upon the closing of this Offering.
Net pro forma tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the Offering made hereby and the pro forma net tangible book value
per share of Common Stock immediately after completion of this Offering. After
giving effect to the sale by the Company of 2,075,000 shares of Common Stock
in this Offering at an assumed initial offering price of $13.00 per share,
after deduction of underwriting discounts and commissions and estimated
offering expenses, the pro forma tangible book value of the Company as of June
30, 1996 would have been $28,497,750 or approximately $5.60 per share. This
represents an immediate increase in pro forma net tangible book value of $4.20
per share to existing shareholders and an immediate dilution in pro forma net
tangible book value of $7.40 per share to purchasers of Common Stock in the
Offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $13.00
Pro forma net tangible book value per share before this
Offering................................................... $1.40
Increase per share attributable to sale of Common Stock in
this Offering.............................................. 4.20
Pro forma net tangible book value per share after this
Offering..................................................... 5.60
------
Dilution per share to new investors........................... $ 7.40
======
</TABLE>
The following table summarizes at June 30, 1996, the number of shares of
Common Stock sold by the Company, the total consideration paid to the Company
and the average price per share paid by the existing shareholders and by the
new investors purchasing shares of Common Stock in this Offering at an assumed
initial public offering price of $13.00 per share, before deducting the
estimated underwriting discount and offering expenses payable by the Company.
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED (1) CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders....... 3,010,091 59% $ 2,672,000 9% $ 0.89
New investors............... 2,075,000 41 26,975,000 91 $13.00
--------- --- ----------- ---
Total................... 5,085,091 100% $29,647,000 100%
========= === =========== ===
</TABLE>
- ----------
(1) Sales by the Selling Shareholders in this Offering will reduce the number
of shares of Common Stock held by existing shareholders to 2,385,091
shares or 47% of the total number of shares of Common Stock to be
outstanding after this Offering, and will increase the number of shares
held by new investors to 2,700,000 shares, or approximately 53% of the
total number of shares of Common Stock to be outstanding after this
Offering (approximately 57% if the Underwriters' over-allotment option is
exercised in full). See "Principal and Selling Shareholders."
The foregoing tables assume no exercise of outstanding options after June
30, 1996 and include the pro forma effects of the issuance of 118,269 shares
of Common Stock pursuant to the net exercise of all outstanding warrants. As
of June 30, 1996, there were outstanding options to purchase 623,494 shares of
Common Stock. To the extent that such options are exercised, there will be
further dilution to new investors. See "Management --Director Compensation,"
"-- Stock and Employee Benefit Plans," and Note 9 of Notes to Consolidated
Financial Statements.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the Company for the
years ended December 31, 1993, 1994, and 1995 have been derived from and are
qualified by reference to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus, which have been audited by Deloitte &
Touche LLP, independent auditors. The consolidated statement of operations
data set forth below for the years ended December 31, 1991 and 1992 have been
derived from the Company's audited financial statements not included herein.
The selected consolidated financial data for the six months ended June 30,
1995 and 1996 are unaudited but have been prepared on a basis substantially
consistent with the audited consolidated financial statements and, in the
opinion of management, such unaudited consolidated financial statements
contain all adjustments (which consist only of normal recurring adjustments)
necessary to present fairly the financial position and results of operations
of the Company as of such dates and for such periods. This selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue:
Low Vision
Products(1)........... -- -- $18,184 $19,143 $21,719 $ 10,902 $ 12,013
Blindness
Products(1)........... -- -- 8,899 8,445 8,952 4,415 5,227
------- ------- ------- ------- ------- -------- --------
Net revenue........... $30,122 $29,677 27,083 27,588 30,671 15,317 17,240
Cost of revenue......... 15,664 16,250 14,697 15,332 16,670 8,455 9,770
------- ------- ------- ------- ------- -------- --------
Gross profit.......... 14,458 13,427 12,386 12,256 14,001 6,862 7,470
------- ------- ------- ------- ------- -------- --------
Operating expenses:
Product development.... 2,538 3,020 2,876 2,617 2,286 1,170 1,134
Sales, general and
administrative........ 10,272 11,016 10,303 9,020 9,374 4,634 4,860
Restructuring(2)....... -- -- 507 332 -- -- --
------- ------- ------- ------- ------- -------- --------
Total operating
expenses............ 12,810 14,036 13,686 11,969 11,660 5,804 5,994
------- ------- ------- ------- ------- -------- --------
Operating income
(loss)................. 1,648 (609) (1,300) 287 2,341 1,058 1,476
Other income (expense),
net.................... (306) 45 (8) (178) (83) (53) (27)
------- ------- ------- ------- ------- -------- --------
Income (loss) before
income taxes........... 1,342 (564) (1,308) 109 2,258 1,005 1,449
Income taxes (benefit).. 280 (84) 21 268 867 386 245(3)
------- ------- ------- ------- ------- -------- --------
Net income (loss)....... $ 1,062 $ (480) $(1,329) $ (159) $ 1,391 $ 619 $ 1,204(3)
======= ======= ======= ======= ======= ======== ========
Net income (loss) per
share(4)............... $ 0.26 $ (0.13) $ (0.36) $ (0.04) $ 0.41 $ 0.17 $ 0.36(3)
Shares used in per share
calculation(4)......... 4,015 3,596 3,715 3,738 3,376 3,567 3,300
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents........ $ 1,259 $ 1,413 $ 1,198 $ 423 $ 169 $ 317
Working capital............. 5,614 5,506 4,210 3,685 3,362 4,020
Total assets................ 13,843 13,055 10,881 10,921 11,044 14,713
Short-term borrowings and
long-term debt............. 74 2,231 1,618 1,787 1,896 2,945
Shareholders' equity........ 6,844 6,016 4,101 4,004 3,914 6,000
</TABLE>
- ----------
(1) Separate revenue reporting for Low Vision Products and Blindness Products
prior to 1993 is not available.
(2) Reflects the 1993 and 1994 headquarter and international subsidiary
restructuring expenses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(3) The Company's effective tax rate for the six months ended June 30, 1996
was affected by a one-time tax valuation allowance adjustment, which
reduced income tax expense and correspondingly increased net income for
that period by $312,000 or $0.09 per share. Without that adjustment, for
the six months ended June 30, 1996, income tax expense would have been
$557,000, net income would have been $892,000 and net income per share
would have been $0.27.
(4) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of shares used in per share calculation.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of operations and financial condition of
Telesensory should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. 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 in the Section entitled "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
Telesensory Corporation develops, manufactures and markets electronic and
computer-based products to assist people with severe visual disabilities to
achieve greater independence and privacy. The Company is the leading provider
of such products in North America, and one of the two leading companies
worldwide. The Company makes video magnifiers and other electronic and
computer-based assistive devices for people who are severely visually impaired
and various braille-related and other electronic and computer-based assistive
devices for those who are totally blind or without useable light perception.
Telesensory was founded in 1970. In the early 1970s Telesensory pioneered
the application of technology to serve the needs of blind individuals. During
the same period, another company serving visually disabled people, Visualtek,
Inc. ("VTEK"), pioneered the use of video magnifiers to serve the needs of
severely visually impaired individuals. In 1989 the Company acquired VTEK.
During 1993, the Company discontinued its direct sales subsidiaries in
Germany, Austria and France, introduced a cost-reduction program and
restructured certain operating activities in the United States. In 1994, the
Company discontinued its manufacturing operations in Ireland and following a
management change undertook further restructuring activities in the United
States with the intention of reducing costs and increasing overall
efficiencies. These cost reduction measures resulted in restructuring charges
in 1993 and 1994. In March 1996, the Company acquired Sensory Systems Limited
("SSL") located in the United Kingdom and its wholly-owned subsidiary Teletec
SARL ("Teletec") located in France, which strengthened the Company's
international operations. All of the Company's products are now manufactured
in its Mountain View, California facility.
The Company's net revenue is derived from sales of its Low Vision Products
and Blindness Products, which include sales of OEM components, and to a lesser
extent, from service and support activities. The Company operates in one
market segment. Net revenue from product sales is generally recognized at the
time of shipment, net of allowances or discounts. In the United States, the
Company's Low Vision Products are sold to independent distributors and dealers
who resell to end-user customers, and the Company generally markets its
Blindness Products directly to the end-user. In the United Kingdom and France,
the Company sells its Low Vision and Blindness Products directly to the end-
user through its wholly-owned subsidiaries SSL and Teletec. In all other
countries, the Company generally sells its Low Vision Products and Blindness
Products through independent distributors. Sales to United States and
international distributors are made on open credit terms or letters of credit
and generally are not subject to a right of return. The Company believes that
distributors generally carry minimal inventory. Sales of the Company's
products in international markets are currently denominated in United States
dollars. International sales are subject to a variety of risks. See "Risk
Factors -- Dependence on International Sales." The Company believes that its
sales are not materially affected by seasonality.
Cost of revenue consists primarily of the cost of components and
subassemblies, completed products, royalties, assembling, packaging and
testing components and software at the Company's facility, and the direct
labor and overhead associated therewith. Cost of service and support consists
of expenses related directly to service, support and training activities.
Product development costs consist primarily of costs of engineering personnel.
The Company employs a staff of engineers which is dedicated to the development
of new products and the improvement of existing products. Product development
costs are expensed as incurred. Sales, general and administrative costs
consist primarily of costs of personnel, sales commissions, travel,
advertising and promotion, facilities, legal, accounting, insurance and the
company-wide profit sharing plan. Except for facility and insurance costs,
these items are not allocated to other departments within the Company.
17
<PAGE>
Although the Company has sustained revenue growth and operating profits
before restructuring expenses for the last eight quarters, the Company's sales
and operating results have fluctuated on a quarterly basis and may do so in
future periods. The Company's operating results are affected by a number of
factors, many of which are beyond the Company's control. Factors contributing
to these fluctuations include the timing of the introduction and market
acceptance of new products or product enhancements by the Company and its
competitors, changes in pricing by the Company and its competitors, order
cancellation or deferral by a customer, the failure to receive an anticipated
order, the relatively long sales cycle for the Company's products to
government agencies, governmental budget constraints and the level of
government funding, the cost and delays in delivery of components and
subassemblies and delays in delivery of services by suppliers, unexpected
manufacturing and other difficulties, increased product development costs and
fluctuations in general economic conditions.
RESULTS OF OPERATIONS
The following table sets forth selected operations data of the Company
expressed as a percentage of net revenue for the periods indicated below:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
--------------------- ------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenue............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue........................ 54.3 55.6 54.4 55.2 56.7
----- ----- ----- ----- -----
Gross profit......................... 45.7 44.4 45.6 44.8 43.3
----- ----- ----- ----- -----
Operating expenses:
Product development.................. 10.6 9.5 7.4 7.6 6.6
Sales, general and administrative.... 38.0 32.7 30.6 30.3 28.2
Restructuring........................ 1.9 1.2 -- -- --
----- ----- ----- ----- -----
Total operating expenses........... 50.5 43.4 38.0 37.9 34.8
----- ----- ----- ----- -----
Operating income (loss)................ (4.8) 1.0 7.6 6.9 8.5
Other income (expense), net............ -- (0.6) (0.3) (0.3) (0.1)
----- ----- ----- ----- -----
Income (loss) before income taxes...... (4.8) 0.4 7.3 6.6 8.4
Income taxes........................... 0.1 1.0 2.8 2.6 1.4(1)
----- ----- ----- ----- -----
Net income (loss)...................... (4.9)% (0.6)% 4.5% 4.0% 7.0%(1)
===== ===== ===== ===== =====
</TABLE>
- --------
(1) The Company's effective tax rate for the six months ended June 30, 1996
was affected by a one-time tax valuation allowance adjustment, which
reduced income taxes and correspondingly increased net income for that
period by $312,000 or 1.8% of net revenue. Without that adjustment, for
the six months ended June 30, 1996, income taxes would have been $557,000
or 3.2% of net revenue and net income would have been $892,000 or 5.2% of
net revenue.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Net Revenue. Net revenue for the six months ended June 30, 1996 was $17.2
million, an increase of $1.9 million or 12.6% from $15.3 million for the six
months ended June 30, 1995. In April 1996, the Company began sales operations
through its newly acquired distribution subsidiaries, SSL and Teletec in
Europe. These distribution subsidiaries contributed an incremental $0.6
million in net revenue in the second quarter of 1996. Low Vision Products
sales for the six months ended June 30, 1996 were $12.0 million, an increase
of $1.1 million or 10.2% from $10.9 million for the six months ended June 30,
1995. This increase was primarily attributable to the 18% unit volume increase
in sales of video magnifiers to 6,436 units in the first six months of 1996
from 5,467 in the first six months in 1995, offset by a decrease in the
average selling price. The average selling price decreased due to increased
sales of the Aladdin product line, which has a lower average selling price
than its predecessor, and the transition from employee sales personnel to
independent distributors for Low
18
<PAGE>
Vision Products, which began in the first six months of 1995. The affect of
the decrease in average selling price was offset by a decrease in selling,
general and administrative expense relating to fewer employee sales personnel.
Blindness Products sales for the six months ended June 30, 1996 were $5.2
million, a $0.8 million or 18.4% increase from $4.4 million for the six months
ended June 30, 1995. This increase in Blindness Products sales was due
primarily to an increase in international sales. The Company had international
sales of $6.9 million and $5.3 million in the first six months of 1996 and
1995, respectively, representing 40.3% and 34.9% of the Company's net revenue
in the first six months of 1996 and 1995, respectively.
Gross Profit. Gross profit for the six months ended June 30, 1996 was $7.5
million, an increase of $0.6 million or 8.9% from $6.9 million for the six
months ended June 30, 1995. Gross margin decreased to 43.3% in the first six
months of 1996 from 44.8% for the first six months of 1995 primarily due to
lower average selling prices resulting from the transition from employee sales
personnel to independent distributors for Low Vision Products discussed above.
The decrease in gross profit resulting from this transition was offset by a
decrease in sales, general and administrative expense relating to fewer
employee sales personnel.
Product Development. Product development expense for the six months ended
June 30, 1996 was $1.1 million, a decrease of $0.1 million or 3.1% from $1.2
million for the six months ended June 30, 1995, representing 6.6% and 7.6% of
net revenue, respectively. The lower product development expense for the first
six months of 1996 was due primarily to more effective utilization of
development resources.
Sales, General and Administrative. Sales, general and administrative expense
was $4.9 million for the six months ended June 30, 1996, an increase of $0.3
million or 4.9% from $4.6 million for the six months ended June 30, 1995. This
increase was due primarily to increased Low Vision Products marketing expenses
associated with the radio advertising program implemented in the first six
months of 1996, offset by the transition from employee sales personnel to
independent distributors discussed above. Sales, general and administrative
expense represented 28.2% and 30.3% of net revenue in the first six months of
1996 and 1995, respectively.
Income Taxes. Income taxes were $0.2 million for the six months ended June
30, 1996, a decrease of $0.2 million or 36.5% from $0.4 million for the six
months ended June 30, 1995. The Company's effective tax rates were 16.9% and
38.4% for the first six months of 1996 and 1995, respectively. The Company's
effective tax rate in 1996 was approximately 23.2% lower than the combined
statutory rate resulting primarily from a one-time tax valuation adjustment of
$0.3 million and the Company's foreign sales corporation.
Net Income. Net income was $1.2 million for the six months ended June 30,
1996, an increase of $0.6 million from $0.6 million for the six months ended
June 30, 1995. Net income expressed as a percentage of sales was 7.0% and 4.0%
in the six months ending June, 1996 and 1995, respectively. Excluding the one-
time tax valuation adjustment mentioned above, the Company would have had net
income of $0.9 million for the six months ended June 30, 1996, and net income
expressed as a percentage of net revenue would have been 5.2%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Revenue. Net revenue for the year ended December 31, 1995 was $30.7
million, an increase of $3.1 million or 11.2% from $27.6 million for the year
ended December 31, 1994. Low Vision Products sales for the year ended December
31, 1995 were $21.7 million, an increase of $2.6 million or 13.5% from $19.1
million for the year ended December 31, 1994. This increase was primarily
attributable to a 53% unit volume increase in sales of video magnifiers to
11,091 units in 1995 from 7,256 in 1994 offset by a decrease in the average
selling price. The increase in units sold and decrease in average selling
price reflected the transition from employee sales personnel to independent
distributors for Low Vision Products begun in 1995 and the introduction of the
Aladdin product line in September 1994. The Aladdin is a highly innovative,
advanced video magnifier, which has a lower average selling price than its
predecessor. Blindness Products sales for the year ended December 31, 1995
were $9.0 million, an increase of $0.6 million or 6.0% from $8.4 million for
the year ended December 31, 1994. This
increase was primarily attributable to an increase in unit sales of
refreshable braille devices and braille cells. The Company had international
sales of $10.8 million and $8.8 million in 1995 and 1994, respectively
representing 35.1% and 31.8% of the Company's net revenue in 1995 and 1994,
respectively.
19
<PAGE>
Gross Profit. Gross profit for the year ended December 31, 1995 was $14.0
million, an increase of $1.7 million or 14.2% from $12.3 million for the year
ended December 31, 1994. Gross margin increased to 45.6% in 1995 from 44.4% in
1994 primarily due to higher margins on the Aladdin product line and economies
of scale from higher volume manufacturing, which were offset in part by lower
average selling prices due to the transition from employee sales personnel to
independent distributors for Low Vision Products.
Product Development. Product development expense for the year ended December
31, 1995 was $2.3 million, a decrease of $0.3 million or 12.6% from $2.6
million for the year ended December 31, 1994, representing 7.4% and 9.5% of
net revenue, respectively. The decrease in product development expense from
1994 to 1995 was due primarily to the completion of the development of the
Aladdin during 1994 and more effective utilization of development resources in
1995.
Sales, General and Administrative. Sales, general and administrative expense
was $9.4 million for the year ended December 31, 1995, an increase of $0.4
million or 3.9% from $9.0 million for the year ended December 31, 1994. This
increase was due primarily to the costs associated with the implementation of
a company-wide profit sharing plan, partially offset by the transition to
independent distributors for Low Vision Products. Sales, general and
administrative expense accounted for 30.6% and 32.7% of net revenue in 1995
and 1994, respectively.
Income Taxes. Income taxes were $0.9 million for the year ended December 31,
1995, an increase of $0.6 million or 223.5% from $0.3 million for the year
ended December 31, 1994. The Company's effective tax rates were 38.4% and
245.9% in 1995 and 1994, respectively. The Company's effective tax rate in
1995 was approximately 1.7% lower than the combined statutory rate resulting
primarily from the Company's foreign sales corporation. The 1994 effective tax
rate differs from the combined statutory rate due primarily to the tax impact
resulting from the closure of its international subsidiaries and its
operations in Ireland.
Net Income. Net income was $1.4 million for the year ended December 31,
1995, an increase of $1.6 million from $(0.2) million for the year ended
December 31, 1994. Net income (loss) expressed as a percentage of net revenue
was 4.5% and (0.6)% in 1995 and 1994, respectively.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net Revenue. Net revenue for the year ended December 31, 1994 was $27.6
million, an increase of $0.5 million or 1.9% from $27.1 million for the year
ended December 31, 1993. Low Vision Products sales for the year ended December
31, 1994 were $19.1 million, an increase of $0.9 million or 5.3% from $18.2
million for the year ended December 31, 1993. This increase was primarily
attributable to a 17% unit volume increase in sales of video magnifiers to
7,256 units in 1994 from 6,194 in 1993 offset by a decrease in the average
selling price, reflecting the introduction of the Aladdin product line in
September 1994. Blindness Products sales for the year ended December 31, 1994
were $8.4 million, a decrease of $0.5 million or 5.1% from $8.9 million for
the year ended December 31, 1993. This decrease was attributable to reduced
unit sales volumes in most Blindness Products categories due to increased
competition and the delayed release of the Company's PowerBraille product
line. The Company had international sales of $8.8 million and $8.9 million in
1994 and 1993, respectively, representing 31.8% and 33.0% of the Company's net
revenue in 1994 and 1993, respectively.
Gross Profit. Gross profit for the year ended December 31, 1994 was $12.3
million, a decrease of $0.1 million or 1.0% from $12.4 million for the year
ended December 31, 1993. Gross margin decreased to 44.4% in 1994 from 45.7% in
1993 due primarily to a decrease in average selling prices of refreshable
braille products as well as an increase in product manufacturing costs
associated with the introduction of the Aladdin in September 1994.
Product Development. Product development expense for the year ended December
31, 1994 was $2.6 million, a decrease of $0.3 million or 9.0% from $2.9
million for the year ended December 31, 1993, representing 9.5% and 10.6% of
net revenue, respectively. The decrease in product development expense in from
1993 to 1994 was due primarily to the completion of the development of the
Aladdin during 1994, coupled with cost-savings associated with the
reorganization of the product development departments.
20
<PAGE>
Sales, General and Administrative. Sales, general and administrative expense
was $9.0 million for the year ended December 31, 1994, a decrease of $1.3
million or 12.5% from $10.3 million for the year ended December 31, 1993. This
decrease reflected completion of the amortization relating to the VTEK
acquisition in 1989 and efficiencies achieved as a result of the corporate
restructuring. Sales, general and administrative expense accounted for 32.7%
and 38.0% of net revenue in 1994 and 1993, respectively.
Restructuring. The Company had $0.3 million and $0.5 million of
restructuring charges in 1994 and 1993, respectively. The restructuring
charges in 1994 related to the discontinuation of the Company's manufacturing
and warehousing facility in Ireland and staff reductions at its corporate
headquarters in the United States. These charges were offset in part by a
foreign currency adjustment relating to the valuation of the assets in United
States dollars. The restructuring charges in 1993 related to discontinuing its
German, French and Austrian direct sales subsidiaries and staff reductions in
Europe and the United States.
Income Taxes. Income taxes were $0.3 million for the year ended December 31,
1994, an increase of $0.2 million from approximately $21,000 for the year
ended December 31, 1993. The Company's effective tax rates were 245.9% and
(1.6)% in 1994 and 1993, respectively. The Company's effective tax rate in
1993 differed from the combined statutory rate due to foreign withholding
taxes on royalty revenue.
Net Loss. The Company had a net loss of $0.2 million for the year ended
December 31, 1994, an increase of $1.1 million from $1.3 million for the year
ended December 31, 1993. Net loss expressed as a percentage of net revenue was
0.6% and 4.9% in 1994 and 1993, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash generated from operating
activities and borrowings under its bank line of credit and term loans.
Net cash provided from operations totaled $0.5 million and $1.7 million in
1994 and 1995 respectively. The $1.2 million increase in net cash provided by
operations was primarily due to the improved operating results in 1995 as
compared to 1994. Net cash provided from operations for the first six months
of 1996 totaled $1.0 million, versus $1.2 million for the first six months of
1995. The decrease of $0.2 million of net cash provided from operations was
primarily due to the funding of working capital in connection with the
acquisition of SSL and Teletec in March of 1996.
Net cash used in investing activities in each of 1994 and 1995 was
approximately $0.6 million, and was used primarily for the acquisition of
equipment and improvements. In the first six months of 1996, the Company used
$2.1 million for investing activities versus $0.2 million for the first six
months of 1995. For the first six months of 1996, the Company used $1.8
million of net cash for the acquisition of SSL and Teletec and $0.3 million
for the acquisition of equipment and improvements.
Net cash used in financing activities in 1994 and 1995, consisted of $0.4
million and $1.4 million, respectively, primarily for the repayment of funds
previously borrowed under the Company's bank line of credit and repurchase of
the Company's Common Stock. In the first six months of 1996, $1.2 million of
net cash provided by financing activities consisted primarily of borrowing
under the Company's bank line of credit and term loans for the purpose of
funding the Company's acquisition of SSL and Teletec and proceeds from the
issuance of the Company's Common Stock. At June 30, 1996, the Company had $2.2
million of short-term borrowings and current portion of long-term debt, and
$0.7 million of long-term debt outstanding.
At June 30, 1996, the Company's primary sources of liquidity included cash
and equivalents of $0.3 million and available bank borrowings of $1.8 million
under its secured line of credit which bears interest at the bank's prime rate
plus 1.25% and expires on October 1, 1996. At June 30, 1996, $1.7 million was
outstanding under this line of credit. The Company has three term loans which
bear interest at the bank's prime rate plus 1.50% or at a fixed 10% rate and
expire between April 1998 and March 1999. At June 30, 1996, $1.1 million was
21
<PAGE>
outstanding under the term loans. The Company's current bank borrowings are
subject to certain financial covenants including maintenance of minimum levels
of quick ratio, tangible net worth and working capital and maintenance of
maximum levels of the ratio of debt to total net worth, as well as quarterly
net income, and debt service coverage requirements. In addition, the Company
is prohibited from paying dividends without the consent of the bank under the
terms of the agreements. The Company believes that the net proceeds of this
Offering, together with its current cash balances, its credit facility, and
net cash provided by operating activities, will be sufficient to meet its
working capital and capital expenditure requirements for at least the next
twelve months. See "Use of Proceeds."
22
<PAGE>
BUSINESS
GENERAL
Telesensory, founded in 1970, develops, manufactures and markets innovative
electronic and computer-based products to assist people with severe visual
disabilities to achieve greater independence and privacy. The Company is the
leading provider of such products in North America, and one of the two leading
companies worldwide. The Company makes video magnifiers and other electronic
and computer-based assistive devices for people who are severely visually
impaired (the "Low Vision Products") and various braille-related and other
electronic and computer-based assistive devices for those who are totally
blind or without useable light perception (the "Blindness Products").
Low Vision Products accounted for 71% of Company net revenue in 1995. Low
Vision Products consist of video magnifiers and computer screen magnification
systems, which provide a range of magnification, enhanced contrast and field
of view. In 1994, the Company introduced the Aladdin, a highly innovative,
advanced video magnifier. In 1995, the Aladdin won the American Society of
Aging's Gold Award for outstanding product design for mature consumers.
Primarily as a result of the introduction of the Aladdin, unit sales of video
magnifiers increased 53% in 1995, to 11,091 units, and increased 18% in the
first half of 1996 as compared to the first half of 1995. The Company believes
that its sales of video magnifiers, in both units and dollars represented
approximately 55% of the market in the United States in 1995 and significantly
exceeded comparable figures for its competitors.
Blindness Products accounted for 29% of Company net revenue in 1995. The
principal product line consists of refreshable computer-controlled braille
displays that enable blind persons to operate personal computers. Other
products include optical character reading systems with synthesized speech or
braille output, and braille printers. The Company believes that it is one of
the top three manufacturers worldwide in the majority of its Blindness
Products.
INDUSTRY BACKGROUND
Severe visual impairment is defined by the National Center for Health
Statistics as the inability to read ordinary newspaper print even when wearing
glasses or contact lenses. People with such impairments also have difficulty
with daily activities such as reading mail and prescription bottles, balancing
checkbooks, viewing photographs and working with small objects. The number of
people in the United States who are severely visually impaired is estimated at
4.3 million. A much smaller population, estimated at 100,000 in the United
States, is either totally blind or lacks useable light perception. Populations
in other developed countries are believed to exhibit similar rates of visual
impairment. Age-related macular degeneration, which has no known cure, is the
leading cause of visual impairment and currently affects 20% of individuals
over age 65. Other leading causes of visual impairment and blindness include
diabetes and glaucoma.
Working at Stanford University, Telesensory's founders developed an optical-
to-tactile converter called the Optacon, which allowed totally blind people to
read print material. During the same period, VTEK pioneered the use of video
magnifiers for people with severe visual impairment. During a period when
there was little available to technologically assist visually disabled people,
and well before recent legislation such as the ADA, the two companies
significantly enhanced the educational and work opportunities and the private
lives of many tens of thousands of blind and visually impaired people around
the world. In 1989, the Company acquired VTEK.
Historically, a majority of electronic and computer-based assistive devices
were purchased by government agencies and large institutions, including
federal and state rehabilitation agencies as well as schools, universities and
public libraries whose purchases were primarily funded through government
grants. However, the Company believes that recent trends in the United States
are leading to the development of a consumer market that does not rely on
government funding to purchase assistive devices.
23
<PAGE>
Disabled people, including those who are visually disabled, are increasingly
seeking to participate fully in workplace, recreational and other daily
activities enjoyed by non-disabled people. In addition, there is an increasing
number of elderly people who experience visual impairment but nevertheless
wish to remain active and independent, and have the means to purchase
assistive devices. In turn, modern society has become more aware of the need
to enhance the quality of lives of disabled people. For example, the ADA
mandates that public facilities and services be accessible to disabled people,
including visually impaired people. The Company believes that these trends
have led to a growing demand for devices to assist visually disabled people.
These trends, combined with reductions in the cost of electronic and computer
technology, are spurring the growth of a consumer market of corporations and
individuals who are financially able to purchase assistive devices without
government assistance.
Despite these trends, the Company believes that only a small percentage of
visually impaired people are familiar with or own electronic access devices.
For example, the Company estimates that annual unit sales of all electronic
and computer-based magnification systems in the United States are made to less
than 0.5% of the 4.3 million people who are severely visually impaired. The
development of stronger consumer demand has been limited by a lack of public
awareness, scarcity of retail outlets offering such devices, the relatively
small proportion of ophthalmologists and optometrists who are familiar with
such devices and previous higher costs for such devices.
BUSINESS STRATEGY
The Company's goal is to be the market leader in the development,
manufacture and marketing of electronic and computer-based assistive devices
for visually impaired individuals. The Company's strategies to reach this goal
include the following:
Expand the Consumer Market for Electronic and Computer-Based Assistive
Devices. The Company's primary strategy is to promote the growth of consumer
markets for its products by increasing consumer awareness and by reducing the
cost of assistive devices. The Company has recently launched a consumer-
directed advertising and promotion campaign, including a radio campaign that
was test marketed in the first quarter of 1996. The Company is increasing the
number of independent distributors and dealers of its products, expanding
distribution through private-label merchandising, increasing the retail
channels for its products and enhancing its relationships with its referral
sources. The Company also believes that lower prices increase the number of
consumers able and willing to purchase assistive devices and increases the
willingness of optometrists and other referral sources to promote assistive
devices to consumers. In 1994, the Company introduced the first high quality,
easy-to-use video magnifier with a retail price of less than $2,000, which it
believes has contributed to a significant increase in unit shipments to
consumers. The Company will continue to seek to develop and introduce lower-
price versions of leading products.
New Product Development. The Company believes that its ability to maintain
market leadership depends upon the continued development of new products. In
1995, the Company spent approximately $2.3 million in product development
activities, which in 1996 resulted in the completion of the Aladdin family of
video magnifiers, the introduction of Super Vista a hardware-based
magnification system compatible with Windows 95, and a variety of product
enhancements and upgrades in the Blindness Products area. The Company intends
to dedicate significant resources to develop new products.
Reduce Manufacturing Costs. The Company seeks to be the lowest cost producer
in each of its major product areas in order to increase its marketing
flexibility. Accordingly, since the Company's restructuring in 1994, the
Company has dedicated significant resources to reduce its manufacturing costs.
Cost-reduction efforts have included product tooling, product redesign and the
implementation of a continuous flow production line. The Company intends to
continue seeking new ways to reduce manufacturing costs.
Pursue Strategic Acquisitions and Alliances. The Company believes that
fragmentation in the visual assistive devices market offers strategic
opportunities to expand the Company's product lines and distribution
24
<PAGE>
channels. The Company recently acquired its distributors in the United Kingdom
and France. The Company intends to continue to pursue acquisitions and
strategic alliances that strengthen the Company's competitive position within
its markets. However, the Company is not currently negotiating any potential
acquisition or strategic alliance, and there is no assurance that the Company
will be able to successfully conclude any such transactions.
Develop New Applications for the Company's Products. The Company believes
that its video magnifier products have applications beyond their traditional
uses for visually impaired individuals. The Company has initiated a program to
explore the application of its video magnifiers to the industrial inspection
market for use in examining small parts for quality control, process
inspection, training and other purposes. The Company will continue to seek
similar opportunities.
PRODUCTS
The Company's innovative electronic and computer-based products help
visually impaired and blind people achieve greater independence and privacy.
The Company's product line is comprised of Low Vision Products and Blindness
Products.
LOW VISION PRODUCTS
Video Magnifiers. The Company's Aladdin family of video magnifiers uses
closed circuit television technology to magnify printed and written material
and small objects from 3x to 50x on a television monitor. Video processing
circuitry enhances viewability of the enlarged image by providing a variety of
contrasts and an improved field of view. The Company introduced the first
Aladdin in September 1994 to replace one of the Company's existing video
magnifier products. The Aladdin family is now comprised of six models:
Aladdin, Aladdin Pro, Aladdin Pro Plus, Aladdin Rainbow, Aladdin Genie and
Aladdin XL. All of the models provide magnification, image enhancement, image
selection and a movable viewing table to facilitate reading large or heavy
materials. The products are available in both monochrome or color, a variety
of magnification ranges and adjustments and other image enhancement features.
Some models can be used in combination with personal computers. The suggested
U.S. retail prices for the Aladdin products range from $1,795 to $3,800. In
1995, the Company sold 11,091 video magnifiers, including both Aladdin and its
predecessor products, representing a 53% increase in units compared with 1994
and followed by an 18% increase in unit sales in the first six months of 1996
over unit sales in the first six months of 1995. The Company estimates that in
1995 it had approximately 55% of the domestic market for video magnifiers.
Computer Display Magnification. Super Vista is a proprietary, hardware-based
PC display magnification system, which works with a variety of computers,
networks and software applications, including Windows 95. Super Vista provides
up to 16x magnification of text and graphics on the monitor without
significantly impairing the performance of the underlying application, or
interfering with normal keyboard or operating platform functions. The
suggested U.S. retail price is $2,495.
BLINDNESS PRODUCTS
Refreshable Braille Display. The Company's PowerBraille (PB) family of
products convert character information from a PC into electronic braille,
which can then be read by the user on a braille display device attached to the
computer as a peripheral. PowerBraille displays operate in virtually any PC-
compatible computer environment, instantly transforming screen information
into 8-dot refreshable braille, using braille cells. The PowerBraille products
are available in 40, 65 or 80 cell linear displays. The PB40 is battery-
powered for portability and is designed to work with laptop personal
computers. The PB65 and PB80 are designed primarily for desktop PCs and
terminals. Suggested U.S. retail prices range from $6,000 to $11,000.
Braille Cells. Braille cells are small arrays of eight pins that can be
electronically raised and lowered by a computer allowing a blind person to
read the character information. The Company utilizes arrays of such cells in
its PowerBraille family of refreshable braille devices and also sells
significant quantities of such cells to other manufacturers who incorporate
the cells into their own products.
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Optical Character Recognition (OCR) Systems. The Company's OsCaR product is
a specialized screen navigation software product that permits a blind user to
access printed documents. Once a document has been scanned into a computer
using a commercial flatbed scanner, OsCaR enables a blind user to read, edit,
print or retransmit that information using one of the Company's braille output
or speech output products, including a braille embosser. The suggested U.S.
retail price exclusive of the scanner is $995.
Software Programs. ScreenPower for Windows is a software program that
provides tactile and audio access to Microsoft Windows and most commercial
applications running under Windows. This integrated software package operates
in conjunction with a numeric keypad and braille display to allow users to
navigate through graphically-oriented screens. The suggested U.S. retail price
is $995.
Braille Embossers. Braille embossers are mechanical peripheral devices that
produce raised dots on paper using a feed mechanism much like many ordinary
computer printers. The Company offers two versions of braille embossers: a
single-sided version and a double-sided version that embosses simultaneously
at speeds up to 60 characters per second on both sides of the paper. The
suggested U.S. retail prices for the Company's embossers range from $3,000 to
$4,000.
Library Access Products. Variations of the Company's screen enlarger and
speech output products, named VView and VVoice, are sold to library equipment
suppliers of electronic catalog access systems. Those suppliers incorporate
these products into their public-access catalog systems so that visually
impaired and totally blind library patrons can have effective and equal access
to the library's catalog system.
PRODUCT DEVELOPMENT
The Company's engineering and product development activities are performed
by its 22 person product development staff. There are separate product
development groups for the Company's Low Vision Products and Blindness
Products, each of which is comprised of one department manager, one or more
section managers, engineering professionals, and technical and administrative
support staff. In addition, the Company's product development efforts are
supplemented by consultants, designers and engineering firms with specialized
expertise.
The Company's expenditures in 1995 for engineering and product development
totaled approximately $2.3 million, which represented 7.4% of revenues. The
Company has a history of successful product innovation, including the Aladdin
family of video magnifiers and the Super Vista and PowerBraille product lines.
The Company intends to dedicate significant resources to product development
for the foreseeable future. However, there can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction or marketing of new or enhanced products
or that such products will achieve market acceptance.
CUSTOMERS
Currently, more than 90% of the Company's net revenue is derived from sales
to the Company's worldwide distributors and dealers. No single customer,
distributor or dealer accounts for more than 10% of the Company's net revenue.
In the United States, a growing percentage of the Company's Low Vision
Products sales, estimated at approximately 55%, are made directly and through
its distributors and dealers to employers and individuals who purchase the
Company's products with their own funds or whose family members purchase the
Company's products for them. The balance of the Company's Low Vision Products
sales in the United States are made primarily to traditional purchasers of
products for visually impaired individuals, including various government
agencies and institutions, schools and universities, libraries and screening
clinics. Because of the growing importance of the consumer market segment, the
Company has devoted increasing attention to consumer-oriented marketing
initiatives, including radio advertising. There is no assurance that these
marketing activities will be successful. See "Risk Factors -- Failure to
Expand Consumer Market."
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Blindness Products sales both in the United States and internationally are
made primarily to the same traditional purchasers who purchase Low Vision
Products, including various government agencies and institutions, schools and
universities, libraries and screening clinics.
In 1995, international sales represented approximately 35% of net revenue.
The division between government and private sector purchases of both LowVision
Products and Blindness Products varies from country to country.
Approximately 8% of the Company's total net revenue is derived from sales of
its products to OEMs, which purchase the Company's products for use in
finished goods of their own design and manufacture or who purchase the
Company's finished products under private-label arrangements. In certain
cases, the Company's OEM customers manufacture products that compete with the
Company's products.
SALES, DISTRIBUTION AND MARKETING
The Company believes that it has the largest worldwide distributor and
dealer network of any company marketing assistive devices to severely visually
impaired people.
For distribution of its Low Vision Products, the Company utilizes a network
of approximately 110 United States and 30 international distributors and
dealers, of which two are owned by the Company (in the U.K. and France) and
the rest are independent. This distributor network is managed by seven
employee sales managers who assist the independent distributors and dealers in
their sales and marketing activities. The Company's distributors and dealers
are generally assigned exclusive territorial rights or exclusive market
rights, subject to various contractual limitations.
For distribution of its Blindness Products in the United States, the Company
utilizes a combination of six employee salespeople and approximately 37
independent non-exclusive dealers. The employee salespeople sell the Company's
products to customers directly and also offer sales and marketing assistance
to the Company's independent dealers. Internationally, the Company generally
distributes its Blindness Products through the same exclusive distributors who
handle the Company's Low Vision Products.
The Company's distribution agreements are generally terminable by either
party on three to 12 months notice. A majority of the Company's distributors
and dealers have distributed the Company's products for more than five years.
The Company believes that its long-standing relationships with its
distributors, together with the marketing experience gained by these
distributors over the years, have significantly contributed to the Company's
success.
As part of its mix of marketing strategies, the Company and its dealers and
distributors maintain close working relationships with many low vision
clinics, blindness service agencies, rehabilitation organizations,
ophthalmologists, optometrists and others who are service providers,
rehabilitation counselors or similar advisors to people with visual problems.
A significant amount of the Company's business is derived from referrals from
such people, organizations and agencies. A loss of a significant number of
these collaborative relationships or the loss of one or more distributors or
dealers could adversely affect sales of the Company's products, which would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Many of the Company's marketing activities are aimed at stimulating end-user
demand. These include active trade-show participation on a national level and
support to local distributors for regional and local exhibitions. The Company
publishes a variety of periodical publications that provide information about
products, prices and other matters for consumers, rehabilitation professionals
and the Company's field sales representatives. Toll-free numbers provide
visually impaired clients as well as rehabilitation professionals with free
access to Company staff for product information, order information and
technical support. Print advertising is very limited, because many of the
Company's prospective customers are unable to read print media, but the
Company has a major program in place for local-market radio advertising for
its Low Vision Products. Much of
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the Company's product literature, periodical publications and user manuals for
Blindness Products are available on computer disk, in braille, on audio
cassette, and in print.
CUSTOMER SERVICE AND SUPPORT
The Company believes that because of its size and status as one of the
world's two largest manufacturers of electronic and computer-based assistive
devices for visually impaired people, the Company is able to provide a level
of marketing and service that cannot be matched by its smaller competitors.
In the United States, the Company conducts training programs at the
Company's facilities for new distributors supplemented by follow-up meetings
with the Company's regional sales managers. The Company also maintains a
customer support department to handle inquiries and questions regarding its
products, and a technical service department that either directs a customer to
a nearby field service center or repairs or replaces defective products. There
are approximately 35 field service centers across the country for Low Vision
Products. Most equipment service for Blindness Products is conducted at the
Company's headquarters. In the United States, all of the Company's products
are covered by limited warranties ranging from one to five years and a 30-day
unconditional money-back guarantee. International distributors are required to
develop and maintain an appropriately-stocked equipment service and repair
facility. Products are usually shipped to these distributors with an "out-of-
box" warranty only, which covers costs of repair required immediately upon
delivery. Thereafter, warranty obligations to the distributors' customers are
solely the functional and economic responsibility of the international
distributors.
COMPETITION
The Company competes on the basis of several factors, including product
features, price, customer service and support and the strength of its
relationships with its referral sources.
The Company competes worldwide with a number of manufacturers and
distributors of electronic and computer-based assistive devices for people
with severe visual disabilities. The Company's principal competitors based in
the United States include Optelec, Inc., HumanWare, Inc., Xerox Assistive
Technologies, a division of Xerox Corporation and Arkenstone, Inc. The
Company's principal competitors based outside the United States include Tieman
B.V., Alva B.V., Reinecker GmbH, Metec GmbH, Low Vision International, KGS and
Pulse Data International.
Most of these companies compete with the Company on a worldwide basis, and
some of these companies have substantially greater financial and operating
resources than the Company. There can be no assurance that the Company's
competitors will not develop enhancements to, or future generations of,
competitive products that offer superior price or features than the Company's
products. Furthermore, there is no assurance that other companies will not
develop and market alternative technological approaches for meeting the needs
of severely visually impaired and blind people. Some of the Company's markets
have low cost barriers to entry, and there can be no assurance that other
companies that are not currently competitors of the Company will not enter the
Company's markets. In addition, the Company's competitors outside the United
States have cost structures and product prices based on foreign currencies.
Accordingly, currency fluctuations could cause the Company's dollar-priced
products to be less competitive than competitors' products priced in other
currencies. Currency fluctuations could also increase the Company's costs
relative to those of its competitors, which could make it more difficult for
the Company to maintain its competitiveness in such foreign markets.
Additionally, certain foreign countries that offer reimbursement for assistive
devices favor local manufacturers, which could limit the Company's ability to
compete successfully in those countries. Furthermore, the Company believes
that a number of companies may be currently researching and testing various
medical treatments and procedures to reduce the incidence of severe visual
impairment or arrest vision deterioration. In the event such treatments or
procedures prove to be effective, demand for the Company's products could be
reduced, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
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MANUFACTURING
All of the Company's manufacturing operations are located in its facilities
in Mountain View, California. Manufacturing consists of assembly of components
and subcomponents, and final product testing. The components that the Company
purchases include electronic, mechanical, plastic and optical parts, the great
majority of which have been designed exclusively for the Company. Where
feasible, subassemblies such as circuit boards are assembled by contract
manufacturers. In certain instances the Company is dependent upon a sole
supplier or a limited number of suppliers, or has qualified only a single or
limited number of suppliers, for certain key components or sub-assemblies
utilized in its products. This involves certain risks to the Company. See
"Risk Factors -- Dependence on Limited Sources of Supply; Manufacturing
Risks."
In 1995 the Company implemented a continuous flow manufacturing process for
its video magnifiers, which significantly increased the Company's
manufacturing capacity, reduced cycle time and lowered manufacturing costs.
Consequently, the Company believes that its existing manufacturing facilities
are adequate to handle at least three times current production volumes.
PATENTS AND PROPRIETARY RIGHTS
The Company has two issued patents, neither of which is believed to provide
significant protection against competition. There can be no assurance that
competitors, some of which have substantial resources and have made
substantial investments in competing technologies, will not seek to apply for
and obtain patents that will prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the United States or in
international markets. Furthermore, the laws of certain foreign countries do
not protect the Company's intellectual property rights to the same extent as
do the laws of the United States. Litigation or regulatory proceedings, which
could result in substantial cost and uncertainty to the Company, may also be
necessary to enforce intellectual property rights of the Company or to
determine the scope and validity of other parties' proprietary rights. One
competitor of the Company has claimed that the Company and several of the
Company's competitors are violating both a United States and a European patent
with respect to a function of the Company's PowerBraille product. The patent
holder has been making these claims for more than three years, but has not yet
filed any legal action against either the Company or, to the Company's
knowledge, against any other company with respect to their allegations of
patent infringement. The Company believes the claims are without merit and
intends to vigorously contest the allegations that it is infringing the
subject patent. However, there can be no assurance that the Company will be
able to successfully defend itself from this or any other allegation of
infringement or claims of invalidity. It is also possible that the Company may
need to acquire licenses to, or contest the validity of, issued or pending
patents of third parties relating to the Company's technology. There can be no
assurance that any of such licenses would be made available to the Company on
acceptable terms, if at all, or that the Company, if it were to contest the
validity of any issued or pending patents, would prevail. In addition, the
Company could incur substantial costs in defending itself in suits brought
against the Company on its patents or in bringing suits against third parties.
The Company primarily relies on trade secret or proprietary process
protection, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements with its employees and
consultants. There can be no assurance that the proprietary information or
confidentiality agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets and
proprietary know-how will not otherwise become known to or be independently
developed by others. Furthermore, there can be no assurance that other
companies with significantly greater financial resources will not enter the
Company's markets.
GOVERNMENT REGULATION AND SAFETY REQUIREMENTS
In the United States, many of the Company's products are regulated as
medical devices by the FDA under the Federal Food, Drug and Cosmetic Act. The
Company's products, are exempt from the 510(k) premarket
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<PAGE>
notification process. However, the Company is required to register as a
medical device manufacturer with the FDA and state agencies such as the
California Department of Health Services, to list its products with the FDA
and to adhere to applicable FDA regulations regarding good manufacturing
practices ("GMPs"), which include testing, control and documentation
requirements. The Company is also regulated by the FDA under the Radiation
Control for Health and Safety Act, which requires companies who produce
electronic products to comply with certain standards, including design and
operation requirements, and to certify product labeling and submit reports to
FDA that their products comply with such standards. A failure of the Company
to comply with GMP or any other applicable requirement, could result in the
issuance of warning letters, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production and criminal
prosecution, any one of which would have a material adverse effect on the
Company's business, financial condition and results of operations. Regulations
regarding the manufacture and sale of the Company's products are subject to
change, and there can be no assurance that the Company's current or future
products will continue to be exempt from the 510(k) premarket notification
process. If the Company's products were to become subject to the 510(k)
premarket notification process, the Company could experience substantial cost
increases, including product development costs, as well as substantial delays
in new product introductions, which could have a material adverse effect on
the Company's business, financial condition and results of operations.
Sales of medical devices outside of the United States are subject to
international regulatory requirements that vary from country to country. The
time required to obtain clearance or approval for sale internationally may be
longer or shorter than that required for FDA clearance or approval, and the
requirements may differ. The Company has obtained the certifications necessary
to enable the "CE" mark to be affixed to the Company's products that are sold
in Europe, effective January 1996. The CE mark is a symbol indicating that the
product complies with international safety standards and with applicable
European electronic device directives. All Company products sold in Europe
will also conform with the Low Voltage Directive requirement, which is
effective January 1997.
REIMBURSEMENT AND THIRD-PARTY PAYMENT
In the United States, the purchase of the Company's products is typically
not covered by private health insurance or reimbursable under Medicare or
other publicly-funded insurance programs. However, federal block grants,
augmented by state funding, are generally available to state rehabilitation
and education agencies to purchase the Company's products and there is also
some support from corporate employers, who purchase assistive devices for
employees. European insurance programs are generally much more comprehensive
than United States programs and will often provide reimbursement for the
procurement of the Company's products for rehabilitation, education and
personal use.
A significant portion of the Company's net revenue is derived from sales to
institutions and agencies that are dependent on government funding. In recent
years, primarily as a result of budget constraints, the level of government
funding has been subject to wide fluctuations, which has had an adverse effect
on the Company's business, financial condition and results of operations. If
government funding were to be reduced in the future, it would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors -- Government Funding and Reimbursement."
EMPLOYEES
As of June 30, 1996, the Company and its subsidiaries had 179 full-time
employees, including 69 in manufacturing operations, 63 in sales and
marketing, 22 in product development and 25 in finance and administration. Six
of the Company's employees are blind or severely visually impaired. Of the
Company's employees, 20 are located in Europe. The Company also employs from
time to time a number of temporary and part-time employees as well as
consultants on a contract basis. The Company's future success will depend in
part on its ability to attract, train, retain and motivate highly qualified
employees, who are in great demand. There can be no assurance that the Company
will be successful in attracting and retaining such personnel. The Company's
employees are not represented by any collective bargaining organization and
the Company has not
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experienced a work stoppage or strike. The Company considers its employee
relations to be good. See "Risk Factors -- Dependence on Key Personnel" and
"-- Management of Growth."
FACILITIES
The Company leases approximately 68,000 square feet in two adjacent
buildings in Mountain View, California 94043 under a five-year lease, which
expires in December 1997. These facilities serve as the Company's headquarters
and include all Company functions except international distribution.
Sensory Systems, Ltd, the Company's wholly-owned United Kingdom subsidiary,
leases approximately 3,100 square feet in London, England, under a ten-year
lease, which expires in June 2003. SSL's obligations under the lease are
guaranteed by the Company.
Teletec SARL, the Company's wholly-owned French subsidiary, leases
approximately 1,500 square feet in Paris, France under a nine-year lease,
which expires in April 2002.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company as of June 30, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Larry Israel............... 56 President, Chief Executive Officer and Chairman
of the Board
Robert W. Kamenski......... 41 Chief Financial Officer, Vice President, Finance
and Administration, Treasurer and Secretary
Yakov Soloveychik.......... 49 Vice President and General Manager, Blindness
Products Division, and Assistant Secretary
Marc J. Stenzel............ 45 Vice President and General Manager, Low Vision
Products Division
John F. Tillisch........... 44 Vice President, European Operations
Timothy S. Couture......... 40 Vice President, Engineering, Low Vision Products
Division
Ronald C. Odell............ 38 Vice President, Operations, Low Vision Products
Division
Mitchell Gooze (2)......... 44 Director
John F. Harper (1)......... 46 Director
Seymour Liebman (2)........ 46 Director
John M. Lillie (1)......... 59 Director
John G. Linvill............ 76 Director
Peter D. Stent (2)......... 53 Director
</TABLE>
- ----------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee.
Larry Israel has been President and Chief Executive Officer of the Company
since July 1995. In June 1996 he was elected Chairman of the Board of
Directors. Prior to holding these positions, he served as the Company's Vice
President, Sales and Marketing from January 1994 to July 1995 and Vice
President, Sales from July 1993 to January 1994. Mr. Israel founded VTEK in
1971. VTEK was acquired by the Company in January 1989, at which time he
became a member of the Company's Board of Directors. Between July 1989 and
July 1993 Mr. Israel did not maintain full-time employment. Mr. Israel holds a
B.S. in Electrical Engineering from Worcester Polytechnic Institute and a J.D.
from Golden West University, and is an active member of the California Bar.
Robert W. Kamenski has been the Company's Chief Financial Officer and Vice
President, Finance and Administration since December 1995. From February 1995
to December 1995, he served as the Company's Vice President, Finance and
Accounting. From July 1992 until February 1995, he served as the Company's
Controller. From October 1990 to February 1992, he held various positions at
Tandem Computers, a computer manufacturer, most recently as Manager of
Financial Planning and Analysis. Mr. Kamenski holds a B.A. in Accounting from
the University of Wisconsin-Milwaukee and is a member of the American
Institute of Certified Public Accountants.
Yakov Soloveychik returned to the Company in September 1994 as Vice
President and General Manager, Blindness Products Division. He was Vice
President Operations of VTEK at the time of the merger in 1989, and continued
with the Company for approximately one year thereafter as Vice President
Engineering and New Product Development. From 1990 to September 1994, Mr.
Soloveychik served as President and Chief Executive Officer of AccessAbility
Technologies, Inc., the U.S. distributor for Baum Products GmbH, a German
manufacturer of electronic and computer-based assistive products for blind
people. Mr. Soloveychik holds an M.S.E.E. in Electrical Engineering from Riga
Polytechnic Institute, Latvia.
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Marc J. Stenzel has been with the Company since 1985 in a variety of
positions, most recently as Vice President and General Manager, Low Vision
Products Division. From July 1994 to March 1996, he served as the Company's
Vice President, Sales and Marketing. From October 1993 to July 1994 he served
as a National Sales Manager, and from August 1991 to October 1993 he served as
a National Account Manager for the Company. Mr. Stenzel holds a B.A. in
Psychology and Management and Accounting from the State University of New York
at Buffalo.
John F. Tillisch became Vice President, European Operations in April 1996.
Prior to that, Mr. Tillisch was the sole shareholder and Managing Director of
Sensory Systems, Ltd. for thirteen years. Mr. Tillisch holds a B.A. in French
and Russian from Keele University, England.
Timothy S. Couture has been Vice President, Engineering, Low Vision Products
Division since August 1994. He joined the Company in September 1991 as an
Electronic Design Manager and then served as Director of Product Development
from July 1992 to February 1993 and Director of Engineering from February 1993
to August 1994. Mr. Couture holds an A.S. Degree in Electronics from Foothill
College.
Ronald C. Odell has been the Company's Vice President, Operations, Low
Vision Products Division, since July 1994. Mr. Odell has held a variety of
positions within the Company including Director of Manufacturing for both Low
Vision Products and Blindness Products from February 1993 to July 1994 and
Director of Production Control from 1991 to 1993. From 1985 through the merger
of VTEK with the Company in 1989, Mr. Odell held various positions with VTEK.
Mitchell Gooze has been a director of the Company since 1995. Since 1991, he
has served as President of The OMT Group, a marketing and sales consulting
firm based in Santa Clara, California. Mr. Gooze holds a B.S. in Engineering
from the University of California at Los Angeles in 1973.
John F. Harper has been a director of the Company since 1995. He is
currently the President and Chief Executive Officer of Indigo Medical, a
medical device company in Palo Alto, California. From February 1994 to June
1995 he was the President and Chief Executive Officer of Menlo Care, Inc., a
medical device company. From June 1991 to February 1994 he served as Vice
President, Sales and Marketing of Menlo Care, Inc. Mr. Harper received a B.A.
in Economics from Davidson College in 1971.
Seymour Liebman has been a director of the Company since 1993. Since 1974,
he has held a variety of positions with Canon U.S.A., Inc., a manufacturer of
consumer electronics and a subsidiary of Canon Inc., most recently as
Executive Vice President and General Counsel. He is also a director of Zygo
Corporation, a public company. Mr. Liebman holds a B.A. in Mathematics from
Hofstra University, an M.S. in Mathematics from Rutgers University, an M.A. in
Accounting from C.W. Post and a J.D. from Touro Law School.
John M. Lillie became a director of the Company in 1996. Since May 1996, he
has served as Chairman of the Board of Specialized Bicycle Components in
Morgan Hill, California, a designer and distributor of bicycles and
accessories. From August 1990 to October 1995, he held various positions with
American President Companies, a containerized freight transporter, most
recently as its Chairman of the Board and Chief Executive Officer. Mr. Lillie
is also on the Board of Directors for The GAP Inc. and Von's Inc., both public
companies. Mr. Lillie holds a B.S. and an M.S. in Industrial Engineering and
an M.B.A. from Stanford University. Mr. Lillie also serves on Stanford
University's Board of Trustees.
John G. Linvill is a co-founder of the Company, and has served as a director
of the Company since its inception. He was Chairman of the Board from 1984 to
June 1996, at which time he became Chairman Emeritus. Since 1991, he has
served as a director on the board of Read-Rite Corporation, a public company.
Since 1955, he has been a member of the Stanford University faculty, currently
as Professor of Engineering, Emeritus. He was Chairman of the Electrical
Engineering Department and later Director of the Center for Integrated Systems
at Stanford University. Dr. Linvill received a B.S. in Mathematics and Physics
from William Jewell College and an S.c.D in Electrical Engineering from the
Massachusetts Institute of Technology.
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<PAGE>
Peter D. Stent has been a director of the Company since 1993. Since 1983, he
has managed investments as a General Partner at Rubicon Ventures, a venture
capital firm. Mr. Stent holds an M.A. in Agricultural Economics and Business
Administration from the University of California at Berkeley and a B.A. in
Range Management from the University of California at Davis.
DIRECTOR COMPENSATION
Until June 1996, each non-employee member of the Company's Board of
Directors was granted an annual non-qualified stock option pursuant to the
Company's 1985 Stock Plan, or more recently the Company's 1995 Stock Plan, to
purchase 6,000 shares of the Company's Common Stock as partial consideration
for services as a director, with periodic vesting over a five year period.
Pursuant to a policy of the Board of Directors adopted in June 1996, each
non-employee director will automatically be granted a nonstatutory stock
option under the Company's 1995 Stock Plan to purchase 10,000 shares of Common
Stock on the date which such person first becomes a non-employee director and
an option to purchase 2,500 shares of the Company's Common Stock on the date
such non-employee director is re-elected to the Board, provided that such non-
employee director became a member of the Board prior to January 1 of the year
in which such director is reelected. See "--Stock and Employee Benefit Plans."
Each non-employee director also receives cash compensation at the rate of
$800 for each Board meeting attended in person, $400 for each committee
meeting attended in person, and half of these rates for Board or committee
meetings attended telephonically.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company and administers various incentive compensation and
benefit plans. The Compensation Committee consists of Messrs. Gooze, Liebman
and Stent. Mr. Stent serves as Chairman of the Compensation Committee. There
are no interlocking relationships, as described by the Securities and Exchange
Commission, between the Compensation Committee members.
34
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal year ended December 31, 1995
compensation awarded to, paid to or earned by (i) the Company's Chief
Executive Officer and (ii) the Company's four most highly compensated
executive officers whose salary and bonus exceeded $100,000 during the fiscal
year ended December 31, 1995 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- -------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(1)(#) (2)($)
--------------------------- ---------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Larry Israel
President and Chief Executive
Officer...................... 198,810 231,601 125,000 5,160
Yakov Soloveychik
Vice President and General
Manager, Blindness Products
Division..................... 131,728 39,890 18,750 250
Marc J. Stenzel
Vice President and General
Manager, Low Vision Products
Division..................... 116,731 43,426 12,500 5,447
Ronald C. Odell
Vice President, Operations,
Low Vision Products
Division..................... 96,990 38,220 12,500 5,535
Timothy S. Couture
Vice President, Engineering,
Low Vision Products
Division..................... 101,888 39,241 12,500 6,700
</TABLE>
- --------
(1) Represents options granted pursuant to the 1985 Incentive Stock Option
Plan and the 1993 Stock Option Plan. See description under "Stock and
Employee Benefit Plans."
(2) The amounts described hereunder were paid by the Company for premiums on
group term life insurance and medical and dental insurance.
35
<PAGE>
STOCK OPTION GRANTS
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the fiscal year ended December
31, 1995. All such options were awarded under the Company's 1985 Incentive
Stock Option Plan, except for the options granted to Mr. Israel, which were
awarded under the 1993 Stock Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN PER EXPIRATION ----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2)(%) SHARE(3)($) DATE 5%($) 10%($)
- ---- ------------- ----------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Larry Israel............ 125,000(5) 30.84 2.64 3/22/00 52,884 153,153
Yakov Soloveychik....... 18,750 4.63 2.40 3/10/05 28,300 71,718
Marc J. Stenzel......... 12,500 3.08 2.40 3/10/05 18,867 47,812
Ronald C. Odell......... 12,500 3.08 2.40 3/10/05 18,867 47,812
Timothy S. Couture...... 12,500 3.08 2.40 3/10/05 18,867 47,812
</TABLE>
- --------
(1) The stock options granted in the fiscal year ended December 31, 1995
pursuant to the 1985 Incentive Stock Option Plan are exercisable at a rate
of 3% per month, with full vesting occurring thirty-three months after the
date of grant. Under the 1985 Incentive Stock Option Plan, the Board
retains the discretion to modify the terms, including the price, of
outstanding options.
(2) Based on an aggregate of 405,369 options granted by the Company during the
year ended December 31, 1995 to non-employee directors, employees of and
consultants to the Company, including the Named Executive Officers.
(3) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board of Directors on
the date of grant, except options granted to Larry Israel, which were
granted at an exercise price of 110% of the fair market value on the date
of grant.
(4) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the option term.
These numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth.
(5) The stock options granted to Mr. Israel are exercisable at the following
rate: In 1995, 3,473 shares become exercisable each month until such time
as 31,253 shares have vested; in 1996, 3,473 shares become exercisable
each month until such time as 36,473 shares have vested; in 1997, 3,473
shares become exercisable each month until such time as 37,878 shares have
vested and in 1998, 3,473 shares become exercisable each month until all
shares under the option grant have become exercisable.
36
<PAGE>
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information regarding the exercise of
stock options by the Named Executive Officers during the fiscal year ended
December 31, 1995 and stock options held as of December 31, 1995 by the Named
Executive Officers.
OPTION EXERCISES IN FISCAL 1995 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1995(#) DECEMBER 31, 1995($)(2)
ON EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry Israel............ 2,750 0 37,553 95,323 389,044 987,541
Yakov Soloveychik....... -- -- 11,363 22,388 120,443 237,308
Marc J. Stenzel......... -- -- 10,550 13,825 111,830 146,545
Ronald C. Odell......... -- -- 7,425 13,825 78,705 146,545
Timothy S. Couture...... 6,000 0 9,625 9,125 102,025 96,725
</TABLE>
- --------
(1) Market value of underlying securities at date of exercise less the
exercise price.
(2) Based on a value of $13.00 per share, the assumed initial public offering
price, less the per share aggregate option price shown in the option grant
table, multiplied by the number of shares underlying the option.
EMPLOYMENT AGREEMENT
SSL entered into an employment agreement with John F. Tillisch in March 1996
in connection with the Company's acquisition of SSL. Mr. Tillisch's agreement
extends through March 1999 and provides that he will initially serve as SSL's
Managing Director. The agreement establishes his salary at (Pounds)70,000 for
the first year after the effective date of the agreement, (Pounds)73,000 for
the second year and (Pounds)77,000 for the third year, subject to an annual
adjustment upward at the discretion of SSL. The agreement also provides that
SSL will pay Mr. Tillisch a bonus equal to one-third of the excess of pre-tax
income of SSL over (Pounds)322,500 in each of the fiscal years ending December
31, 1996, December 31, 1997 and December 31, 1998, up to an aggregate total
bonus of (Pounds)225,800.
STOCK AND EMPLOYEE BENEFIT PLANS
1985 Incentive Stock Option Plan. The Company's 1985 Incentive Stock Option
Plan (the "1985 Plan") was adopted by the Board of Directors and approved by
the shareholders in 1985. The 1985 Plan expired in March 1995. The 1985 Plan
provides for the grant to employees (including officers and employee
directors) of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, and the grant of nonstatutory stock
options to employees (including officers), directors and consultants. As of
June 30, 1996, options to purchase 202,500 shares of Common Stock at a
weighted average exercise price of $2.41 per share were outstanding. The
exercise price of all incentive stock options granted under the 1985 Plan must
be at least equal to the fair market value of the shares on the date of grant.
Generally, options granted to employees and consultants under the 1985 Plan
vest and become exercisable at a rate of 3% of the shares subject to the
option per month. No further grants of stock options may be made under the
1985 Plan.
1993 Stock Option Plan. The Company's 1993 Stock Option Plan (the "1993
Plan") was adopted by the Board of Directors in June 1993 and approved by the
shareholders in August 1993. The purposes of the 1993 Plan are to attract and
retain the best available senior executive officers and to promote the success
of the Company's business. Options granted under the 1993 Plan may be either
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended, or non-statutory stock options, at the discretion of the
Board. Options may be granted only to the Chief Executive Officer, President
and any Vice President
37
<PAGE>
reporting directly to the Chief Executive Officer or the President and
Secretary of the Company. A total of 250,000 shares of Common Stock have been
reserved for issuance under the 1993 Plan.
The 1993 Plan is currently administered by the Board of Directors, which
determines the terms of the options granted under the 1993 Plan, including the
exercise price, number of shares subject to the option and the exercisability
thereof, as well as the fair market value of the Common Stock. The term of
each option is ten years from the date of grant unless a shorter term is
provided in the stock option agreement. However, the terms of all incentive
stock options and nonstatutory stock options granted to an optionee who, at
the time of grant, owns stock representing more than 10% of the voting rights
of the Company's outstanding capital stock, may not exceed five years. No
option granted under the 1993 Plan may be transferred by the optionee other
than by will or the laws of descent or distribution and each option may be
exercised, during the lifetime of the optionee, only by such optionee. In the
event of a merger of the Company with or into another corporation, each option
shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation.
In the event that such successor corporation does not agree to assume such
options or to substitute equivalent options, the optionee shall have the right
to exercise the option as to all of the shares of Common Stock, including
shares as to which the option would not otherwise be exercisable.
The per share exercise price of non-statutory options granted under the 1993
Plan shall be no less than 85% of the fair market value per share on the date
of grant. In the case of an option granted on or after the effective date of
registration of any class of equity security of the Company pursuant to
Section 12 of the Exchange Act and prior to six months after the termination
of such registration, the per share exercise price shall be no less than 100%
of the fair market value per share on the date of grant.
For incentive stock options, with respect to any senior executive officer
who, at the time of the grant of such incentive stock option, owns stock
representing more than 10% of the voting power of all classes of stock of the
Company or any parent or subsidiary, the per share market exercise price shall
be no less than 110% of the fair market value per share on the date of grant.
With respect to any other senior executive officer, the per share exercise
price shall be no less than 100% of the fair market value per share on the
date of grant. No incentive stock option may be granted to a senior executive
officer which, when aggregated with all other incentive stock options granted
to such employee by the Company or any parent or subsidiary, would result in
shares having an aggregate fair market value (determined for each share as of
the date of grant of the option covering such share) in excess of $100,000
becoming first available for purchase upon exercise of one or more incentive
stock options during any calendar year.
As of June 30, 1996, options to purchase 180,000 shares of Common Stock at a
weighted average exercise price of $3.61 were outstanding under the 1993 Plan.
The Plan expires in 2003, unless sooner terminated by action of the Board of
Directors.
1995 Stock Plan. The Company's 1995 Stock Plan (the "1995 Plan") was adopted
by the Board of Directors and approved by the shareholders in May 1995. In
June 1996, the Board and the shareholders approved an amendment to the 1995
Plan to increase the number of shares reserved for issuance thereunder from
250,000 to 500,000. In July 1996, the Board amended the 1995 Plan again to
increase the number of shares of Common Stock reserved for issuance thereunder
from 500,000 to 750,000, and make certain other changes to comply with Section
16 of the Exchange Act and current tax law. The Company anticipates that the
July 1996 amendments to the 1995 Plan will be approved by the Company's
shareholders prior to the closing of this Offering. The purposes of the 1995
Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to employees and
consultants of the Company and its subsidiaries and to promote the success of
the Company's business. Incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended, may be granted to
employees (including employee directors) under this Plan. Non-statutory stock
options and stock purchase rights may be granted to employees, directors and
consultants.
38
<PAGE>
The Plan is administered by the Compensation Committee of the Board of
Directors which has the authority to determine the terms of the options and
stock purchase rights granted. In the event of option grants or stock purchase
rights awarded to directors of the Company, the adiministration of such grants
or awards must comply with Rule 16 promulgated under the Securities and
Exchange Act of 1934, as amended. Terms include, but are not limited to the
exercise price, the number of shares subject to an option and the
exercisability thereof. Each option has a term specified in its option
agreement, however, no term can exceed ten years from the date of grant. In
the case of an incentive stock option granted to an optionee who, at the time
the option is granted, owns stock representing more than ten percent of the
voting power of all classes of stock of the Company or any parent or
subsidiary, the term of option is five years from the grant date or the term
provided in the option agreement, whichever is less. No option granted under
the 1995 Plan may be transferred by the optionee other than by will or the
laws of descent or distribution and each option may be exercised, during the
lifetime of the optionee, only by such optionee. In the event of a merger of
the Company with or into another corporation, each outstanding option or stock
purchase right shall be assumed or an equivalent option or right shall be
substituted by the successor corporation. In the event that such successor
corporation does not agree to assume such options or to substitute equivalent
options, the optionee shall have the right to exercise the option as to all of
the shares of Common Stock, including shares as to which the option would not
otherwise be exercisable.
The exercise price of all incentive stock options granted under the 1995
Plan must be no less than 100% of the fair market value per share on the date
of grant. In the case of non-statutory stock options, the per share exercise
price may be no less than 85% of the fair market value per share on the date
of grant. With respect to employees who own stock representing more than ten
percent of the voting rights of the Company's outstanding stock, the exercise
price of any option granted must be no less than 110% of the fair market value
per share on the date of grant. Each option shall be designated in the written
option agreement as either an incentive stock option or a non-statutory stock
option. However, to the extent that the aggregate fair market value of shares
subject to an optionee's incentive stock options, which become exercisable for
the first time during any year exceeds $100,000, such excess options shall be
treated as non-statutory stock options.
As of June 30, 1996, 240,994 shares are subject to outstanding options at a
weighted average exercise price of $2.99 per share. The 1995 Plan will expire
in 2005 unless terminated at an earlier date by action of the Board of
Directors.
Employee Stock Purchase Plan. The Company's Employee Stock Purchase Plan
(the "Purchase Plan") was adopted by the Board of Directors in July 1996 and
the Company anticipates that the Purchase Plan will be approved by the
shareholders prior to the closing of this Offering. The Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code of 1986, as
amended. A total of 125,000 shares of Common Stock has been reserved for
issuance under the Purchase Plan. The Purchase Plan has offering periods of
approximately twelve months, commencing on or after each December 1. The
Purchase Plan is administered by the Compensation Committee of the Board of
Directors. The Purchase Plan permits eligible employees to purchase Common
Stock through payroll deductions, which may not exceed 10% of an employee's
compensation. No employee may purchase more than $25,000 worth of Common Stock
in any calendar year. Employees are eligible to participate if they are
employed by the Company or a subsidiary of the Company designated by the Board
of Directors for at least 20 hours per week and have been so employed for more
than five months in a calendar year. The price of stock purchased under the
Purchase Plan is 85% of the lower of (i) the fair market value of the Common
Stock at the beginning of the offering period or (ii) the fair market value of
the Common Stock at the end of the offering period. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company.
401(k) Plan. Effective in January 1984, the Company adopted the Telesensory
401(k) Retirement Savings Plan (the "401(k) Plan") that covers all eligible
employees of the Company. An employee may elect to defer, in the form of
contributions to the 401(k) Plan on his or her behalf, in an amount not to
exceed the maximum amount allowed by applicable Internal Revenue Service
guidelines. Employees' contributions are invested in selected equity mutual
funds, a guaranteed interest contract account or a money market fund according
to the
39
<PAGE>
directions of the employees. The contributions are fully vested and
nonforfeitable at all times. The 401(k) Plan provides for employer
contributions as determined by the Board of Directors. Historically and in the
current year, the Board of Directors has authorized matching contributions of
25% of each employee's contribution, not to exceed 1.25% of each employee's
annual compensation.
1996 Employee Profit Sharing Plan. In 1996, the Company adopted the 1996
Employee Profit Sharing Plan. This Plan applies to every employee in grades 1
through 9 hired on or before the first working day of a fiscal quarter and who
remains an employee through the last working day of that quarter. Each quarter
is treated separately. Each full-time participant is entitled to a profit-
sharing bonus equivalent to 10 hours of pay if the Company achieves its profit
plan for the quarter. The employee's profit-sharing bonus is adjusted up or
down depending on whether the Company's profits are above or below plan for
that quarter.
1996 Management/Professional Profit Sharing Plan. In 1996, the Company
adopted the 1996 Management/ Professional Profit Sharing Plan. This Plan
applies to every employee grade 10 or above hired on or before September 30,
1996 and who remains an employee through December 31, 1996. Each participant
is entitled to a profit-sharing bonus which is dependent on both the Company's
overall profits as well as profits within the participant's division.
Participants in finance and administration receive a bonus based only on the
Company's overall profits. The participant's bonus is calculated as a
percentage of salary. If both divisions and the Company meet established goals
for 1996, the bonus will be ten percent of the participant's annual
compensation and may be increased if the Company exceeds its profit plan.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Articles of Incorporation that
eliminate to the fullest extent permissible under California law the liability
of its directors to the Company for monetary damages. Such limitation of
liability does not affect the availability of equitable remedies such as
injunctive relief or rescission. The Company's Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
California law, including in circumstances in which indemnification is
otherwise discretionary under California law. The Company has entered into
indemnification agreements with its officers and directors containing
provisions which may require the Company, among other things, to indemnify the
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities
arising from willful misconduct of a culpable nature), and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified.
There is no currently pending litigation or proceeding involving a director,
officer, employee or other agent of the Company in which indemnification would
be required or permitted. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Canon Inc. ("Canon"), a Japanese company owning greater than ten percent of
the Company's Common Stock outstanding immediately prior to this Offering, is
the Company's exclusive distributor in Japan. Seymour Liebman, Senior Vice
President and General Counsel of Canon USA, Inc., a subsidiary of Canon, has
served on the Company's Board of Directors since 1993 and is expected to
continue to serve on the Board of Directors after the closing of this
Offering. During the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1996, Canon purchased more than $550,000, $848,000,
$1,029,000 and $488,000, respectively, of the Company's products for resale in
Japan, under an arm's length distribution agreement similar to those in effect
with other international distributors. Canon is also a Selling Shareholder in
the Offering and will be selling all of its shares, which sale is not expected
to affect the Company's distributor relationship. During the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996, the
Company purchased approximately $162,000, $148,000, $112,000 and $10,000,
respectively, of Canon's products.
40
<PAGE>
In March 1995, the Company acquired substantially all of the assets of
Sensory Systems Ltd. John F. Tillisch was the Managing Director and sole
shareholder of SSL. In connection with the transaction, the Company and Mr.
Tillisch entered into a noncompetition agreement pursuant to which Mr.
Tillisch agreed that for a period of six years after the closing date of the
transaction, he would not directly or indirectly compete with the business of
the Company or its subsidiaries.In consideration for this agreement, the
Company agreed to pay Mr. Tillisch six annual payments of (Pounds)32,300 for
an aggregate amount of (Pounds)193,800. However, should Mr. Tillisch terminate
his employment with the Company during the six year period, the annual
payments will be reduced to (Pounds)16,150. Also in connection with this
transaction, Mr. Tillisch entered into an employment contract with SSL, and
was appointed Vice President, European Operations of the Company. See
"Management--Employment Agreement."
During 1995, the Company repurchased shares of Common Stock at a repurchase
price of $2.40 per share from a number of the Company's shareholders,
including the following former officers and holders of more than five percent
of the Company's voting securities.
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
---- -------
<S> <C>
James C. Bliss and Carolyn Joan Bliss,
Trustees of the James C. Bliss and Carolyn Joan Bliss Trust
u/t/d dated October 11, 1979.................................... 431,606
William Schwarz.................................................. 115,000
William Schwarz & Diane Schwarz.................................. 12,500
</TABLE>
In April 1996, the Company issued and sold 25,000 shares of Common Stock at
a purchase price of $6.00 per share to John M. Lillie and Daryl L. Lillie,
Trustees, Lillie Family Trust. John M. Lillie joined the Company as a director
in 1996.
41
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of June 30, 1996 and as adjusted
to reflect the sale by the Company and the Selling Shareholders of the shares
of Common Stock offered hereby (assuming no exercise of the Underwriters over-
allotment option) by: (i) each person (or group of affiliated persons) known
by the Company to be the beneficial owner of 5% or more of the Company's
outstanding shares of Common Stock; (ii) each director; (iii) each of the
Named Executive Officers; (iv) all directors and executive officers as a
group; and (v) the Selling Shareholders. Except as otherwise noted, the
shareholders named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to applicable community property laws.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP
COMMON STOCK BEFORE THE OF COMMON STOCK AFTER
OFFERING THE OFFERING
----------------------- ---------------------
PERCENTAGE OF NUMBER OF PERCENTAGE OF
NAME AND ADDRESS OF OUTSTANDING SHARES BEING OUTSTANDING
BENEFICIAL OWNER NUMBER SHARES OFFERED (1) NUMBER SHARES
------------------- --------- ------------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Larry Israel(2)......... 676,617 22.01% -- 676,617 13.14%
Telesensory Corporation
455 North Bernardo
Avenue
Mountain View, CA 94039
Canon Inc............... 416,662 13.84% 416,662 -- --
30-2 Shimomaruko 3-
chome,
Ohta-ku, Tokyo 146
Japan
John G. Linvill(3)...... 161,560 5.35% 75,000 86,560 1.70%
30 Holden Court
Portola Valley, CA
94028
Yakov Soloveychik(4).... 56,733 1.87% -- 56,733 1.11%
Peter D. Stent(5)....... 36,091 1.20% -- 36,091 *
John M. Lillie(6)....... 25,000 * -- 25,000 *
Marc J. Stenzel(7)...... 21,900 * -- 21,900 *
Ronald C. Odell(8)...... 12,900 * -- 12,900 *
Timothy S. Couture(9)... 17,625 * -- 17,625 *
Seymour Liebman(10)..... 9,050 * -- 9,050 *
Mitchell Gooze.......... 6,250 * -- 6,250 *
John F. Harper.......... -- -- -- -- --
All current directors
and
executive officers as a
group (13 persons)
(11)................... 1,057,988 34.63% 75,000 982,988 19.15%
All other Selling
Shareholders
as a group (12)........ 133,338
</TABLE>
- --------
* Less than one percent.
(1) Applicable percentage of ownership is based on 2,891,822 shares of Common
Stock outstanding as of June 30, 1996 together with applicable options
for such shareholder. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission, and includes
voting and investment power with respect to shares. Shares of Common
Stock subject to options or warrants currently exercisable or exercisable
within 60 days after June 30, 1996 are deemed outstanding for computing
the percentage ownership of the person holding such options or warrants,
but are not deemed outstanding for computing the percentage of any other
person.
42
<PAGE>
(2) Consists of 528,851 shares of Common Stock held by Larry Israel, Trustee,
Larry Israel Family Trust u/t/d 5/6/83, over which Mr. Israel holds
voting and dispositive power, and 83,333 shares of Common Stock held by
Pensco Pension Services, Inc., Custodian FBO Larry Israel, of which Mr.
Israel is the beneficial owner. Also includes 64,433 shares of Common
Stock issuable pursuant to stock options exercisable within 60 days after
June 30, 1996.
(3) Consists of 152,510 shares of Common Stock held by John Grimes Linvill
and Marjorie Webber Linvill, Trustees of the John Grimes Linvill and
Marjorie Webber Linvill Trusts dated 9/27/87, over which Mr. Linvill
holds voting and dispositive power, and 9,050 shares of Common Stock
issuable pursuant to stock options exercisable within 60 days after June
30, 1996.
(4) Consists of 20,745 of Common Stock held by The Soloveychik Family
Revocable Trust dated March 15, 1988, over which Mr. Soloveychik holds
voting and dispositive power, and 16,525 shares of Common Stock held by
Pensco Pension Services, Inc. Custodian FBO Yakov Soloveychik, IRA, of
which Mr. Soloveychik is the beneficial owner. Also includes 19,463
shares of Common Stock issuable pursuant to stock options exercisable
within 60 days after June 30, 1996.
(5) Includes 9,050 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.
(6) Consists of 25,000 shares of Common Stock held by John M. Lillie and
Daryl L. Lillie, Trustees, Lillie Family Trust, over which Mr. Lillie
holds voting and dispositive power.
(7) Includes 15,650 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.
(8) Includes 12,525 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.
(9) Includes 12,625 shares of Common Stock issuable pursuant to stock options
exercisable within 60 days after June 30, 1996.
(10) Consists of 9,050 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1996. Mr. Liebman is
Executive Vice President and General Counsel of Canon USA, Inc. and
disclaims beneficial ownership of the shares held by Canon Inc.
(11) Includes 169,470 shares of Common Stock issuable pursuant to stock
options exercisable within 60 days after June 30, 1996.
(12) Represents the maximum number of shares that may be sold by the Selling
Shareholders other than John Linvill and Canon.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Restated Articles of Incorporation provide that the authorized
capital stock of the Company is 10,000,000 shares of Common Stock, $0.02 par
value, and 5,000,000 shares of undesignated Preferred Stock, $0.025 par value.
Prior to the effective date of this Offering, the Company's Restated Articles
of Incorporation will be amended to increase the authorized number of shares
of Common Stock from 10,000,000 to 40,000,000. As of June 30, 1996, 2,891,822
shares of Common Stock, held by approximately 225 holders of record, were
outstanding and no shares of Preferred Stock were outstanding.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered by the Company hereby will be upon payment
therefor, validly issued, fully paid and nonassessable. The holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the
Board of Directors may from time to time determine. The shares of Common Stock
are neither redeemable nor convertible and the holders thereof have no
preemptive or subscription rights to purchase any securities of the Company.
Upon liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to receive pro rata the assets of the Company which
are legally available for distribution, after payment of all debts and other
liabilities and subject to the prior rights of any holders of Preferred Stock
then outstanding. Each outstanding share of Common Stock is entitled to one
vote on all matters submitted to a vote of shareholders, and each shareholder
has cumulative voting rights with respect to the election of directors.
WARRANTS
As of June 30, 1996, there were outstanding warrants to purchase an
aggregate of 187,500 shares of Common Stock at an exercise price of $4.80 per
share, all of which will be net exercised prior to the Offering and will
result in the issuance of 118,269 shares assuming an initial public offering
price of $13.00 per share.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of undesignated
Preferred Stock. The Board of Directors has the authority to issue the
Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting a series or the designation of such series, without any further
vote or action by the Company's shareholders. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
shareholders and may adversely affect the market price of, and the voting and
other rights of, the holders of Common Stock. The Company has no current plans
to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
John Tillisch is entitled to certain rights with respect to the registration
of his shares ("Registrable Securities") pursuant to the asset purchase
agreement between him and the Company. If the Company determines to register
any of its securities for the account of its Chief Executive Officer, except
for a registration relating to employee benefit plans, a Commission Rule 145
transaction or an initial public offering, the holders of Registrable
Securities are entitled to include their shares of Common Stock therein.
44
<PAGE>
TRANSFER AGENT
The transfer agent for the Common Stock is Norwest Bank Minnesota, N.A. Its
telephone number is (800) 468-9716.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common Stock
of the Company, and no prediction can be made as to the effect, if any, that
market sales of shares or the availability of such shares for sale will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect the prevailing market price of the Common Stock
and the ability of the Company to raise capital through a sale of its
securities.
Upon the closing of this Offering, the Company will have 5,085,091 shares of
Common Stock outstanding (5,490,091 shares if the Underwriters' over-allotment
option is exercised in full). Of those shares, the 2,700,000 shares sold in
this Offering (3,105,000 shares if the Underwriters' over-allotment option is
exercised in full) plus an additional shares will be freely tradeable
without restriction (except as to affiliates of the Company) or further
registration under the Securities Act.
In general, under Rule 144 under the Securities Act as currently in effect,
a person (or persons whose shares are aggregated) who has beneficially owned
restricted securities within the meaning of Rule 144 (the "Restricted
Securities") for at least two years, and including the holding period of any
prior owner except an affiliate, would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock or the average weekly
trading volume of the Common Stock on the Nasdaq National Market during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions, notice requirements and the availability
of current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned shares for at least three years (including any period of
ownership of preceding non-affiliated holders), would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements. An
"affiliate" is a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or under common control with,
such issuer.
The Company, its directors and executive officers, certain of the Selling
Shareholders and certain of the Company's other shareholders have agreed not
to offer to sell, sell, distribute, grant any option to purchase, pledge,
hypothecate or otherwise dispose of, directly or indirectly, any shares of
Common Stock or securities convertible into, or exercisable or exchangeable
for, shares of Common Stock owned by them prior to the expiration of 180 days
from the date of this Prospectus, except with the prior written consent of
Jefferies & Company, Inc. These individuals and entities collectively hold
shares of Common Stock. Jefferies & Company, Inc. may, in its sole discretion
and at any time without prior notice, release all or any portion of the shares
subject to these "lock-up" agreements. Beginning 180 days after the date of
this Prospectus (after the expiration of such lock-up period), shares of
Common Stock will be eligible for sale in the public market without
registration, subject to certain volume and other limitations, pursuant to
Rule 144 under the Securities Act. Additional shares, including shares
issuable upon exercise of options, will also become available for sale in the
public market from time to time in the future. See "Risk Factors--Shares
Eligible for Future Sale," "Principal and Selling Shareholders" and
"Description of Capital Stock--Registration Rights."
The Company intends to file registration statements under the Securities Act
registering the shares of Common Stock reserved for issuance under the 1985
Incentive Stock Option Plan, the 1993 Stock Plan, the 1995 Stock Plan and the
Employee Stock Purchase Plan. See "Management--Stock and Employee Benefit
Plans." Accordingly, shares registered under such registration statements will
be available for sale in the open market, unless such shares are subject to
vesting restrictions with the Company.
45
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement,
the Company and the Selling Shareholders have agreed to sell an aggregate of
2,075,000 and 625,000 shares, respectively, of Common Stock to the
underwriters named below (the "Underwriters"), for whom Jefferies & Company,
Inc. and Van Kasper & Company are acting as representatives (the
"Representatives"), and the Underwriters have severally agreed to purchase
from the Company and the Selling Shareholders the number of shares of Common
Stock set forth opposite their respective names in the table below at the
price set forth on the cover page of the Prospectus.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Jefferies & Company, Inc.......................................
Van Kasper & Company...........................................
---------
Total...................................................... 2,700,000
=========
</TABLE>
The Underwriting Agreement provides that the obligation of the Underwriters
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 shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below), if any such shares are
purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public initially at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a discount not in
excess of $ 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 initial public offering of the Common Stock, the public
offering price and other selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable at any
time during the 30-day period from the date of this Prospectus, to purchase up
to an additional 405,000 shares of Common Stock at the public offering price
set forth on the cover page of this Prospectus, less the underwriting
discount. The Underwriters may exercise such option solely for the purpose of
covering over allotments, if any, in connection with the Offering. To the
extent such option is exercised, each Underwriter will be obligated, subject
to certain conditions, to purchase additional shares of Common Stock
proportionate to such Underwriter's initial commitment as indicated in the
preceding table.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this Offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection
with the Offering, including liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make in
respect thereof.
The Company, executive officers, directors and certain other shareholders of
the Company have agreed that they will not, without the prior written consent
of Jefferies & Company, Inc., offer, sell or otherwise dispose of any shares
of Common Stock, options or warrants to acquire shares of Common Stock or
securities exchangeable for or convertible into shares of Common Stock owned
by them for a period of 180 days after the date of this Prospectus.
46
<PAGE>
The Company has been advised by the Representatives that the Representatives
presently intend to make a market in the Common Stock offered hereby; however,
the Representatives are not obligated to do so, and any market making activity
may be discontinued at any time without notice. There can be no assurance that
an active public market for the Common Stock will develop and continue after
this Offering. See "Risk Factors -- No Prior Trading Market for Common Stock;
Potential Volatility of Stock Price."
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock was determined
by negotiations among the Company, the Selling Shareholders and the
Representatives. Among the factors considered in making such determination
were the prevailing market conditions and general economic conditions, the
market prices of securities and certain financial and operating information of
publicly traded companies which the Company, the Selling Shareholders and the
Representatives believe to be comparable to the Company, the earnings and
certain other financial and operating information of the Company in recent
periods, the history and future prospects of the Company and its industry in
general and other factors deemed relevant. See "Risk Factors -- No Prior
Trading Market for Common Stock; Potential Volatility of Stock Price."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto,
California. Certain legal matters in connection with this Offering will be
passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, Palo
Alto, California. As of the date of this Prospectus, certain members and
investment partnerships of Wilson Sonsini Goodrich & Rosati, P.C.,
beneficially own 35,602 shares of the Common Stock.
EXPERTS
The consolidated financial statements of Telesensory Corporation and
Subsidiaries as of December 31, 1994 and 1995 and for each of the three years
in the period ended December 31, 1995 included in this prospectus and the
related financial statement schedule included elsewhere in the Registration
Statement, have been audited by Deloitte & Touche LLP, independent auditors as
stated in their reports appearing herein and elsewhere in the Registration
Statement and have been included in reliance on the reports of such firm, upon
their authority as experts in accounting and auditing.
The consolidated financial statements of Sensory Systems, Limited and
Subsidiary as of December 31, 1994 and 1995 and for each of the two years in
the period ended December 31, 1995 included in this prospectus have been
audited by Keith Jones FCA, Chartered Accountant, independent auditors as
stated in their report appearing herein and have been included in reliance on
the report of such firm, upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act and the rules and regulations promulgated thereunder, covering
the Common Stock offered hereby. This Prospectus omits certain information
contained in the Registration Statement, and reference is made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the Common Stock offered hereby.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. The Commission also maintains a Web site that contains reports,
proxy and information statements and other materials that are filed through
the Commission's Electronic Data Gathering, Analysis, and Retrieval system.
This Web site can be accessed at http://www.sec.gov.
47
<PAGE>
TELESENSORY CORPORATION
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TELESENSORY CORPORATION AND SUBSIDIARIES
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996.................................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31,
1993, 1994 and 1995 and Six Months Ended June 30, 1995 and 1996......... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1993, 1994 and 1995 and Six Months Ended June 30, 1996..... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 and Six Months Ended June 30, 1995 and 1996......... F-6
Notes to Consolidated Financial Statements for the Years Ended December
31, 1993, 1994 and 1995 and Six Months Ended June 30, 1995 and 1996..... F-7
TELESENSORY CORPORATION AND SUBSIDIARIES AND SENSORY SYSTEMS LIMITED AND
SUBSIDIARY
Pro Forma Condensed Combining Financial Information...................... F-16
Pro Forma Condensed Combining Statement of Operations for the Year Ended
December 31, 1995....................................................... F-17
Pro Forma Condensed Combining Statement of Operations for the Six Months
Ended June 30, 1996..................................................... F-18
Notes to Pro Forma Condensed Combining Financial Information............. F-19
SENSORY SYSTEMS LIMITED AND SUBSIDIARY
Auditors' Report......................................................... F-20
Consolidated Balance Sheet at December 31, 1995.......................... F-21
Balance Sheet at December 31, 1995....................................... F-22
Consolidated Profit and Loss Account for the Year Ended December 31,
1995.................................................................... F-23
Notes to the Financial Statements for the Year Ended December 31, 1995... F-24
</TABLE>
<PAGE>
The accompanying consolidated financial statements have been adjusted to
give effect to the five-for-four forward split of common stock, which is to be
effected during August 1996. The following opinion is in the form which will
be signed by Deloitte & Touche LLP upon consummation of such forward split,
which is described in the second and third sentences of Note 1 to the
Consolidated Financial Statements, and assuming that, from July 30, 1996 to
the date of such forward split, no other events shall have occurred that would
affect the accompanying consolidated financial statements and notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Telesensory Corporation:
We have audited the accompanying consolidated balance sheets of Telesensory
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Telesensory Corporation and
subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
San Jose, California
February 23, 1996
(August , 1996 as to the second and
third sentences of Note 1 to the
Consolidated Financial Statements)
F-2
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................. $ 423 $ 169 $ 317
Accounts receivable, net of allowance: 1994--$50;
1995--$102; 1996--$130.......................... 4,728 5,527 6,537
Inventories...................................... 3,909 3,488 3,479
Prepaid expenses and other....................... 262 236 226
Deferred income taxes............................ 604 433 895
------- ------- -------
Total current assets........................... 9,926 9,853 11,454
Equipment and improvements, net.................... 995 1,191 1,470
Other assets....................................... -- -- 1,789
------- ------- -------
Total.............................................. $10,921 $11,044 $14,713
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings............................ $ 1,787 $ 1,100 $ 1,700
Current portion of long-term debt................ -- 770 537
Accounts payable................................. 1,633 1,107 1,769
Accrued expenses................................. 2,379 2,997 2,987
Deposits and deferred revenue.................... 442 517 441
------- ------- -------
Total current liabilities...................... 6,241 6,491 7,434
Deferred income taxes.............................. 676 613 571
Long-term debt..................................... -- 26 708
Shareholders' equity:
Preferred stock, $.025 par value, 5,000,000
shares authorized; none outstanding............. -- -- --
Common stock, $.02 par value; 10,000,000 shares
authorized; shares outstanding: 1994--3,356,878;
1995--2,734,572; 1996--2,891,822................ 67 55 58
Additional paid-in capital....................... 2,932 2,448 3,314
Accumulated translation adjustment............... -- -- 13
Retained earnings................................ 1,005 1,411 2,615
------- ------- -------
Total shareholders' equity..................... 4,004 3,914 6,000
------- ------- -------
Total.............................................. $10,921 $11,044 $14,713
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue.................... $ 27,083 $ 27,588 $ 30,671 $15,317 $17,240
Cost of revenue................ 14,697 15,332 16,670 8,455 9,770
-------- -------- -------- ------- -------
Gross profit................... 12,386 12,256 14,001 6,862 7,470
-------- -------- -------- ------- -------
Operating expenses:
Product development.......... 2,876 2,617 2,286 1,170 1,134
Sales, general and
administrative.............. 10,303 9,020 9,374 4,634 4,860
Restructuring................ 507 332 -- -- --
-------- -------- -------- ------- -------
Total operating expenses... 13,686 11,969 11,660 5,804 5,994
-------- -------- -------- ------- -------
Operating income (loss)........ (1,300) 287 2,341 1,058 1,476
-------- -------- -------- ------- -------
Other income (expense):
Interest expense............. (117) (161) (123) (66) (71)
Interest income.............. 19 17 36 11 54
Foreign currency exchange
gain (loss)................. 90 (34) 4 2 (10)
-------- -------- -------- ------- -------
Total other expense........ (8) (178) (83) (53) (27)
-------- -------- -------- ------- -------
Income (loss) before income
taxes......................... (1,308) 109 2,258 1,005 1,449
Income taxes................... 21 268 867 386 245
-------- -------- -------- ------- -------
Net income (loss).............. $ (1,329) $ (159) $ 1,391 $ 619 $ 1,204
======== ======== ======== ======= =======
Net income (loss) per share.... $ (0.36) $ (0.04) $ 0.41 $ 0.17 $ 0.36
Shares used in per share
calculation................... 3,715 3,738 3,376 3,567 3,300
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL ACCUMULATED SHARE-
----------------- PAID-IN TRANSITION RETAINED HOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS EQUITY
--------- ------ ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1993................... 3,257,502 $ 65 $2,797 $ 661 $ 2,493 $ 6,016
Exercise of employee
stock options.......... 96,863 2 129 -- -- 131
Translation adjustment.. -- -- -- (717) -- (717)
Net loss................ -- -- -- -- (1,329) (1,329)
--------- ---- ------ ----- ------- -------
Balances, December 31,
1993................... 3,354,365 67 2,926 (56) 1,164 4,101
Exercise of employee
stock options.......... 2,513 -- 6 -- -- 6
Amounts related to
closure of
subsidiaries........... -- -- -- 280 -- 280
Translation adjustment.. -- (224) (224)
Net loss................ -- -- -- -- (159) (159)
--------- ---- ------ ----- ------- -------
Balances, December 31,
1994................... 3,356,878 67 2,932 -- 1,005 4,004
Exercise of employee
stock options.......... 20,875 1 50 -- -- 51
Issuance of common stock
for services rendered.. 25,000 1 59 -- -- 60
Repurchase of common
stock.................. (668,181) (14) (593) -- (985) (1,592)
Net income.............. -- -- -- -- 1,391 1,391
--------- ---- ------ ----- ------- -------
Balances, December 31,
1995................... 2,734,572 55 2,448 -- 1,411 3,914
Exercise of employee
stock options
(unaudited)............ 7,250 -- 19 -- -- 19
Issuance of common stock
for acquisition
(unaudited)............ 125,000 3 697 -- -- 700
Issuance of common stock
(unaudited)............ 25,000 -- 150 -- -- 150
Translation adjustment
(unaudited)............ -- -- -- 13 -- 13
Net income (unaudited).. -- -- -- -- 1,204 1,204
--------- ---- ------ ----- ------- -------
Balances, June 30, 1996
(unaudited)............ 2,891,822 $ 58 $3,314 $ 13 $ 2,615 $ 6,000
========= ==== ====== ===== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $ (1,329) $ (159) $ 1,391 $ 619 $ 1,204
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization................ 1,272 372 360 174 281
Non-cash compensation
expense..................... -- -- 60 -- --
Loss from disposal of
equipment and improvements.. 11 26 10 -- --
Amounts related to closure of
subsidiaries................ -- 280 -- -- --
Deferred income taxes........ -- 109 108 -- (504)
Changes in assets and
liabilities that provided
(used) cash:
Accounts receivable......... 147 (1,105) (799) (472) (796)
Inventories................. 653 457 421 239 629
Prepaid expenses and other.. 95 86 26 (84) 74
Accounts payable............ (92) 196 (526) (174) 611
Accrued expenses............ (663) 278 618 763 (298)
Deposits and deferred
revenue.................... (18) (46) 75 124 (188)
-------- -------- -------- ------- -------
Net cash provided by
operating activities...... 76 494 1,744 1,189 1,013
-------- -------- -------- ------- -------
Cash flows used in investing
activities:
Acquisition of equipment and
improvements................. (318) (607) (566) (156) (344)
Payment for purchase of SSL,
net of cash acquired......... -- -- -- -- (1,752)
-------- -------- -------- ------- -------
Net cash used in investing
activities................ (318) (607) (566) (156) (2,096)
-------- -------- -------- ------- -------
Cash flows from financing
activities:
Short-term borrowings, net.... 700 (213) (687) (1,387) 600
Long-term debt borrowings..... -- -- 1,000 1,000 1,000
Repayments of long-term debt.. (87) (231) (204) (51) (551)
Proceeds from issuance of
common stock................. 131 6 51 88 169
Repurchase of common stock.... -- -- (1,592) (1,035) --
-------- -------- -------- ------- -------
Net cash (used in) provided
by financing activities... 744 (438) (1,432) (1,385) 1,218
-------- -------- -------- ------- -------
Effect of exchange rate changes
on cash....................... (717) (224) -- -- 13
-------- -------- -------- ------- -------
Net (decrease) increase in cash
and equivalents............... (215) (775) (254) (352) 148
Cash and equivalents, beginning
of period..................... 1,413 1,198 423 423 169
-------- -------- -------- ------- -------
Cash and equivalents, end of
period........................ $ 1,198 $ 423 $ 169 $ 71 $ 317
======== ======== ======== ======= =======
Cash paid during the period
for:
Interest...................... $ 237 $ 195 $ 124 $ 68 $ 71
======== ======== ======== ======= =======
Income taxes.................. $ 8 $ 3 $ 929 $ 267 $ 769
======== ======== ======== ======= =======
Supplemental disclosures of
financing activities--
Common stock issued for
services rendered........... $ -- $ -- $ 60 $ 60 $ --
======== ======== ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization--Telesensory Corporation and subsidiaries (the Company) are in
the business of developing, manufacturing and marketing a broad array of
products for visually impaired people. In July 1996, the Company's Board of
Directors approved a five-for-four forward split of the common stock to be
effected in September 1996. All common stock data in the accompanying
financial statements have been retroactively adjusted to reflect the split.
Principles of Consolidation--The consolidated financial statements include
the accounts of Telesensory Corporation and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
During 1993, the Company closed certain of its European subsidiaries. During
1994, the Company closed its remaining wholly-owned foreign subsidiaries and
transferred the related operations to its U.S. manufacturing facility. The
Company has implemented a plan to complete liquidation of those subsidiaries
during 1996. During 1996, the Company acquired two European distributors. See
Note 3.
Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, net
revenue and expenses as of the dates and for the periods presented.
Significant estimates include the allowance for doubtful accounts receivable,
the net realizable value of inventory, estimated useful life of goodwill,
warranty reserves and the valuation allowance on net deferred tax assets.
Actual results could differ from those estimates.
Cash Equivalents--The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentration of credit risk consist principally of cash and
equivalents and accounts receivable. Risks associated with cash and
equivalents are mitigated by banking with creditworthy institutions. The
Company sells its products to distributors and end users. To reduce credit
risk, management performs periodic credit evaluations of its customers'
financial condition and requires deposits from new customers. The Company
maintains reserves for potential credit losses, but historically has not
experienced any significant losses related to end users or distributors.
International sales accounted for approximately 33.0%, 31.8% and 35.1% of net
revenue for 1993, 1994 and 1995, respectively and 40.3% of net revenue for the
six months ended June 30, 1996.
Inventories--Inventories are stated at the lower of cost (first-in, first-
out) or market.
Equipment and Improvements--Equipment and improvements are stated at cost.
Depreciation is provided principally on the straight-line method over the
estimated useful lives of the respective assets ranging from three to five
years. Leasehold improvements are amortized over the shorter of the asset life
or lease term.
Other Assets--Other assets include goodwill which was generated in
acquisitions and is amortized using the straight-line method over an estimated
useful life of fifteen years. The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed Of" effective January 1,
1995. The adoption of this statement had no effect on the Company's financial
condition or results of operations. The Company evaluates the recoverability
of goodwill on a quarterly basis based on estimated undiscounted future cash
flows.
Revenue Recognition--Revenue from product sales is recognized upon shipment.
Estimated costs for returns and warranty are accrued at the time of shipment.
F-7
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred Revenue--Service revenue is deferred and recognized ratably over
the term of the service contract, generally one to four years, on a straight-
line basis. Costs for work performed under the service contracts are charged
to operations as incurred.
Income Taxes--The Company uses an asset and liability approach to account
for income taxes which requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences
between the financial statement carrying amount and the tax bases of assets
and liabilities and net operating loss and tax credit carryforwards.
Foreign Currency Translation--The functional currency of the Company's
United Kingdom subsidiary is the British pound. The functional currency of the
Company's former subsidiary in Ireland, which the Company decided to close in
1994, was the Irish pound. Accordingly, the assets and liabilities of the
subsidiaries have been translated at exchange rates at the balance sheet date
and the related revenues and expenses at the average exchange rates in effect
during the year. The resulting accumulated translation adjustments are
recorded as a separate component of shareholders' equity. Gains and losses
resulting from foreign currency transactions (transactions denominated in
currencies other than the functional currency) are included in the income
(loss) for the period.
Effective January 1, 1995 the Company changed the functional currency of the
Irish subsidiary to the U.S. dollar. The accumulated translation adjustment of
$280,000 at December 31, 1994 was recognized as a reduction of the
restructuring expense in 1994.
Net Income (Loss) Per Share--Net income (loss) per share is computed using
the weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares include stock options and warrants
(using the treasury stock method). Common equivalent shares are excluded for
the computation if their effect is anti-dilutive except that, pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins and staff
policy, such computations include all common and common equivalent shares
issued within the 12 months preceding the filing date as if they were
outstanding for all periods presented (using an assumed initial public
offering price of $13 per share).
Fair Value of Financial Instruments--SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Company to disclose the fair
value of financial instruments for which it is practicable to estimate fair
value. Financial instruments included in the Company's balance sheet at
December 31, 1995 consist of cash and equivalents, borrowings under the line
of credit and long-term debt. For cash and equivalents, the carrying amount is
a reasonable estimate of the fair value. The carrying amount of the line of
credit and long-term debt is also considered a reasonable estimate of fair
value as the borrowings are at adjustable interest rates and reprice based on
fluctuations in market conditions.
2. UNAUDITED INTERIM INFORMATION
The financial information as of June 30, 1996 and with respect to the six
months ended June 30, 1995 and 1996 is unaudited. The information disclosed in
the notes to the consolidated financial statements for these periods is
unaudited. In the opinion of management, such information contains all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the results of such periods. The results of operations
for the six months ended June 30, 1996 are not necessarily indicative of the
results to be expected for the full year.
F-8
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITION (UNAUDITED)
On March 29, 1996, the Company acquired substantially all assets and assumed
certain liabilities of Sensory Systems Limited (SSL), a United Kingdom
corporation, and 100% of the stock of Teletec SARL (Teletec), a French
corporation and SSL's wholly-owned subsidiary. SSL and Teletec were in the
business of distributing and selling products of the Company and other
manufacturers for visually impaired people in Europe. As consideration for the
purchase, the Company paid $1,631,000 in cash and issued 125,000 shares of its
common stock to the former shareholder of SSL. The Company has recorded the
value of the common stock issued at an aggregate amount of $700,000. The
Company incurred a total of $132,000 of expenses in connection with the
acquisition, resulting in a total recorded purchase price of $2,463,000. The
business combination has been accounted for by the purchase method.
Fair value of assets acquired and liabilities assumed:
<TABLE>
<S> <C>
Cash................................................................ $ 11
Excess of purchase price over net assets acquired................... 1,688
Other assets acquired............................................... 1,064
Liabilities assumed................................................. (300)
------
Total purchase price............................................. $2,463
======
</TABLE>
The excess of purchase price over net assets acquired is included in other
assets and is being amortized over its estimated useful life of fifteen years.
Amortization of $42,000 was recorded during the six months ended June 30,
1996.
In addition, the Company entered into a covenant not to compete which is
being amortized over six years, which is the term of the agreement.
The operating results of SSL and Teletec are included in the Company's
consolidated results of operations from the date of acquisition. The following
pro forma summary presents the consolidated results of operations as if the
acquisition had occurred at the beginning of 1994. These pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisition been made as of
those dates or of results which may occur in the future.
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
---------------- JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1995 1996
------------------------------------- ------- ------- ----------
<S> <C> <C> <C>
Net revenue...................................... $31,339 $33,989 $17,819
Net income (loss)................................ $ (264) $ 1,550 $ 1,243
Net income (loss) per share...................... $ (0.07) $ 0.46 $ 0.38
</TABLE>
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Finished goods........................................ $1,604 $1,068 $1,397
Work in process....................................... 387 436 658
Raw materials......................................... 1,918 1,984 1,424
------ ------ ------
Total inventories..................................... $3,909 $3,488 $3,479
====== ====== ======
</TABLE>
F-9
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. EQUIPMENT AND IMPROVEMENTS
Equipment and improvements consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Machinery and tooling............................... $2,486 $2,871 $2,791
Furniture, fixtures and improvements................ 481 496 1,066
------ ------ ------
2,967 3,367 3,857
Accumulated depreciation and amortization........... (1,972) (2,176) (2,387)
------ ------ ------
Total equipment and improvements, net............... $ 995 $1,191 $1,470
====== ====== ======
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Accrued compensation and related expenses............. $ 858 $1,461 $1,101
Accrued product warranty.............................. 284 422 531
Income taxes.......................................... 584 412 404
Royalties and commissions............................. 180 153 197
Other................................................. 473 549 754
------ ------ ------
Total accrued expenses................................ $2,379 $2,997 $2,987
====== ====== ======
</TABLE>
7. BORROWING ARRANGEMENTS
Short-Term Borrowings--The Company had a revolving line of credit with a bank
which provides for borrowings of up to $3,500,000, limited to outstanding
accounts receivable and inventory, as defined, which expires October 1996. The
line of credit is collateralized by substantially all of the Company's assets.
At December 31, 1995, the Company had $1,100,000 outstanding under this line.
Advances bore interest at the bank's reference rate (8.50% at December 31,
1995) plus 0.75%. The Company had $1,700,000 outstanding under the revolving
line of credit at June 30, 1996, bearing interest at the bank's reference rate
(8.5% at June 30, 1996) plus 1.25%.
Long-Term Debt--The Company had two term notes with the same bank with
outstanding balances of $601,000 and $194,000 at December 31, 1995, which bear
interest at 10% and the bank's reference rate (8.50% at December 31, 1995)
plus 1.5%, respectively, and are due in monthly installments. The Company is
also required to make an additional payment against the outstanding loan
balance in the amount of 50% of net income in excess of $500,000 for 1995.
Accordingly, subsequent to year end, the Company made a payment of $445,000 to
the bank. The long-term portion of $26,000 is due in 1997. The notes are
collateralized by substantially all of the Company's assets.
All of the bank borrowings are subject to certain financial covenants
including maintenance of minimum levels of quick ratio, tangible net worth and
working capital and maintenance of maximum levels of the ratio of debt to
total net worth, as well as quarterly net income, and debt service coverage
requirements. In addition, the Company is prohibited from paying dividends
without the consent of the bank under the terms of the agreements. At December
31, 1995, the Company was in compliance with these covenants.
F-10
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On March 22, 1996 the Company obtained a term loan from the same bank for
$1,000,000 which bears interest at bank's reference rate (8.5% at June 30,
1996) plus 1.5% and is due in monthly installments of $27,800 plus interest.
The Company is also required to make an additional payment against the
outstanding loan balance in the amount of 50% of net income in excess of
$625,000 for each fiscal year starting in 1996.
The Company's subsidiary in United Kingdom has a line of credit with a bank
that provides for borrowings of up to (Pounds)100,000 bearing interest at the
bank's reference rate (5.75% at June 30, 1996) plus 2%, which has been
guaranteed by the Company. At June 30, 1996, there were no borrowings
outstanding under this line.
8. INCOME TAXES
Income taxes consist of (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30,
1993 1994 1995 1996
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Current:
Federal.............................. $ -- $ 149 $ 614 $ 589
State................................ -- 10 145 135
Foreign.............................. 21 -- -- 25
-------- -------- -------- -------
Total................................ 21 159 759 749
-------- -------- -------- -------
Deferred:
Federal.............................. -- 45 17 (467)
State................................ -- 64 91 (37)
-------- -------- -------- -------
Total................................ -- 109 108 (504)
-------- -------- -------- -------
$ 21 $ 268 $ 867 $ 245
======== ======== ======== =======
</TABLE>
Income tax expense differs from the amount computed by applying the
federal statutory income tax rate to income before income taxes as follows:
<TABLE>
<CAPTION>
SIX
MONTHS
YEARS ENDED DECEMBER 31, ENDED
--------------------------- JUNE 30,
1994 1995 1996
------------- ------------ --------
<S> <C> <C> <C>
Tax computed at federal statutory
rate................................. 35.0% 35.0% 35.0%
Dividends from foreign subsidiaries... 466.9 -- --
Foreign tax credits................... (217.0) -- (1.0)
State income taxes, net of federal
effect............................... -- 6.3 6.2
Change in valuation allowance......... -- -- (21.5)
Other................................. (39.0) (2.9) (1.8)
------------- ----------- -----
Total................................. 245.9% 38.4% 16.9%
============= =========== =====
</TABLE>
Income tax expense in 1993 relates to foreign withholding taxes on royalty
revenue. Otherwise, the Company was not required to provide for income taxes
due to its operating loss.
F-11
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net deferred tax asset (liability) consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------ JUNE 30,
1994 1995 1996
----- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Accruals and reserves recognized in different
periods....................................... $ 632 $ 656 $810
Tax basis depreciation......................... 94 89 85
Net operating loss carryforward................ 108 -- --
Tax credit carryforward........................ 82 -- --
----- ----- ----
Total........................................ 916 745 895
===== ===== ====
Deferred tax liability--nontaxed foreign
subsidiary income............................. (676) (613) (571)
Valuation allowance............................ (312) (312) --
----- ----- ----
Net deferred tax asset (liability)........... $ (72) $(180) $324
===== ===== ====
</TABLE>
9. SHAREHOLDERS' EQUITY
PREFERRED STOCK
During 1995, the Board of Directors authorized 5,000,000 shares of preferred
stock. No shares were outstanding as of December 31, 1995. The rights and
terms are determinable at the discretion of the Board of Directors.
STOCK OPTION PLANS
The Company has three stock option plans which provide for the granting of
stock options to officers and employees at prices not less than fair market
value of the Company's common stock as determined by the Board of Directors on
the grant date. Options not fully exercisable at December 31, 1995 are
exercisable in 2.7% and 3% monthly or 20% annual increments from the date of
grant. The options expire between four and ten years from the date of grant.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The new standard defines a fair value method of accounting for
stock options and other equity instruments, such as stock purchase plans.
Under this method, compensation cost is measured based on the fair value of
the stock award when granted and is recognized as an expense over the service
period, which is usually the vesting period. This standard will be effective
for the Company beginning in 1996 and requires measurement of awards made
beginning in 1995.
The new standard permits companies to continue to account for equity
transactions with employees under existing accounting rules, but requires
disclosure in a note to the financial statements of the pro forma effect of
net income and earnings per share as if the company had applied the new method
of accounting. The Company intends to implement these disclosure requirements
for its stock option plans. As a result, for options issued to employees
adoption of the new standard will not impact reported earnings or earnings per
share, and will have no effect on the Company's cash flows.
F-12
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of option activity follows:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
----------------------------
NUMBER PRICE PER
OF SHARES SHARE
------------ --------------
<S> <C> <C>
Balances, January 1, 1993....................... 505,875 $ .96-$3.96
Granted......................................... 336,250 3.60
Exercised....................................... (100,750) .96- 3.60
Canceled........................................ (120,875) .96- 3.96
-----------
Balances, December 31, 1993..................... 620,500 .96- 3.96
Granted......................................... 79,375 2.40
Exercised....................................... (2,512) .96- 3.60
Canceled........................................ (430,050) .96- 3.60
-----------
Balances, December 31, 1994..................... 267,313 2.40- 2.64
Granted......................................... 405,369 2.40- 2.64
Exercised....................................... (20,875) 2.40- 2.64
Canceled........................................ (103,563) 2.40
-----------
Balances, December 31, 1995..................... 548,244 2.40- 2.64
Granted (unaudited)............................. 98,750 4.80- 6.40
Exercised (unaudited)........................... (7,250) 2.40- 2.64
Canceled (unaudited)............................ (16,250) 2.40
-----------
Balances, June 30, 1996 (unaudited)............. 623,494 $2.40-$6.40
===========
</TABLE>
On October 26, 1994, the Company repriced all outstanding options with
exercise prices of $2.60 to $3.96 to exercise prices of $2.40 to $2.64.
At December 31, 1995, options to purchase 154,715 shares of common stock
were exercisable, options to purchase 163,382 shares were available for future
grants and 711,626 shares were reserved for issuance under the stock option
plans.
In June, 1996, the shareholders approved an amendment to the 1995 Plan to
increase the number of shares reserved for issuance from 250,000 to 500,000.
At June 30, 1996, options to purchase 267,175 shares of common stock were
exercisable, options to purchase 329,006 shares were available for future
grants and 952,500 shares were reserved for issuance under the stock option
plans.
WARRANTS
At December 31, 1995, warrants to purchase 187,500 shares of common stock at
an exercise price of $4.80 per share were outstanding. All warrants issued in
February, 1994, are exercisable and expire on either December 31, 1998, upon a
public offering of the Company's securities, a merger, or upon a sale of
substantially all of the assets of the Company.
F-13
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. LEASES
The Company leases manufacturing and office facilities under operating lease
agreements expiring through 1997. The provisions of certain of these leases
require the Company to pay maintenance, property taxes and insurance. Future
minimum payments under noncancelable operating lease agreements as of December
31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996.................................................................. $ 543
1997.................................................................. 498
------
$1,041
======
</TABLE>
Rent expense for 1993, 1994 and 1995 was $481,000, $513,000 and $518,000,
respectively.
In connection with the acquisition of SSL and Teletec in March 1996 (see
Note 3), the Company assumed certain lease obligations which require future
payments of approximately $67,000 per year through 2002.
11. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan (the Plan) covering substantially all
employees. The Plan provides for voluntary tax deferred contributions of 1% to
18% of gross compensation, subject to certain Internal Revenue Service
limitations. Based on approval by the Board of Directors the Company may make
matching contributions to the Plan. The Company contributed $72,000, $69,000,
and $63,000 for 1993, 1994 and 1995, respectively, and $42,000 for the six
months ended June 30, 1996.
The Company also has two profit-sharing plans which provide distributions to
all eligible employees. The Company's contributions to the plans are
determined in accordance with the terms of the plans and are approved by the
compensation committee of the Board of Directors. The Company contributed
$43,000, $58,000, and $948,000 for 1993, 1994 and 1995, respectively, and
$285,000 (unaudited) for the six months ended June 30, 1996.
F-14
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. FOREIGN OPERATIONS
On March 29, 1996, the Company commenced operations in the United Kingdom
and France (see Note 3). During 1994, the Company decided to close its
subsidiary in Ireland. Foreign operations and asset and liability balances,
net of intercompany transactions, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1994 1995 1996
------ ------ --------
<S> <C> <C> <C>
Assets............................................. $240 $ 65 $1,724
Liabilities........................................ $ 40 $ 36 $ 561
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
----------------------------- JUNE 30,
1993 1994 1995 1996
-------- --------- -------- ----------
<S> <C> <C> <C> <C>
Net revenue...................... $ 3,523 $ 2,235 $ -- $1,091
Net income (loss)................ $ (120) $ (1,231) $ (143) $ 2
</TABLE>
* * * * *
13. RELATED PARTY TRANSACTIONS
The Company entered into certain transactions with a shareholder which owns
more than 10% of the outstanding Common Stock of the Company. Purchases from
the shareholder were (in thousands) $162, $148 and $112 for the years ended
December 31, 1993, 1994 and 1995, respectively and $10 for the six months
ended June 30, 1996. Sales to the shareholders were (in thousands) $550, $848
and $1,029 for the years ended December 31, 1993, 1994 and 1995, respectively,
and $488 for the six months ended June 30, 1996.
Amounts due from this shareholder at December 31, 1995 and June 30, 1996
were (in thousands) $264,000 and $204,000, respectively.
F-15
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
AND SENSORY SYSTEMS LIMITED AND SUBSIDIARY
PRO FORMA CONDENSED COMBINING FINANCIAL INFORMATION (UNAUDITED)
On March 29, 1996, Telesensory Corporation and subsidiaries (the Company)
acquired certain assets of Sensory Systems Limited (SSL) including the
outstanding capital stock of its wholly-owned subsidiary in France, Teletec
SARL (Teletec). The following unaudited pro forma condensed combining
financial information reflects this business combination which has been
accounted for under the purchase method of accounting.
The unaudited pro forma condensed combining financial information should be
read in conjunction with the accompanying notes to the pro forma condensed
combining financial information and in conjunction with the historical
consolidated financial statements and the related notes thereto of the Company
and the historical financial statements and related notes thereto of SSL
included herein.
The unaudited pro forma condensed combining statement of operations combines
the Company's results of operations for the six months ended June 30, 1996 and
the year ended December 31, 1995 with the operating results of SSL including
its wholly-owned subsidiary Teletec for the comparable periods and have been
prepared as if the merger was completed as of January 1, 1995, the beginning
of the earliest period presented. The unaudited pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
the operating results that would have occurred had the merger been consummated
at the beginning of the periods presented, nor is it necessarily indicative of
future operating results.
F-16
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
AND SENSORY SYSTEMS LIMITED AND SUBSIDIARY
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SENSORY
TELESENSORY SYSTEMS
CORPORATION LIMITED
AND AND PRO FORMA PRO FORMA
SUBSIDIARIES SUBSIDIARY ADJUSTMENTS COMBINED
------------ ---------- ----------- ---------
(1)
<S> <C> <C> <C> <C>
Net revenue................. $30,671 $4,963 $(1,645)(b) $33,989
Cost of revenue............. 16,670 2,770 (1,617)(b) 17,823
------- ------ ------- -------
Gross profit................ 14,001 2,193 (28) 16,166
------- ------ ------- -------
Operating expenses:
Product development....... 2,286 -- -- 2,286
Sales, general and
administrative........... 9,374 1,639 162 (c) 11,175
------- ------ ------- -------
Total operating
expenses............... 11,660 1,639 162 13,461
------- ------ ------- -------
Operating income............ 2,341 554 (190) 2,705
Total other expense......... (83) -- (176)(d) (259)
------- ------ ------- -------
Income before income taxes.. 2,258 554 (366) 2,446
Income taxes................ 867 169 (140) (e) 896
------- ------ ------- -------
Net income.................. $ 1,391 $ 385 $ (226) $ 1,550
======= ====== ======= =======
Net income per share........ $ 0.41 $ 0.46
Shares used in per share
calculation................ 3,376 3,376(1)
</TABLE>
- --------
(1) The 125,000 shares of common stock issued in connection with the
acquisition of Sensory Systems Limited and Subsidiary have already been
reflected in shares for Telesensory Corporation and Subsidiaries.
See notes to pro forma condensed combining financial statements.
F-17
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES AND
SENSORY SYSTEMS LIMITED AND SUBSIDIARY
PRO FORMA CONDENSED COMBINING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SENSORY
TELESENSORY SYSTEMS
CORPORATION LIMITED
AND AND PRO FORMA PRO FORMA
SUBSIDIARIES SUBSIDIARY ADJUSTMENTS COMBINED
------------ ---------- ----------- ---------
(1)
<S> <C> <C> <C> <C>
Net revenue.................... $17,240 $1,334 $(520)(b) $18,054
Cost of revenue................ 9,770 878 (522)(b) 10,126
------- ------ ----- -------
Gross profit................... 7,470 456 2 7,928
------- ------ ----- -------
Operating expenses:
Product development.......... 1,134 -- -- 1,134
Sales, general and
administrative.............. 4,860 436 40 (c) 5,336
------- ------ ----- -------
Total operating expenses... 5,994 436 40 6,470
------- ------ ----- -------
Operating income............... 1,476 20 (38) 1,458
Total other income (expense)... (27) 21 (44)(d) (50)
------- ------ ----- -------
Income before income taxes..... 1,449 (1) (82) 1,408
Income taxes................... 245 -- (31)(e) 214
------- ------ ----- -------
Net income..................... $ 1,204 $ (1) $ (51) $ 1,194
======= ====== ===== =======
Net income per share........... $ 0.36 $ 0.36
Shares used in per share
calculation................... 3,300 3,300
</TABLE>
- --------
(1) The 125,000 shares issued in connection with the acquisition of Sensory
Systems Limited and Subsidiary have already been reflected in shares for
Telesensory Corporation and Subsidiaries.
See notes to pro forma condensed combining financial statements.
F-18
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
AND SENSORY SYSTEMS LIMITED
NOTES TO PRO FORMA CONDENSED
COMBINING FINANCIAL INFORMATION (UNAUDITED)
(1) The weighted average exchange rate for the fiscal year ended December 31,
1995 and the six-month period ended June 30, 1996 was used to translate
revenues and expenses of SSL from U.K. pounds to U.S. dollars in the
unaudited pro forma condensed combining statements of operations. The
unaudited pro forma condensed combining statements of operations of the
Company have been prepared in accordance with generally accepted
accounting principles in the U.S.
(2) The following significant assumptions were applied to the historical
statements of operations of the Company and SSL to arrive at the unaudited
pro forma condensed combining statements of operations:
(a) The unaudited pro forma condensed combining statements of operations
have been prepared as if the merger was completed as of January 1,
1995, the beginning of the earliest period presented. The unaudited pro
forma combined net income per share gives effect to the number of
shares issued had the merger taken place as of January 1, 1995.
(b) To eliminate intercompany revenues and associated profit.
(c) For purposes of the unaudited pro forma condensed combining statement
of operations, goodwill acquired is amortized over a period of fifteen
years and the covenant not to compete is amortized over six years.
Amortization is $40,000 for the six months ended June 30, 1996 and
$162,000 for the twelve months ended December 31, 1995.
(d) For purposes of the unaudited pro forma condensed combining statement
of operations, interest expense has been adjusted at the average
borrowing rate for fiscal 1995 and six months ended June 30, 1996,
under the assumption that the Company would have to borrow the amount
of cash paid and acquisition costs incurred. The average rate used was
10% for the six months ended June 30, 1996 and for the year ended
December 31, 1995. Interest expense has been adjusted by $44,000 and
$176,000 for the six months ended June 30, 1996 and the year ended
December 31, 1995, respectively.
(e) To record estimated tax benefit of the above entries.
* * * * *
F-19
<PAGE>
AUDITORS' REPORT
TO THE MEMBERS OF SENSORY SYSTEMS LIMITED
We have audited the financial statements on pages 2 to 9.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described above the Company's directors are responsible for preparation
of the financial statements. It is our responsibility to form an independent
opinion, based on our audit, on those financial statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements
made by the directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the Company's
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of affairs of the Company and the Group as at 31 December 1995 and of
the profit of the Group for the year then ended and have been properly
prepared in accordance with the Companies Act 1985.
Keith Jones Chartered Accountant Registered Auditor
3 Tudor Grove Church Crescent London N20 0JW
/s/ Keith Jones
-------------------------------------
27 March 1996
F-20
<PAGE>
SENSORY SYSTEMS LIMITED
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
NOTES 1995 1994
----- ------------------ ------------------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible Assets................. 2 126,632 129,370
CURRENT ASSETS
Stock........................... 4 413,253 277,897
Debtors......................... 5 513,250 513,718
Cash Balances................... 381,066 398,964
--------- ---------
1,307,569 1,190,579
--------- ---------
LESS CREDITORS--AMOUNTS FALLING
DUE WITHIN 1 YEAR................ 6 591,753 690,275
--------- ---------
NET CURRENT ASSETS................ 715,816 500,304
------- -------
842,448 629,674
======= =======
FINANCED BY CAPITAL AND RESERVES
Called up Share Capital......... 7 100 100
Profit and Loss Account......... 8 842,348 629,574
------- -------
842,448 629,674
======= =======
</TABLE>
Approved by the Board on 27 March 1996
/s/ J. F. Tillisch
- -------------------------------------
(J. F. Tillisch)
/s/ S. Forde
- -------------------------------------
(S. Forde)
F-21
<PAGE>
SENSORY SYSTEMS LIMITED
BALANCE SHEET AT 31 DECEMBER 1995
<TABLE>
<CAPTION>
NOTES 1995 1994
----- ------------------ ------------------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Tangible Assets................. 2 86,526 82,173
Investments..................... 3 6,024 6,024
CURRENT ASSETS
Stock........................... 4 277,686 213,102
Debtors......................... 5 805,390 576,032
Cash Balances................... 341,229 386,800
--------- ---------
1,424,305 1,175,934
--------- ---------
LESS CREDITORS--AMOUNTS FALLING
DUE WITHIN 1 YEAR................ 6 532,684 573,462
========= =========
NET CURRENT ASSETS................ 891,621 602,472
------- -------
984,171 690,669
======= =======
FINANCED BY CAPITAL AND RESERVES
Called up Share Capital......... 7 100 100
Profit and Loss Account......... 8 984,071 690,569
------- -------
984,171 690,669
======= =======
</TABLE>
Approved by the Board on 27 March 1996
/s/ J. F. Tillisch
- -------------------------------------
(J. F. Tillisch)
/s/ S. Forde
- -------------------------------------
(S. Forde)
F-22
<PAGE>
SENSORY SYSTEMS LIMITED
CONSOLIDATED PROFIT AND LOSS ACCOUNT
YEAR ENDED 31 DECEMBER 1995
<TABLE>
<CAPTION>
NOTES 1995 1994
----- --------- ---------
(Pounds) (Pounds)
<S> <C> <C> <C>
Turnover............................................ 1 3,138,533 2,854,272
Cost of Sales....................................... 1,751,681 1,825,898
--------- ---------
Gross Profit........................................ 1,386,852 1,028,374
Administrative Expenses............................. 1,037,115 886,576
--------- ---------
Profit from continuing operations on ordinary
activities before taxation......................... 8 349,737 141,798
Taxation............................................ 10 106,963 38,000
--------- ---------
Profit for the financial year....................... 242,774 103,798
Dividends........................................... 11 30,000 23,000
--------- ---------
Retained profit for the year........................ 212,774 80,798
Retained profit brought forward..................... 9 629,574 548,776
--------- ---------
Retained profit carried forward..................... 842,348 629,574
========= =========
</TABLE>
Other than the profit for the years, the group has made no other recognised
gains or losses.
F-23
<PAGE>
SENSORY SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 1995
1. ACCOUNTING POLICIES
a) The financial statements are based on the historical cost convention.
b) Depreciation is calculated to write down the assets to their residual
values at varying rates between 10% and 25% on the reducing balance.
c) Provision is made for deferred taxation arising from the excess of
capital allowances over depreciation charged and other timing
differences to the extent that it is considered the liability will
crystallise in the foreseeable future.
d) Turnover represents invoiced sales to customers excluding VAT. Income
from maintenance contracts is included in the profit and loss account
in the period in which such income is invoiced.
e) The consolidated financial statements incorporate the financial
statements of Sensory Systems Limited and its subsidiary company
Teletec Sarl all of which are made up to 31 December 1995.
2. TANGIBLE ASSETS
<TABLE>
<CAPTION>
GROUP COMPANY
FIXTURES FIXTURES
& VEHICLES & VEHICLES
---------- ----------
(Pounds) (Pounds)
<S> <C> <C>
COST--1 January 1995...................................... 267,031 209,208
Disposals................................................. (13,955) (13,955)
Additions................................................. 42,395 35,242
------- -------
At 31 December 1995....................................... 295,471 230,495
------- -------
DEPRECIATION--1 January 1995.............................. 137,661 127,035
Eliminated on Disposal.................................... (6,897) (6,897)
Charge for year........................................... 38,075 23,831
------- -------
At 31 December 1995....................................... 168,839 143,969
------- -------
Net book value of 31 December 1995........................ 126,632 86,526
------- -------
</TABLE>
3. INVESTMENTS
Investments represent the cost of 100% of the issued share capital of
Teletec Sarl, a company incorporated in France, which is engaged in similar
activities to that of Sensory Systems Limited.
4. STOCK
Stock represents goods for resale.
5. DEBTORS
<TABLE>
<CAPTION>
GROUP COMPANY
----------------- -----------------
1995 1994 1995 1994
-------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Trade Debtors............................... 411,370 439,801 323,026 332,613
Prepayments................................. 58,411 73,917 36,992 68,917
Amount owed by group undertakings........... -- -- 401,903 174,502
Other Debtors............................... 43,469 -- 43,469 --
------- ------- ------- -------
513,250 513,718 805,390 576,032
======= ======= ======= =======
</TABLE>
F-24
<PAGE>
SENSORY SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED 31 DECEMBER 1995
6. CREDITORS
Amounts falling due within one year.
<TABLE>
<CAPTION>
GROUP COMPANY
----------------- -----------------
1995 1994 1995 1994
-------- -------- -------- --------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Trade Creditors............................. 376,809 311,967 368,849 271,335
Bank Overdrafts............................. -- 237,312 -- 237,312
Corporation Tax............................. 107,263 32,250 107,263 32,250
Other Creditors............................. 49,094 27,116 -- 2,565
Accruals.................................... 58,587 81,630 56,572 30,000
------- ------- ------- -------
591,753 690,275 532,684 573,462
======= ======= ======= =======
</TABLE>
The bank overdrafts are secured by a debenture in favour of the bank.
7. SHARE CAPITAL
<TABLE>
<CAPTION>
GROUP & GROUP &
COMPANY COMPANY
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Ordinary shares (Pounds)1 each authorised, issued and fully
paid....................................................... 100 100
--- ---
</TABLE>
8. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION IS AFTER CHARGING
<TABLE>
<CAPTION>
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Bank Interest.......................................... 13,197 13,416
Depreciation........................................... 38,075 36,036
Directors' remuneration (see below).................... 142,952 112,625
And after crediting audit fee.......................... 1,500 1,500
Interest receivable.................................... 13,548 10,864
------- -------
The remuneration of the Chairman was................... 26,004 25,337
The remuneration of the highest paid director was...... 37,555 32,755
------- -------
</TABLE>
The remuneration of the Directors, and the highest paid director including
the Chairman, were within the following ranges:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
(Pounds)25,001-(Pounds)30,000................................... 1 2
(Pounds)30,001-(Pounds)35,000................................... 1 1
(Pounds)35,001-(Pounds)40,000................................... 1 --
</TABLE>
F-25
<PAGE>
SENSORY SYSTEMS LIMITED
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED 31 DECEMBER 1995
9. STAFF COSTS AND NUMBERS
<TABLE>
<CAPTION>
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Wages and Salaries...................................... 457,022 409,857
Social Security Costs................................... 67,664 63,456
Pension Costs........................................... 63,577 33,855
------- -------
588,263 507,168
------- -------
</TABLE>
The above figures exclude redundancy costs of (Pounds)3,500 (1994-
(Pounds)3,000) which have been charged to the profit and loss account.
<TABLE>
<CAPTION>
NUMBER NUMBER
------ ------
<S> <C> <C>
Office and Management...................................... 20 20
--- ---
</TABLE>
10. TAXATION
<TABLE>
<CAPTION>
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
U.K. Corporation Tax on the profit for the year......... 106,963 38,000
======= ======
</TABLE>
The Company is a "close company" as defined by The Taxes Act.
11. DIVIDENDS
<TABLE>
<CAPTION>
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Interim dividend paid 1 July 1994....................... -- 23,000
First interim dividend paid 6 April 1995................ 10,000 --
Second interim dividend paid 17 July 1995............... 10,000 --
Third interim dividend paid 31 December 1995............ 10,000 --
------ ------
30,000 23,000
====== ======
</TABLE>
12. CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS
There are no contingent liabilities or capital commitments at 31 December
1995 or at 31 December 1994.
13. PENSIONS
The group operates a defined contribution pension scheme for invited
employees. The assets of the scheme are held separately from those of the
company in an independently administered fund. The pension cost charge
represents contributions payable by the company to the fund and amounted to
(Pounds)63,577 (1994-(Pounds)33,855).
F-26
<PAGE>
SENSORY SYSTEMS LIMITED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEAR ENDED 31 DECEMBER 1995
14. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1995 1994
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Retained profit for the financial year.................. 212,774 80,798
Opening Shareholders' funds............................. 629,674 548,876
------- -------
Closing Shareholders' funds............................. 842,448 629,674
======= =======
</TABLE>
The difference between the values of shareholders funds shown on the
Consolidated and Company Balance Sheets represents the deficiency of
shareholders funds of Teletec Sarl of (Pounds)141,723 which from the company's
point of view is deemed to be fully recoverable.
15. COMPANY PROFIT AND LOSS ACCOUNT
Sensory Systems Limited has not presented its own profit and loss account as
permitted by Section 230(1) of the Companies Act 1985. The amount of the
consolidated profit for the year before tax dealt with in the financial
statements of the company is a profit of (Pounds)430,465 (1994-
(Pounds)202,793).
F-27
<PAGE>
Blindness Products
BRAILLE CELLS
This electronically
refreshable braille cell
provides tactile informa-
tion by means of a 2x4
array of plastic pins
which are raised or low-
ered by electrically en-
ergized bimorphic piezo-
electric reeds. These
pins when raised form a
particular pattern of
raised dots corresponding
to a single braille char-
acter, which a blind per-
son can read with his
fingertips.
REFRESHABLE BRAILLE
DISPLAYS
In refreshable braille
devices, braille cells
are arranged in linear
arrays, representing a
line of characters. Adja-
cent controls permit the
blind user to select
which part of a specific
line from a personal com-
puter screen is to be
displayed so that she can
read it, and make editing
changes or insert new in-
formation using a stan-
dard PC keyboard.
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING DE-
SCRIBED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRE-
SENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. 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 COR-
RECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 23
Management............................................................... 32
Certain Relationships and Related Transactions........................... 40
Principal and Selling Shareholders....................................... 42
Description of Capital Stock............................................. 44
Shares Eligible for Future Sale.......................................... 45
Underwriting............................................................. 46
Legal Matters............................................................ 47
Experts.................................................................. 47
Additional Information................................................... 47
Index to Consolidated Financial Statements............................... F-1
</TABLE>
---------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,700,000 SHARES
LOGO
COMMON STOCK
PROSPECTUS
JEFFERIES & COMPANY, INC.
VAN KASPER & COMPANY
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the Company in connection with the sale
of the Common Shares being registered. All of the amounts shown are estimates
except for the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 15,000
NASD Filing Fee.................................................... 5,000
Nasdaq National Market Listing Fee................................. 50,000
Blue Sky Qualification Fees and Expenses........................... 4,000
Printing and Engraving Expenses.................................... 200,000
Legal Fees and Expenses............................................ 280,000
Accounting Fees and Expenses....................................... 210,000
Transfer Agent and Registrar Fees.................................. 30,000
Miscellaneous...................................................... 6,000
--------
TOTAL............................................................ $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Articles of Incorporation eliminate a director's personal
liability for monetary damages to the Registrant and its shareholders arising
form a breach or alleged breach of the director's fiduciary duty, except for
liability arising under Sections 310 and 316 of the California General
Corporation Law or liability for (i) acts or omissions that involve
intentional misconduct or knowing and culpable violation of law, (ii) acts or
omissions that a director believes to be contrary to the best interests of the
Registrant or its shareholders or that involve the absence of good faith on
the part of the director, (iii) any transaction from which a director derived
an improper personal benefit, (iv) acts or omissions that show a reckless
disregard for the director's duty to the Registrant or its shareholders in
circumstances in which the director was aware, or should have been aware, in
the ordinary course of performing a director's duties, of a risk of serious
injury to the Registrant or its shareholders, (v) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication
of the director's duty to the Registrant or its shareholders, (vi) interested
transactions between the corporation and a director in which a director has a
material financial interest, and (vii) liability for improper distributions,
loans or guarantees. This provision does not eliminate the directors' duty of
care, and in appropriate circumstances equitable remedies such as an
injunction or other forms of non-monetary relief would remain available under
California law.
Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Articles of Incorporation and Bylaws contain provisions covering
indemnification to the maximum extent permitted by the California General
Corporation Law of corporate directors, officers and other agents against
certain liabilities and expenses incurred as a result of proceedings involving
such persons in their capacities as directors, officers employees or agents,
including proceedings under the Securities Act or the Securities Exchange Act
of 1934, as amended. The Company has entered into Indemnification Agreements
with its directors and executive officers.
In addition to the foregoing, the Underwriting Agreement provides for
indemnification by the Underwriters of the Registrant, its directors and
officers, and by the Registrant of the several Underwriters, against certain
liabilities, including liabilities arising under the Securities Act.
II-1
<PAGE>
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 30, 1993, the Registrant has issued and sold (without payment of
any selling commission to any person) 44,700 shares of Common Stock to 16
employees and consultants at prices ranging from $0.96--$3.60 per share, upon
exercise of stock options and stock purchase rights, pursuant to the
Registrant's 1977 Stock Option Plan and the 1985 Plan.
In October 1994, the Registrant issued and sold (without payment of any
selling commission to any person) 25,000 shares of Common Stock to H.W. Jesse
& Co. at a price of $2.40 per share.
In March 1996, the Registrant issued and sold (without payment of any
selling commission to any person) 125,000 shares of Common Stock to John
Tillisch Limited, formerly Sensory Systems Limited, at a price of $5.60 per
share.
In April 1996, the Registrant issued and sold (without payment of any
selling commission to any person) 25,000 shares of Common Stock to John M.
Lillie and Daryl L. Lillie, Trustees, Lillie Family Trust at a price of $6.00
per share.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section
3(b) of the Securities Act, as transactions by an issuer not involving a
public offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients of securities in each such transaction represented their intention
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates and instruments issued in such transactions.
All recipients had adequate access, through their relationship with the
Company, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Registrant currently in
effect.
3.2* Form of Restated Articles of Incorporation of Registrant to be filed
prior to the closing of this Offering made under this Registration
Statement.
3.3 Bylaws of Registrant, as currently in effect.
4.1* Form of Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
10.1* 1985 Incentive Stock Option Plan and forms of agreements thereunder.
10.2+ 1993 Stock Option Plan and forms of agreements thereunder.
10.3+ 1995 Stock Plan and forms of agreements thereunder.
10.4 Employee Stock Purchase Plan and forms of agreements thereunder.
10.5* Forms of Indemnification Agreements between Registrant and its
officers and directors.
10.6 1996 Management/Professional Profit Sharing Plan
10.7 1996 Employee Profit Sharing Plan
10.8 Subordination, Nondisturbance, and Attornment Agreement among
William E. Jarvis, Duane E. Dunwoodie and Marlene J. Dunwoodie,
Peter D. Lacy and Registrant, dated June 26, 1992, regarding
Registrant's facility located at 455 North Bernardo Road, Mountain
View, California.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.9 Industrial Lease Agreement between Joint Land Development Company
Number Two and Registrant, dated June 26, 1992, and amendments
thereto, for the Registrant's facility located at 455 North
Bernardo Road, Mountain View, California.
10.10 Loan and Security Agreement between Registrant and Comerica Bank-
California, dated November 30, 1993, and six modifications
thereof.
10.11 Lease Agreement between Waterglade Developments (Edgware Road)
Limited, dated June 2, 1993, and Sensory Systems Limited for
Sensory Systems Limited's facility located at 303 Edgware Road,
London NW9, England.
10.12* Stock Purchase Agreement among Registrant, James C. Bliss and
Carolyn Joan Bliss, Trustees of the James C. Bliss and Carolyn
Joan Bliss Trust u/d/t dated October 11, 1979, Judith Bliss and
John Bliss, and certain shareholders of Registrant, dated April 9,
1995.
10.13 Variable Rate Installment Note issued by Registrant to Comerica
Bank-California in the amount of $250,000.00, dated April 12,
1995.
10.14 Variable Rate Installment Note issued by Registrant to Comerica
Bank-California in the amount of $750,000.00, dated April 12,
1995.
10.15* Stock Purchase Agreement between Registrant and William Schwarz,
dated July 27, 1995.
10.16* Stock Purchase Agreement between Registrant and William Schwarz
and Diane Schwarz, dated July 27, 1995.
10.17 Variable Rate Installment Note issued by Registrant to Comerica
Bank-California in the amount of $1,000,000, dated March 22, 1996.
10.18 Asset Purchase Agreement among VTEK, Registrant, Sensory Systems
Limited and John F. Tillisch, dated March 29, 1996.
10.19* Employment Agreement between Sensory Systems Limited and John F.
Tillisch, dated March 29, 1996.
10.20 Noncompetition Agreement among VTEK, Inc., Registrant, Sensory
Systems Limited and John F. Tillisch, dated March 29, 1996.
11.1 Statement of computation of per share earnings.
21.1 Subsidiaries of Registrant
23.1(a) Consent of Deloitte & Touche LLP, Independent Auditors (see page
II-7).
23.1(b) Consent of Keith Jones FCA, Independent Auditors (see page II-8).
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in
Exhibit 5.1).
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule
</TABLE>
- ----------------
*To be filed by amendment.
+Forms of agreements to be filed by amendment.
(b) Financial Statement Schedule:
II--Valuation and Qualifying Accounts
All other Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
The 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.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions 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 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 of 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 of
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 Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933 (the "Act"), the information omitted from the form of Prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained
in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Mountain View, State of California, on the 31st day of July, 1996.
TELESENSORY CORPORATION
By /s/ Larry Israel
----------------------------------
(LARRY ISRAEL)
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Larry Israel and Robert W. Kamenski and
each one of them, acting individually and without the other, as his or her
attorney-in-fact, each with full power of substitution, for him and her in any
and all capacities, to sign any and all amendments to this Registration
Statement (including post-effective amendments), and to sign any registration
statement for the same Offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that each of said attorneys-in-fact, or his substitute or substitutes may
do or cause to be done by virtue hereof.
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.
SIGNATURE TITLE DATE
/s/ Larry Israel President, Chief July 31, 1996
- ------------------------------------- Executive Officer
(LARRY ISRAEL) and Director
(Principal
Executive Officer)
/s/ Robert W. Kamenski Vice President, July 31, 1996
- ------------------------------------- Finance and Chief
(ROBERT W. KAMENSKI) Financial Officer
(Principal
Financial and
Accounting Officer)
/s/ Mitchell Gooze Director July 31, 1996
- -------------------------------------
(MITCHELL GOOZE)
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ John F. Harper Director July 31, 1996
- -------------------------------------
(JOHN F. HARPER)
/s/ Seymour Liebman Director July 31, 1996
- -------------------------------------
(SEYMOUR LIEBMAN)
/s/ John M. Lillie Director July 31, 1996
- -------------------------------------
(JOHN M. LILLIE)
/s/ John G. Linvill Director July 31, 1996
- -------------------------------------
(JOHN G. LINVILL)
/s/ Peter D. Stent Director July 31, 1996
- -------------------------------------
(PETER D. STENT)
II-6
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Telesensory
Corporation and subsidiaries on Form S-1 of our report dated February 23, 1996
(August , 1996 as to the second and third sentences of Note 1 to the
Consolidated Financial Statements), appearing in the Prospectus, which is part
of this Registration Statement, and of our report dated February 23, 1996
(August , 1996 as to the second and third sentences of Note 1 to the
Consolidated Financial Statements) relating to the consolidated financial
statement schedule appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
San Jose, California
September , 1996
----------------
The consolidated financial statements of Telesensory Corporation and
subsidiaries included in the Prospectus have been adjusted to give effect to
the five-for-four forward split of common stock, which is to be effected
during August 1996. The above consent is in the form which will be signed by
Deloitte & Touche LLP upon consummation of such forward split, which is
described in the second and third sentences of Note 1 to the Consolidated
Financial Statements, and assuming that, from July 30, 1996 to the date of
such forward split, no other events shall have occurred that would affect the
accompanying consolidated financial statements and notes thereto.
Deloitte & Touche LLP
San Jose, California
July 30, 1996
II-7
<PAGE>
EXHIBIT 23.1(B)
[LETTERHEAD OF KEITH JONES FCA]
26 July 1996
y/r BK/JFT
o/r KJ/KR
Mr. Kamenski
Telesensory Corporation
455 North Bernardo Avenue
Mountain View, California 94039
Dear Mr. Kamenski
INDEPENDENT AUDITORS' CONSENT--SENSORY SYSTEMS LIMITED
We consent to the use in this Registration Statement of Telesensory
Corporation on Form S-1 of our report on Sensory Systems Limited and Subsidiary
dated 27 March 1996, appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
Yours sincerely,
/s/ Keith Jones
-------------------------------------
Keith Jones
London, England
July 26, 1996
II-8
<PAGE>
The consolidated financial statements have been adjusted to give effect to
the five-for-four forward split of common stock, which is to be effected
during August 1996. The following opinion is in the form which will be signed
by Deloitte & Touche LLP upon consummation of such forward split, which is
described in the second and third sentences of Note 1 to Consolidated
Financial Statements, and assuming that. from July 30, 1996 to the date of
such forward split, no other events shall have occurred that would affect the
accompanying consolidated financial statements and notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Telesensory Corporation:
We have audited the consolidated financial statements of Telesensory
Corporation and subsidiaries as of December 31, 1995 and 1994, and for each of
the three years in the period ended December 31, 1995, and have issued our
report thereon dated February 23, 1996 (August , 1996 as to the second and
third sentences of Note 1 to the Consolidated Financial Statements) included
elsewhere in this Registration Statement. Our audits also included the
financial statement schedule listed in Item 16(b)II of this Registration
Statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
San Jose, California
February 23, 1996 (August , 1996
as to the second and third sentence
of Note 1 to the Consolidated Financial Statements)
S-1
<PAGE>
TELESENSORY CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGE TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- ----------- ---------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
Year ended December
31,
1993................ $ 73 $ 23 -- $ 31 $ 65
1994................ $ 65 $ 20 -- $ 35 $ 50
1995................ $ 50 $ 63 -- $ 11 $102
Warranty reserves
Year ended December
31,
1993................ $824 $ 822 -- $1,300 $346
1994................ $346 $1,066 -- $1,128 $284
1995................ $284 $ 340 -- $ 202 $422
</TABLE>
- --------
(1) Represents costs charged to the respective reserve account.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Registrant currently in effect.
3.2* Form of Restated Articles of Incorporation of Registrant to be filed
prior to the closing of this Offering made under this Registration
Statement.
3.3 Bylaws of Registrant, as currently in effect.
4.1* Form of Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
10.1* 1985 Incentive Stock Option Plan and forms of agreements thereunder.
10.2+ 1993 Stock Option Plan and forms of agreements thereunder.
10.3+ 1995 Stock Plan and forms of agreements thereunder.
10.4 Employee Stock Purchase Plan and forms of agreements thereunder.
10.5* Forms of Indemnification Agreements between Registrant and its
officers and directors.
10.6 1996 Management/Professional Profit Sharing Plan
10.7 1996 Employee Profit Sharing Plan
10.8 Subordination, Nondisturbance, and Attornment Agreement among William
E. Jarvis, Duane E. Dunwoodie and Marlene J. Dunwoodie, Peter D. Lacy
and Registrant, dated June 26, 1992, regarding Registrant's facility
located at 455 North Bernardo Road, Mountain View, California.
10.9 Industrial Lease Agreement between Joint Land Development Company
Number Two and Registrant, dated June 26, 1992, and amendments
thereto, for the Registrant's facility located at 455 North Bernardo
Road, Mountain View, California.
10.10 Loan and Security Agreement between Registrant and Comerica Bank-
California, dated November 30, 1993, and six modifications thereof.
10.11 Lease Agreement between Waterglade Developments (Edgware Road)
Limited, dated June 2, 1993, and Sensory Systems Limited for Sensory
Systems Limited's facility located at 303 Edgware Road, London NW9,
England.
10.12* Stock Purchase Agreement among Registrant, James C. Bliss and Carolyn
Joan Bliss, Trustees of the James C. Bliss and Carolyn Joan Bliss
Trust u/d/t dated October 11, 1979, Judith Bliss and John Bliss, and
certain shareholders of Registrant, dated April 9, 1995.
10.13 Variable Rate Installment Note issued by Registrant to Comerica Bank-
California in the amount of $250,000.00, dated April 12, 1995.
10.14 Variable Rate Installment Note issued by Registrant to Comerica Bank-
California in the amount of $750,000.00, dated April 12, 1995.
10.15* Stock Purchase Agreement between Registrant and William Schwarz, dated
July 27, 1995.
10.16* Stock Purchase Agreement between Registrant and William Schwarz and
Diane Schwarz, dated July 27, 1995.
10.17 Variable Rate Installment Note issued by Registrant to Comerica Bank-
California in the amount of $1,000,000, dated March 22, 1996.
10.18 Asset Purchase Agreement among VTEK, Registrant, Sensory Systems
Limited and John F. Tillisch, dated March 29, 1996.
10.19* Employment Agreement between Sensory Systems Limited and John F.
Tillisch, dated March 29, 1996.
10.20 Noncompetition Agreement among VTEK, Inc., Registrant, Sensory Systems
Limited and John F. Tillisch, dated March 29, 1996.
11.1 Statement of computation of per share earnings.
21.1 Subsidiaries of Registrant
23.1(a) Consent of Deloitte & Touche LLP, Independent Auditors (see page II-7).
23.1(b) Consent of Keith Jones FCA, Independent Auditors (see page II-8).
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included in Exhibit
5.1).
24.1 Power of Attorney (See page II-5).
27.1 Financial Data Schedule
</TABLE>
- --------------
*To be filed by amendment.
+Forms of agreements to be filed by amendment.
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
TELESENSORY CORPORATION
Larry Israel and Jane G. Mott-Smith certify that:
A. They are the President and Secretary, respectively, of Telesensory
Corporation, a California corporation.
B. The Articles of Incorporation of this corporation are amended and
restated to read in full as follows:
I.
The name of this corporation is Telesensory Corporation.
II.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
This corporation is authorized to issue two classes of stock designated
"Common Stock" and "Preferred Stock." The number of shares of Common Stock
which this corporation shall have authority to issue is 10,000,000 shares. Each
share of Common Stock and Preferred Stock shall have a par value of $.025 per
share. The total number of shares of Preferred Stock which this corporation
shall have authority to issue is 5,000,000 shares.
The Preferred Stock may be divided into such number of series as the board
of directors may determine. The board of directors is authorized to determine
and alter the rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, and to fix the
number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The board of directors, within the limits and
restrictions stated in any resolution or resolutions of the board of directors
originally fixing the number of shares constituting any series, may increase or
decrease (but not below
<PAGE>
the number of shares of such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.
IV
Section 1. Limitation of Directors' Liability. The liability of the
----------------------------------
directors of this corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law.
Section 2. Indemnification of Corporate Agents. This corporation is
-----------------------------------
authorized to provide indemnification of its agents (as defined in Section 317
of the California General Corporation Law) through bylaw provisions, agreements
with the agents, vote of shareholders or disinterested directors or otherwise,
in excess of the indemnification otherwise permitted by such Section 317,
subject only to the limits on such excess indemnification set forth in Section
204 of the California General Corporation Law with respect to actions for breach
of duty to the corporation and its shareholders.
Section 3. Repeal of Modification. Any repeal or modification of the
----------------------
foregoing provisions of this Article IV shall not adversely affect any right of
indemnification or limitation of liability of an agent of this corporation
relating to acts or omissions occurring prior to such repeal or modification.
C. The foregoing amendment and restatement of the corporation's Articles
of Incorporation has been duly approved by the Board of Directors.
D. The foregoing amendment and restatement of the corporation's Articles
of Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 of the Corporations Code. The total number of
outstanding shares of Common Stock of the corporation is _____________. No
shares of Preferred Stock are outstanding. The number of shares voting in favor
of the amendment and restatement equaled or exceeded the vote
<PAGE>
required. The percentage vote required was more than 50% of the outstanding
shares of Common Stock.
We declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge. Executed at Mountain View, California on May 24, 1995.
/s/ Larry Israel
-------------------------------
Larry Israel, President
/s/ Jane G. Mott-Smith
-------------------------------
Jane G. Mott-Smith, Secretary
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
TELESENSORY CORPORATION
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - CORPORATE OFFICES................................................ 1
1.1 PRINCIPAL OFFICE................................................... 1
1.2 OTHER OFFICES...................................................... 1
ARTICLE II - MEETINGS OF SHAREHOLDERS........................................ 1
2.1 PLACE OF MEETINGS.................................................. 1
2.2 ANNUAL MEETING..................................................... 1
2.3 SPECIAL MEETING.................................................... 2
2.4 NOTICE OF SHAREHOLDERS' MEETINGS................................... 2
2.5 MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE....................... 3
2.6 QUORUM............................................................. 3
2.7 ADJOURNED MEETING; NOTICE.......................................... 3
2.8 VOTING............................................................. 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT.................. 5
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING................................................. 5
2.11 RECORD DATE FOR SHAREHOLDER NOTICE;
VOTING: GIVING CONSENTS........................................... 6
2.12 PROXIES........................................................... 6
2.13 INSPECTORS OF ELECTION............................................ 7
ARTICLE III - DIRECTORS...................................................... 8
3.1 POWERS............................................................. 8
3.2 NUMBER OF DIRECTORS................................................ 8
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS........................... 8
3.4 RESIGNATION AND VACANCIES.......................................... 8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE........................... 9
3.6 REGULAR MEETINGS................................................... 9
3.7 SPECIAL MEETINGS; NOTICE........................................... 9
3.8 QUORUM............................................................. 10
3.9 WAIVER OF NOTICE................................................... 10
3.10 ADJOURNMENT....................................................... 10
3.11 NOTICE OF ADJOURNMENT............................................. 11
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................. 11
3.13 FEES AND COMPENSATION OF DIRECTORS................................ 11
3.14 APPROVAL OF LOANS TO OFFICERS..................................... 11
</TABLE>
-i-
2
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE IV - COMMITTEES...................................................... 12
4.1 COMMITTEES OF DIRECTORS............................................ 12
4.2 MEETINGS AND ACTION OF COMMITTEES.................................. 12
ARTICLE V - OFFICERS......................................................... 13
5.1 OFFICERS........................................................... 13
5.2 ELECTION OF OFFICERS............................................... 13
5.3 SUBORDINATE OFFICERS............................................... 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS................................ 13
5.5 VACANCIES IN OFFICES............................................... 14
5.6 CHAIRMAN OF THE BOARD.............................................. 14
5.7 PRESIDENT.......................................................... 14
5.8 VICE PRESIDENTS.................................................... 14
5.9 SECRETARY.......................................................... 14
5.10 CHIEF FINANCIAL OFFICER........................................... 15
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS............................................... 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................... 15
6.2 INDEMNIFICATION OF OTHERS.......................................... 16
6.3 PAYMENT OF EXPENSES IN ADVANCE..................................... 16
6.4 INDEMNITY NOT EXCLUSIVE............................................ 16
6.5 INSURANCE INDEMNIFICATION.......................................... 16
6.6 CONFLICTS.......................................................... 17
ARTICLE VII - RECORDS AND REPORTS............................................ 17
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER....................... 17
7.2 MAINTENANCE AND INSPECTION OF BYLAWS............................... 18
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS............ 18
7.4 INSPECTION BY DIRECTORS............................................ 18
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER.............................. 18
7.6 FINANCIAL STATEMENTS............................................... 19
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS..................... 19
</TABLE>
-ii-
3
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE VIII - GENERAL MATTERS............................................... 20
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.............. 20
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS.......................... 20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED................. 20
8.4 CERTIFICATES FOR SHARES............................................ 20
8.5 LOST CERTIFICATES.................................................. 21
8.6 CONSTRUCTION; DEFINITIONS.......................................... 21
ARTICLE IX - AMENDMENTS...................................................... 21
9.1 AMENDMENT BY SHAREHOLDERS.......................................... 21
9.2 AMENDMENT BY DIRECTORS............................................. 21
</TABLE>
-iii-
4
<PAGE>
BYLAWS
------
OF
--
TELESENSORY CORPORATION
-----------------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 PRINCIPAL OFFICE
----------------
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of shareholders shall be held at any place within or outside the
State of California designated by the board of directors. In the absence of any
such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of shareholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such designation,
the annual meeting of shareholders shall be held on the first Friday of May in
each year at 2:00 p.m. However, if such day falls on a legal holiday, then the
meeting shall be held at the same time and place on the next succeeding full
business day. At the meeting, directors shall be elected, and any other proper
business may be transacted.
-1-
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
--------------------------------
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent
by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
-2-
<PAGE>
2.5 MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that shareholder
appearing on the books of the corporation is returned to the corporation by the
United States Postal Service marked to indicate that the United States Postal
Service is unable to deliver the notice to the shareholder at that address, then
all future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available to the shareholder on written
demand of the shareholder at the principal executive office of the corporation
for a period of one (1) year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
------
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the absence
of a quorum, no other business may be transacted at that meeting except as
provided in Section 2.6 of these bylaws.
-3-
<PAGE>
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than forty-five (45) days from the date set for the
original meeting, then notice of the adjourned meeting shall be given. Notice
of any such adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the provisions of
Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation
may transact any business which might have been transacted at the original
meeting.
2.8 VOTING
------
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the shares
represented and voting at a duly held meeting (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number or a vote by classes is
required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit.
The candidates receiving the highest number of affirmative votes, up to the
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number of directors to be elected, shall be elected; votes against any candidate
and votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
-------------------------------------------------
The transactions of any meeting of shareholders, either annual or special,
however called and noticed, and wherever held, shall be as valid as though they
had been taken at a meeting duly held after regular call and notice, if a quorum
be present either in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, who was not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of shareholders, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent
or approval shall state the general nature of the proposal. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Any action which may be taken at any annual or special -meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
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If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a contract or transaction in
which a director has a direct or indirect financial interest, pursuant to
Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant
to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant
to Section 1201 of the Code, and (iv) a distribution in dissolution other than
in accordance with the rights of outstanding preferred shares, pursuant to
Section 2007 of the Code, the notice shall be given at least ten (10) days
before the consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING: GIVING CONSENTS
-----------------------------------------------------------
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article VIII
of these bylaws.
2.12 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation. A proxy shall be deemed signed if the shareholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic transmission
or
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otherwise) by the shareholder or the shareholder's attorney-in fact. A validly
executed proxy which does not state that it is irrevocable shall continue in
full force and effect unless (i) the person who executed the proxy revokes it
prior to the time of voting by delivering a writing to the corporation stating
that the proxy is revoked or by executing a subsequent proxy and presenting it
to the meeting or by voting in person at the meeting, or (ii) written notice of
the death or incapacity of the maker of that proxy is received by the
corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
----------------------
Before any meeting of shareholders, the board of directors may appoint an
inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (1) or more shareholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (1) or three (3) inspectors are to be
appointed. 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 inspectors 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 the authenticity, validity, and effect of proxies
(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 when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness-to all shareholders.
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ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the Code and any limitations in the articles
of incorporation and these bylaws relating to action required to be approved by
the shareholders or by the outstanding shares, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by or
under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than five (5)
nor more than nine (9). The exact number of directors shall be five (5) until
changed, within the limits specified above, by a bylaw amending this Section
3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Directors shall be elected at each annual meeting of shareholders to hold
office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
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<PAGE>
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to exist
(i) in the event of the death, resignation or removal of any director, (ii) if
the board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of a
felony, (iii) if the authorized number of directors is increased, or (iv) if the
shareholders fail, at any meeting of shareholders at which any director or
directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, but any such election other
than to fill a vacancy created by removal, if by written consent, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of California that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
California that has been designated in the notice of the meeting or, if not
stated in the notice or if there is no notice, at the principal executive office
of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
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Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone 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. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.10
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.9 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting to another time and place.
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<PAGE>
3.11 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) 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 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed
with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS/1/
-----------------------------
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guarantees
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
_____________________
/1/ This section is effective only if it has been approved by the
shareholders in accordance with Sections 315(b) and 152 of the Code.
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<PAGE>
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also
requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on
the board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of
new bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except
at a rate or in a periodic amount or within a price range determined by the
board of directors; or
(g) the appointment of any other committees of the board of
directors or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees
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shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, one or more vice presidents, one or
more assistant secretaries, one or more assistant treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 5.3 of
these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws,
shall be chosen by the board, subject to the rights, if any, of an officer under
any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
---------------
This section is effective only if it has been approved by the shareholders
in accordance with Sections 315(b) and 152 of the Code. 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 of directors, 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. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the board of directors, these bylaws, the president or the
chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
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The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
This section is effective only if it has been approved by the shareholders
in accordance with Sections 315(b) and 152 of the Code. The secretary shall
give, or cause to be given, notice of all meetings of the shareholders and of
the board of directors required to be given by law or by these bylaws. He shall
keep the seal of the corporation, if one be adopted, in safe custody and shall
have such other powers and perform such other duties as may be prescribed by the
board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
-------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the Code, indemnify each of its directors and officers against expenses (as
defined in Section 317(a) of the Code), judgments, fines, settlements, and other
amounts actually and reasonably incurred in connection with any proceeding (as
defined in Section 317(a) of the Code), arising by reason of the fact that such
person is or was an agent of the corporation. For purposes of this Article VI,
a "director" or "officer" of the corporation includes any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of
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<PAGE>
another corporation, partnership, joint venture, trust or other enterprise, or
(iii) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article VI, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending any civil or criminal action or proceeding
for which indemnification is required pursuant to Section 6.1 or for which
indemnification is permitted pursuant to Section 6.2 following authorization
thereof by the Board of Directors shall be paid by the corporation in advance of
the final disposition of such action or proceeding upon receipt of an under
taking by or on behalf of the indemnified party to repay such amount if it shall
ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE INDEMNIFICATION
-------------------------
The corporation shall have the power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation against any liability asserted against or incurred by such person in
such capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article VI.
-16-
<PAGE>
6.6 CONFLICTS
---------
No indemnification or advance shall be made under this Article VI, except
where such indemnification or advance is mandated by law or the order, judgment
or decree of any court of competent jurisdiction, in any circumstance where it
appears:
(1) That it would be inconsistent with a provision of the Articles of
Incorporation, these bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
--------------------------------------------
The corporation shall keep either at its principal executive office or at
the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the written
demand of any shareholder or holder of a voting trust certificate, at any time
during usual business hours, for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
-17-
<PAGE>
Any inspection and copying under this Section 7.1 may be made in person or
by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
------------------------------------
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
------------------------------------------------------
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours, for a purpose
reasonably related to the holder's interests as a shareholder or as the holder
of a voting trust certificate. The inspection may be made in person or by an
agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4 INSPECTION BY DIRECTORS
-----------------------
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
-------------------------------------
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
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<PAGE>
The annual report shall contain (i) a balance sheet as of the end of the
fiscal year, (ii) an income statement, (iii) a statement of changes in financial
position for the fiscal year, and (iv) any report of independent accountants or,
if there is no such report, the certificate of an authorized officer of the
corporation that the statements were prepared without audit from the books and
records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than one hundred (100) holders
of record.
7.6 FINANCIAL STATEMENTS
--------------------
If no annual report for the fiscal year has been sent to shareholders, then
the corporation shall, upon the written request of any shareholder made more
than one hundred twenty (120) days after the close of such fiscal year, deliver
or mail to the person making the request, within thirty (30) days thereafter, a
copy of a balance sheet as of the end of such fiscal year and an income
statement and statement of changes in financial position for such fiscal year.
If a shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
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<PAGE>
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
If the board of directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
-----------------------
A certificate or certificates for shares of the corporation shall be issued
to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the chairman of the board or
the vice chairman of the board or the
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<PAGE>
president or a vice president and by the chief financial officer or an assistant
treasurer or the secretary or an assistant secretary, certifying the number of
shares and the class or series of shares owned by the shareholder. Any or all
of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate ceases to be that officer,
transfer agent or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
----------
9.1 AMENDMENT BY SHAREHOLDERS
-------------------------
New bylaws may be adopted or these bylaws may be amended or repealed by the
vote or written, consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
----------------------
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except
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<PAGE>
to fix the authorized number of directors pursuant to a bylaw providing for a
variable number of directors), may be adopted, amended or repealed by the board
of directors.
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<PAGE>
EXHIBIT 5.1
-----------
[LETTERHEAD OF WILSON SONSINI GOODRICH & ROSATI]
July 31, 1996
Telesensory Corporation
455 North Bernardo Avenue
Mountain View, CA 94043
Re: Registration Statement on Form S-1
--------------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you with
the Securities and Exchange Commission (the "Commission") on July 31, 1996 (as
such may be further amended or supplemented, the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended
(the "Act"), of up to 3,105,000 shares of your Common Stock (the "Shares"). The
Shares, which include up to 405,000 shares of Common Stock issuable pursuant to
an over-allotment option granted to the underwriters (the "Underwriters"), are
to be sold to the Underwriters as described in such Registration Statement for
sale to the public. Of the shares being sold, 2,480,000 are being sold by the
Company (including the 405,000 Shares of Common Stock in the over-allotment
option) and 625,000 are being sold by certain shareholders of the Company. As
your counsel in connection with this transaction, we have examined the
proceedings proposed to be taken by you in connection with the issuance and sale
of the Shares.
Based on the foregoing, it is our opinion that, upon conclusion of the
proceedings being taken or contemplated by us, as your counsel, to be taken
prior to the issuance of the Shares and upon completion of the proceedings taken
in order to permit such transactions to be carried out in accordance with the
securities laws of various states where required, the Shares, when issued and
sold in the manner described in the Registration Statement, will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
which has been approved by us, as such may be further amended or supplemented,
or incorporated by reference in any Registration Statement relating to the
prospectus file pursuant to Rule 462(b) of the Act.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 10.2
TELESENSORY CORPORATION
1993 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available senior executive officers, to provide
additional incentive to the senior executive officers of the Company and to
promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"non-statutory stock options," at the discretion of the Board and as reflected
in the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Committee, if one has been appointed, or
-----
the Board of Directors of the Company, if no Committee is appointed.
(b) "Common Stock" shall mean the Common Stock of the Company.
------------
(c) "Company" shall mean Telesensory Corporation, a California
-------
corporation.
(d) "Committee" shall mean the Committee appointed by the Board of
---------
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(e) "Continuous Status as a Senior Executive Officer" shall mean the
-----------------------------------------------
absence of any interruption or termination of service as a Senior Executive
Officer. Continuous Status as a Senior Executive Officer shall not be
considered interrupted in the case of sick leave, military leave, or any other
leave of absence approved by the Board; provided that such leave is for a period
of not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(f) "Incentive Stock Option" shall mean an Option intended to qualify
----------------------
as an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
(g) "Option" shall mean a stock option granted pursuant to the Plan.
------
(h) "Optioned Stock" shall mean the Common Stock subject to an
--------------
Option.
(i) "Optionee" shall mean a Senior Executive Officer who receives an
--------
Option.
(j) "Plan" shall mean this 1993 Stock Option Plan.
----
(k) "Senior Executive Officer" shall mean the following officers of
------------------------
the Company: The Chief Executive Officer, the President, any vice president
reporting directly to the Chief Executive Officer or President and the
Secretary.
(l) "Share" shall mean a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
<PAGE>
(m) "Subsidiary" shall mean a "subsidiary corporation," whether now
----------
or hereafter existing, as defined in Section 425(f) of the Internal Revenue Code
of 1986, as amended.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 250,000 shares of Common Stock. The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure. The Plan shall be administered by the Board of
---------
Directors of the Company.
(i) Subject to subparagraph (ii), the Board of Directors may
appoint a Committee consisting of not less than two members of the Board of
Directors to administer the Plan on behalf of the Board of Directors, subject to
such terms and conditions as the Board of Directors may prescribe. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board of Directors. From time to time the Board of Directors may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
Members of the Board who are either eligible for Options or have
been granted Options may vote on any matters affecting the administration of the
Plan or the grant of any Options pursuant to the Plan, except that no such
member shall act upon the granting of an Option to himself, but any such member
may be counted in determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the granting of Options to
him.
(ii) Notwithstanding the foregoing subparagraph (i), if and in
any event the Company registers any class of any equity security pursuant to
Section 12 of the Exchange Act, from the effective date of such registration
until six months after the termination of such registration, any grants of
options to officers or directors shall only be made by the Board of Directors;
provided, however, that if a majority of the Board of Directors is eligible to
participate in this Plan or any other stock option or other stock plan of the
Company or any of its affiliates, or has been eligible at any time within the
preceding year, any grants of options to directors must be made by, or only in
accordance with the recommendation of, a Committee consisting of three or more
persons, who may but need not be directors or employees of the Company,
appointed by the Board of Directors and having full authority to act in the
matter, none of whom is eligible to participate in this Plan or any other
stock option or other stock plan of the Company or any of its affiliates, or
has been eligible at any time within the preceding year. Any Committee
administering the Plan with respect to grants to officers who are not also
directors shall conform to the requirements of the preceding sentence. Once
appointed, the Committee shall continue to serve until otherwise directed by
the Board of Directors. Subject to the foregoing, from time to time the Board
of Directors may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new
members in substitution therefor, fill vacancies however caused, or remove all
members of the Committee and thereafter directly administer the Plan.
(b) Powers of the Board. Subject to the provisions of the Plan, the
-------------------
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, in accordance with Section 422 of the Internal
-2-
<PAGE>
Revenue code of 1986, as amended, or "non-statutory stock options;" (ii) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (iii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iv) to
determine the Senior Executive Officers to whom, and the time or times at which,
Options shall be granted and the number of shares to be represented by each
Option; (v) to interpret the Plan; (vi) to prescribe, amend and rescind rules
and regulations relating to the Plan; (vii) to determine the terms and
provisions of each Option granted (which need not be identical) and, with the
consent of the holder thereof, modify or amend each Option; (viii) to accelerate
or defer (with the consent of the Optionee) the exercise date of any Option,
consistent with the provisions of Section 5 of the Plan; (ix) to authorize any
person to execute on behalf of the Company any instrument required to effectuate
the grant of an option previously granted by the Board; and (x) to make all
other determinations deemed necessary or advisable for the administration of the
Plan.
(c) Effect of Board's Decision. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. Eligibility.
-----------
(a) Options may be granted only to Senior Executive Officers. A
Senior Executive Officer who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
(b) No Incentive Stock Option may be granted to a Senior Executive
Officer which, when aggregated with all other Incentive Stock Options granted to
such Senior Executive Officer by the Company or any Parent or Subsidiary, would
result in shares having an aggregate fair market value (determined for each
Share as of the date of grant of the Option covering such Share) in excess of
$100,000 becoming first available for purchase upon exercise of one or more
Incentive Stock Options during any calendar Year.
(c) Section 5(b) of the Plan shall apply only to an Incentive Stock
Option evidenced by an "Incentive Stock Option Agreement" which sets forth the
intention of the Company and the Optionee that such Option shall qualify as an
Incentive Stock Option. Section 5(b) of the Plan shall not apply to any Option
evidenced by a "Nonstatutory Stock Option Agreement" which sets forth the
intention of the Company and the Optionee that such option shall be a
nonstatutory stock option.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Term of option. The term of each Option shall be ten (10) years from
--------------
the date of grant thereof or such shorter term as may be provided in the Stock
Option Agreement. However, in the case of an Option granted to an Optionee who,
at the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter time as may be provided in the Stock Option
Agreement.
-3-
<PAGE>
8. Exercise Price and Consideration.
--------------------------------
(a) The per Share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to a Senior Executive Officer who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share market exercise price shall be no less
than 110% of the fair market value per Share on the date of grant.
(B) granted to any Senior Executive Officer, the per Share
exercise price shall be no less than 100% of the fair market value per Share on
the date of grant.
(ii) In the case of an Option granted on or after the effective
date of registration of any class of equity security of the Company pursuant to
Section 12 of the Exchange Act and prior to six months after the termination of
such registration, the per Share exercise price shall be no less than 100% of
the fair market value per Share on the date of grant.
(iii) In the case of any Option, the per Share exercise price
shall be no less than 85% of the fair market value per Share on the date of
grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices of the Common Stock for the date of grant, as reported in the Wall
Street Journal (or, if not so reported, as otherwise reported by the National
Association of Securities Dealers Automated Quotation (NASDAQ) System) or, in
the event the Common Stock is listed on a stock exchange, the fair market value
per Share shall be the closing price on such exchange on the date of grant of
the Option, as reported in the Wall Street Journal.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Board and may consist entirely of cash, check, promissory note, other Shares
of Common Stock having a fair market value on the date of surrender equal to the
aggregate exercise price of the Shares as to which said option shall be
exercised, or any combination of such methods of payment, or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under Sections 408 and 409 of the California General Corporation Law.
In making its determination as to the type of consideration to accept, the Board
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company (Section 315(b) of the California General Corporation Law).
9. Exercise of Option.
-------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
-4-
<PAGE>
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(c) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Senior Executive Officer. If a Senior
---------------------------------------------------
Executive Officer ceases to serve as a Senior Executive Officer, he may, but
only within thirty (30) days (or such other period of time not exceeding three
(3) months as is determined by the Board at the time of grant of the Option)
after the date he ceases to be a Senior Executive Officer of the Company,
exercise his Option to the extent that he was entitled to exercise it at the
date of such termination. To the extent that he was not entitled to exercise the
Option at the date of such termination, or if he does not exercise such Option
(which he was entitled to exercise) within the time specified herein, the Option
shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section
----------------------
9(b) above, in the event a Senior Executive Officer is unable to continue his
employment or consulting relationship (as the case may be) with the Company as a
result of his total and permanent disability (as defined in Section 37(e)(3) of
the Internal Revenue Code), he may, but only within six (6) months (or such
other period of time not exceeding twelve (12) months as is determined by the
Board at the time of grant of the Option) from the date of termination, exercise
his Option to the extent he was entitled to exercise it at the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of termination, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
-----------------
(i) during the term of the Option who is at the time of his
death a Senior Executive Officer of the Company and who shall have been in
Continuous Status as a Senior Executive Officer since the date of grant of the
Option, the Option may be exercised, at any time within six (6) months (or such
other period of time as is determined by the Board at the time of grant of the
Option) following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued as of the date of death; or
(ii) within thirty (30) days (or such other period of time not
exceeding three (3) months as is determined by the Board at the time of grant of
the Option) after the termination of Continuous Status as a Senior Executive
Officer, the Option may be exercised, at any time within six (6) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
-5-
<PAGE>
10. Non-Transferability of Options. The Option may not be sold,
------------------------------
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger. Subject to any
----------------------------------------------------
required action by the shareholders of the Company, the number of shares of
Common Stock covered by each outstanding Option, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the
Company, the Board shall notify the Optionee at least fifteen (15) days prior to
such proposed action. To the extent it has not been previously exercised, the
Option will terminate immediately prior to the consummation of such proposed
action. In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event that such successor corporation does not
agree to assume the Option or to substitute an equivalent option, the Board
shall, in lieu of such assumption or substitution, provide for the Optionee to
have the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. If the Board
makes an Option fully exercisable in lieu of assumption or substitution in the
event of a merger, the Board shall notify the Optionee that the Option shall be
fully exercisable for a period of fifteen (15) days from the date of such
notice, and the Option will terminate upon the expiration of such period.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Senior
Executive Officer to whom an Option is so granted within a reasonable time after
the date of such grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may amend or terminate
-------------------------
the Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the shareholders of the Company in the manner described in Section 17 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the Plan;
(ii) any change in the designation of the class of Senior
Executive Officers eligible to be granted Options; or
-6-
<PAGE>
(iii) if the Company has a class of equity security registered
under Section 12 of the Exchange Act at the time of such revision or amendment,
any material increase in the benefits accruing to participants under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder
--------------------
approval under Section 13(a) of the Plan is made subsequent to the first
registration of any class of equity security by the Company under Section 12 of
the Exchange Act, such shareholder approval shall be solicited as described in
Section 17(a) of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve months before or after
the date the Plan is adopted. If such shareholder approval is obtained at a
duly held shareholders' meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon. If and in the event that the Company
registers any class of any equity security pursuant to Section 12 of the
Exchange Act, the approval of such shareholders of the Company shall be:
(a) (1) solicited substantially in accordance with Section 14(a)
of the Exchange Act and the rules and regulations promulgated thereunder, or (2)
solicited after the Company has furnished in writing to the holders entitled to
vote substantially the same information concerning the Plan as that which would
be required by
-7-
<PAGE>
the rules and regulations in effect under Section 14(a) of the Exchange Act at
the time such information is furnished; and
(b) obtained at or prior to the first annual meeting of shareholders
held subsequent to the first registration of any class of equity securities of
the Company under Section 12 of the Exchange Act.
If such shareholder approval is obtained by written consent, it must
be obtained by the unanimous written consent of all shareholders of the Company.
-8-
<PAGE>
EXHIBIT 10.3
TELESENSORY CORPORATION
1995 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant of an Option and subject to the applicable provisions of Section 422 of
the Code and the regulations promulgated thereunder. Stock Purchase Rights may
also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means a Committee appointed by the Board of
---------
Directors in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means TeleSensory Corporation, a California
-------
corporation.
(g) "Consultant" means any person who is engaged by the Company or
----------
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not. If the Company registers any class of any
equity security pursuant to the Exchange Act, the term Consultant shall
thereafter not include Directors who are not compensated for their services or
are paid only a Director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave approved by an authorized representative of
the Company. For purposes of Incentive Stock Options, no such leave may exceed
90 days, unless reemployment upon expiration of such leave is guaranteed
<PAGE>
by statute or contract, including Company policies. If reemployment upon
expiration of a leave of absence approved by the Company is not so guaranteed,
on the 91st day of such leave any Incentive Stock Option held by the Optionee
shall cease to be treated as an Incentive Stock Option and shall be treated for
tax purposes as a Nonstatutory Stock Option.
(i) "Director" means a member of the Board of Directors of the
--------
Company.
(j) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination and reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option which is intended to
----------------------
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(n) "Nonstatutory Stock Option" means an Option which does not
-------------------------
qualify as an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
------
(q) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
-2-
<PAGE>
(r) "Optionee" means an Employee or Consultant who receives an
--------
Option or Stock Purchase Right.
(s) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(t) "Plan" means this 1995 Stock Plan.
----
(u) "Restricted Stock" means shares of Common Stock acquired
----------------
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(v) "Section 16(b)" means Section 16(b) of the Securities Exchange
-------------
Act of 1934, as amended.
(w) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 below.
(x) "Stock Purchase Right" means a right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be subject to Option
or sold pursuant to a Stock Purchase Right under the Plan is 750,000 Shares.
The Shares may be authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an option
exchange program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan, upon
exercise of either an Option or Stock Purchase Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan. For purposes of the preceding sentence, voting rights
shall not be considered a benefit of Share ownership.
-3-
<PAGE>
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which
----------------------
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a Committee appointed by the Board.
(b) Plan Procedure After the Date, if any, upon Which the Company
-------------------------------------------------------------
becomes Subject to the Exchange Act.
- -----------------------------------
(i) Multiple Administrative Bodies. If permitted by Rule
------------------------------
16b-3, the Plan may be administered by different bodies with respect to
Directors, Officers and Employees who are neither Directors nor Officers.
(ii) Administration With Respect to Directors and Officers.
-----------------------------------------------------
With respect to grants of Options and Stock Purchase Rights to Employees who
are also Officers or Directors of the Company, the Plan shall be administered by
(A) the Board if the Board may administer the Plan in compliance with the rules
under Rule 16b-3 promulgated under the Exchange Act or any successor thereto
("Rule 16b-3") relating to the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted to comply with the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made.
(iii) Administration With Respect to Other Employees and Consultants
--------------------------------------------------------------
With respect to grants of Option and Stock Purchase Rights to Employees or
Consultants who are neither Directors nor Officers of the Company, the Plan
shall be administered by (A) the Board or (B) a Committee designated by the
Board, which committee shall be constituted in such a manner as to satisfy the
legal requirements relating to the administration of incentive stock option
plans, if any, of California corporate and securities laws, of the Code, and of
any applicable stock exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies,
however caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
-4-
<PAGE>
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of Shares to be covered by each
such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award granted
hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions,
----------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options or Stock Purchase
Rights.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if otherwise eligible, be granted additional Options
or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such
-5-
<PAGE>
designations, to the extent that the aggregate Fair Market Value of Shares
subject to an Optionee's Incentive Stock Options granted by the Company, any
Parent or Subsidiary, which become exercisable for the first time during any
calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted. The Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuation of his or her
employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than 100,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 12.
(iii) If an Option or Stock Purchase Right is cancelled in the
same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the cancelled Option or
Stock Purchase Right shall be counted against the limit set forth in Section
5(d)(i). For this purpose, if the exercise price of an Option or Stock Purchase
Right is reduced, such reduction will be treated as a cancellation of the Option
or Stock Purchase Right and the grant of a new Option or Stock Purchase Right.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 18 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
-6-
<PAGE>
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any other person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
a broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and
-7-
<PAGE>
as shall be permissible under the terms of the Plan, but in no case at a rate of
less than 20% per year over five (5) years from the date the Option is granted.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) hereof. Until
the issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote, receive dividends or any other rights
as a shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 hereof.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event of termination of an Optionee's Continuous Status as an Employee or
Consultant (but not in the event of an Optionee's change of status from Employee
to Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an
----------------------
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent otherwise entitled to exercise it at the date of such termination.
If such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall automatically cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option on
the day three months
-8-
<PAGE>
and one day following such termination. To the extent that the Optionee was not
entitled to exercise the Option at the date of termination, or if the Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant) by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option on the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after the Optionee's death,
the Optionee's estate or a person who acquires the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed [thirty (30)] days from the
date upon which the Administrator makes the determination to grant the Stock
Purchase Right. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator. Shares purchased
pursuant to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."
-9-
<PAGE>
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exercised, the Option or Stock Purchase Right shall
terminate immediately prior to the consummation of such proposed action.
-10-
<PAGE>
(c) Merger. In the event of a merger of the Company with or into
------
another corporation, each outstanding Option or Stock Purchase Right may be
assumed or an equivalent option or right may be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. If, in such
event, an Option or Stock Purchase Right is not assumed or substituted, the
Option or Stock Purchase Right shall terminate as of the date of the closing of
the merger. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be considered assumed if, following the merger, the Option or Stock
Purchase Right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger, the consideration (whether stock, cash, or other securities or
property) received in the merger by holders of Common Stock for each Share held
on the effective date of the transaction (and if the holders are offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares). If such consideration received in the
merger is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger.
13. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Stock Purchase Right is so granted within a reasonable time
after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted, and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase
-11-
<PAGE>
Right and the issuance and delivery of such Shares pursuant thereto shall comply
with all relevant provisions of law, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the Company,
such a representation is required by any of the aforementioned relevant
provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan,
---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
17. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written agreements in such form as the Administrator shall approve from time to
time.
18. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
19. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.
-12-
<PAGE>
EXHIBIT 10.4
TELESENSORY CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1996 Employee Stock Purchase
Plan of Telesensory Corporation (the "Company").
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean Telesensory Corporation, a California
-------
corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and sales commissions, payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses, but exclusive of other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship will be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(i) "Exercise Date" shall mean the last day of each Offering Period.
-------------
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") Stock Market, its Fair Market Value shall be the
closing sale price for the Common Stock (or the mean of the closing bid and
asked prices, if no sales were reported), as quoted on such exchange (or the
exchange with the greatest volume of trading in Common Stock) or system on the
date of such determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable, or;
(2) If the Common Stock is quoted on the Nasdaq System (but not
on the Nasdaq National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final Prospectus included within the Registration
Statement filed with the Securities and Exchange Commission for the initial
public offering of the Company's Common Stock.
(k) "Offering Period" shall mean a period of approximately six (6)
---------------
months, commencing on an Enrollment Date and terminating on an Exercise Date.
The first Offering Period shall commence on the effective date of the Company's
initial public offering of its Common Stock that is registered with the
Securities and Exchange Commission (the "Effective Date") and shall terminate on
the last Trading Day of the month which is six months from the Effective Date.
Thereafter, Offering Periods shall commence on the first Trading Day following
termination of the prior Offering Period and shall terminate on the last Trading
Day of the sixth month following commencement of such Offering Period.
(l) "Plan" shall mean this 1996 Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
-2-
<PAGE>
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the NASDAQ System are open for trading.
3. Eligibility.
-----------
(a) Any Employee (as defined in Section 2(g)), who shall be employed
by the Company on a given Enrollment Date shall be eligible to participate in
the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent his or her rights to purchase stock under
all employee stock purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
----------------
Offering Periods. The first Offering Period shall commence on the Effective Date
and shall terminate on the last Trading Day of the month that is six months from
the Effective Date. Thereafter, Offering Periods shall commence on the first
Trading Day following Exercise Date of the prior Offering Period and shall
terminate on the last Trading Day of the sixth month following commencement of
such Offering Period. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least fifteen (15) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's Personnel Department
office not later than one day prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
-3-
<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during an Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, but may not otherwise increase or
decrease the rate of his or her payroll deductions during the Offering Period. A
participant's subscription agreement shall remain in effect for successive
Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year (the "Current
Offering Period") that the aggregate of all payroll deductions which were
previously used to purchase stock under the Plan in a prior Offering Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Offering Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant's subscription
agreement at the beginning of the first Offering Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the participant's account as of the
Exercise Date by the applicable Purchase Price. In no event shall an Employee be
permitted to purchase on the Exercise Date of any Offering Period a number of
shares greater than, as of the first day of the Offering Period, two times the
Employee's initial payroll deduction amount times the number of payroll periods
in the Offering Period divided by the per share Fair Market Value. Moreover, no
Employee shall be
-4-
<PAGE>
permitted to purchase more than 1,000 shares in any twelve-month period. All
such purchases shall also be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number of
full shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be carried over in the participant's account into the next
Offering Period. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the shares shall be credited to an account in
the participant's name with a brokerage firm selected by the Plan Committee to
hold the shares in it's street name.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time up to two weeks prior to any Exercise Date
by giving written notice to the Company in the form of Exhibit B to this Plan.
All of the participant's payroll deductions credited to his or her account will
be paid to such participant promptly after receipt of notice of withdrawal, such
participant's option for the Offering Period will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made during
the Offering Period. If a participant withdraws from an Offering Period, payroll
deductions will not resume at the beginning of the succeeding Offering Period
unless the participant delivers to the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof) for any reason, he or she will be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such participant's
account during the Offering Period but not yet used to exercise the option will
be returned to such participant or, in the case of his or her death, to the
person or persons entitled thereto under Section 14 hereof, and such
participant's option will be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
(c) A participant's withdrawal from an Offering Period will not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
-5-
<PAGE>
11. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be one hundred
twenty-five thousand (125,000) shares, subject to adjustment upon changes in
capitalization of the Company as provided in Section 18 hereof. If on a given
Exercise Date the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration.
--------------
(a) Administrative Body. The Plan shall be administered by the Board
-------------------
or a committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
----------------------
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be administered only by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
-6-
<PAGE>
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization.
------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
-7-
<PAGE>
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by setting a new
Exercise Date (the "New Exercise Date") or to cancel each outstanding right to
purchase and refund all sums collected from participants during the Offering
Period then in progress. If the Board shortens the Offering Period then in
progress in lieu of assumption or substitution in the event of a merger or sale
of assets, the Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for his
option has been changed to the New Exercise Date and that his option will be
exercised automatically on the New Exercise Date, unless prior to such date he
has withdrawn from the Offering Period as provided in Section 10 hereof. For
purposes of this paragraph, an option granted under the Plan shall be deemed to
be assumed if, following the sale of assets or merger, the option confers the
right to purchase or receive, for each share of option stock subject to the
option immediately prior to the sale of assets or merger, the consideration
(whether stock, cash or other securities or property) received in the sale of
assets or merger by holders of Common Stock for each share of Common Stock held
on the effective date of the transaction (and if such holders were offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares of Common Stock); provided, however, that if
such consideration received in the sale of assets or merger was not solely
common stock of the successor corporation or its parent (as defined in Section
424(e) of the Code), the Board may, with the consent of the successor
corporation, provide for the consideration to be received upon exercise of the
option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by each outstanding option, in the event the Company
effects one or more reorganizations, recapitalizations, rights offerings or
other increases or reductions of shares of its outstanding Common Stock, and in
the event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason amend or terminate the Plan. Except as provided in Section 18 hereof, no
such termination can affect options previously granted. Except as provided in
Section 18 hereof, no amendment may make any change in any option theretofore
granted which adversely affects the rights of any participant. To the extent
necessary to comply with Rule 16b-3 or under Section 423 of the Code (or any
successor rule or provision or any other applicable law or regulation), the
Company shall obtain shareholder approval in such a manner and to such a degree
as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be
-8-
<PAGE>
entitled to change the Offering Periods, limit the frequency and/or number of
changes in the amount withheld during an Offering Period, establish the exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a participant
in order to adjust for delays or mistakes in the Company's processing of
properly completed withholding elections, establish reasonable waiting and
adjustment periods and/or accounting and crediting procedures to ensure that
amounts applied toward the purchase of Common Stock for each participant
properly correspond with amounts withheld from the participant's Compensation,
and establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are consistent with
the Plan.
20. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
-9-
<PAGE>
EXHIBIT A
---------
TELESENSORY CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:__________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
Telesensory Corporation 1996 Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation (not to exceed 10%) on each payday during each
Offering Period, in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically purchase such
Shares.
4. I have received a copy of the complete "Employee Stock Purchase Plan." I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse Only):
_______________________________
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be treated
for federal income tax purposes as having received ordinary income at the
time of such disposition in an amount equal to the excess of the fair
market value of the shares at the time such shares were purchased by me
over the price which I paid for the shares. I hereby agree to notify the
----------------------------
Company in writing within 30 days after the date of any disposition of
----------------------------------------------------------------------
shares and I will make adequate provision for Federal, state or other tax
-------------------------------------------------------------------------
withholding obligations, if any, which arise upon the disposition of the
------------------------------------------------------------------------
Common Stock. The
------------
<PAGE>
Company may, but will not be obligated to, withhold from my compensation
the amount necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the Company any
tax deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the
expiration of the 2-year holding period, I understand that I will be
treated for federal income tax purposes as having received income only at
the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of (1)
the excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2) 15%
of the fair market value of the shares on the first day of the Offering
Period. The remainder of the gain, if any, recognized on such disposition
will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) _______________________________________________
(First) (Middle) (Last)
____________________ _______________________________________________
Relationship
_______________________________________________
(Address)
NAME: (Please print) _______________________________________________
(First) (Middle) (Last)
____________________ _______________________________________________
Relationship
_______________________________________________
(Address)
Employee's Social
Security Number: _______________________________________________
Employee's Address: _______________________________________________
_______________________________________________
_______________________________________________
-2-
<PAGE>
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ______________________________________
Signature of Employee
_____________________________________________
Spouse's Signature
(If beneficiary other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
TELESENSORY CORPORATION
1996 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Telesensory
Corporation 1996 Employee Stock Purchase Plan which began on ___________ 19____
(the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period, and the undersigned shall be eligible to
participate in succeeding Offering Periods only by delivering to the Company a
new Subscription Agreement.
Name and Address of Participant:
_____________________________________________
_____________________________________________
_____________________________________________
Signature:
_____________________________________________
Date:________________________________________
<PAGE>
EXHIBIT 10.6
TeleSensory Corporation
1996 MANAGEMENT/PROFESSIONAL PROFIT SHARING PLAN (MPSP)
Participation Every employee Grade 10 or above who is hired on or before
September 30, 1996, and who remains an employee through
December 31, 1996, is a Participant in the Plan.
Bonus Amounts Each Participant will receive an annual bonus which is
dependent on both overall corporate profits, as well as
profits within the Participant's Division (BPD or LVD).
Participants in Finance & Administration will receive a
bonus based only on overall corporate profits.
Your Share Each Participant's bonus will be calculated as a percentage
of his/her salary. The percentage will vary depending on
Company profits and Division profits. If both Divisions and
the Company exactly meet established goals for 1996, the
bonus will be 10% of compensation for each Participant, and
could increase to 13-14% or more of compensation, if company
profits are substantially above goals.
The exact percentage for each Participant is determined
----------------
based on only three factors: overall Company profits,
Division profits (with F&A treated as if it were a Division,
for this purpose), and the division you are in. The attached
tables show the range of bonuses which can occur. Each
Participant will later be given a computer disc with this
information on it, which will allow each Participant to
compute the bonus earned under any combination of
conditions.
Computing Your Estimated percentages are shown on the attached spreadsheet.
Personal Share Since certain additional data is required before these
can be firmed up, the actual percentages will be
communicated to each Participant no later than January 31,
1996.
Part-year Participants (those who join the company after January 1, 1996 and
before October 1, or are promoted to a Participant position from a non-
Participant position during the year at any time) will receive the same shares,
-----------
but adjusted proportionately based on their actual compensation paid during the
year.
________________________________________________________________________________
*On the attached spreadsheet, "profit" means "before deduction of the Bonus
Amount". Therefore, the company's actual reported (published) pre-tax income
will be less than the amounts shown, after reduction by the amounts distributed
as bonuses.
-1-
<PAGE>
EXHIBIT 10.7
TeleSensory Corporation
1996 EMPLOYEE PROFIT SHARING PLAN (EPSP)
Participation Every employee in Grades 1-9 who is hired on or before the
first working day of a fiscal quarter, and who remains an
employee through the last working day of that quarter, is a
Participant in the Plan for that quarter. Each quarter is
----------------
treated separately.
Your Share Each full-time Participant will be entitled to a profit-
sharing bonus equivalent to 10 hours pay (or one-quarter of
weekly salary, for salaried employees), if the Company
achieves its Profit Plan for the quarter. That means that if
----------------------------------------
we achieve our Profit Plan for the full year, your total
bonus will have been one week's salary, or more if we do
better than our Profit Plan.
More or Less? If the Company makes more profit than planned in any
quarter, the amount of bonus you receive will be increased.
If the Company makes less profit than planned, the amount of
bonus will be decreased. If you would like to see the
formula as to how this will be computed, ask Human Resources
for a copy.
When Paid The bonus amounts will be paid at the first pay date
following the 20th of the following month. For example, for
the first quarter, bonuses will be paid with the first
paycheck following April 20.
Communication We will keep you informed, at the all-company meetings,
about the company's progress in achieving its Profit Plan.
So, you will know along the way how we are doing, and how
much bonus you are likely to get.
What About
"Status Changes?" If you get a promotion or a raise, your bonus under this
Plan will be paid at your pay rate in effect at the end of
the quarter. In other words, you would get a higher bonus.
<PAGE>
Recording requested by and, EXHIBIT 10.8
when recorded, return to:
Wilson, Sonsini, Goodrich & Rosati
Two Palo Alto Square, Suite 900
Palo Alto, California 94306
Attention: Real Estate Department/DKK
SUBORDINATION, NONDISTURBANCE, AND ATTORNMENT AGREEMENT
-------------------------------------------------------
THIS AGREEMENT is made as of the 26 day of June, 1992, by and between
WILLIAM E. JARVIS, a married man as his sole and separate property, DUANE E.
DUNWOODIE and MARLENE J. DUNWOODIE, as Trustees of the Dunwoodie Family Trust,
and PETER D. LACY, a married man as his sole and separate property
(collectively, "Lender"), and TELESENSORY CORPORATION, a California corporation
("Tenant").
W I T N E S S E T H :
---------------------
WHEREAS, Lender is the current beneficiary of that certain Short Form Deed
of Trust with Assignment of Rents (the "Trust Deed") dated January 14, 1988,
filed of record October 6, 1988, as Instrument No. 9861694 at Book K709, Page
369 in the Official Records of Santa Clara County, California, pursuant to that
certain Assignment of Deed of Trust dated February 27, 1990, filed of record
March 5, 1990, as Instrument No. 10441639 at Book L276, Page 1168, aforesaid
records; and
WHEREAS, the Trust Deed encumbers that certain improved real property (the
"Property") described on Exhibit "A" attached hereto and made a part hereof; and
----------
WHEREAS, Tenant is the lessee under that certain industrial Lease-Net-Net-
Net and Lease Addendum 1 and Lease Addendum 2 (collectively, the "Lease") all
dated June 26, 1992, between Joint Land Development Company Number Two
("Borrower") and Tenant regarding certain premises situated at the Property; and
WHEREAS, Tenant has agreed to subordinate its interest under the Lease to
the interest of Lender under the Trust Deed and to attorn to Lender on the terms
and conditions described herein; and
WHEREAS, as an inducement to Tenant to execute and deliver this Agreement,
Lender has agreed not to disturb Tenant's use, possession, and enjoyment of the
Property on the terms and conditions provided herein;
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants contained herein and for other good and valuable
<PAGE>
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:
1. Lender hereby consents to and ratifies the execution, delivery and
performance of the Lease. All of the right, title, and interest of Tenant in,
under, and to the Lease and the Property shall be and remain at all times from
and after the date hereof subject and subordinate to the Trust Deed and to all
renewals, modifications, replacements, consolidations, and extensions thereof
and to any and all advances made thereunder and all interest thereon.
2. In the event Lender or any other purchaser at a foreclosure sale or
sale under private power contained in the Trust Deed succeeds to the interest of
Borrower in the Property by reason of any foreclosure of the Trust Deed or the
acceptance by Lender of a deed in lieu of foreclosure or by any other manner,
Tenant and Lender agree as follows:
(a) Tenant shall be bound to Lender or such other purchaser or holder
under all of the terms, covenants, and conditions of the Lease for the remaining
balance of the term thereof and any extension thereof with the same force and
effect as if Lender or such other purchaser or holder had been the original
landlord under the Lease, and Tenant hereby covenants to attorn to Lender or
such other purchase or holder as its landlord, such attornment to be effective
and self-operative without the execution of any further instruments on the part
of any of the parties to this Agreement, immediately upon Lender or such other
purchaser succeeding to the interest of Borrower in the Property.
(b) Subject to the observance and performance by Tenant of all of the
terms, covenants, and conditions of the Lease on the part of Tenant to be
observed and performed, Lender or such other purchaser or holder shall recognize
and shall not disturb the leasehold estate of Tenant under all of the terms,
covenants, and conditions of the Lease for the remaining balance of the term and
any extension thereof with the same force and effect as if Lender or such other
purchaser or holder were the original landlord under the Lease; provided,
however,that Lender or such other purchaser or holder shall not be (i) liable
for any act or omission of any prior landlord (including, without limitation,
Borrower) of the Property that Lender had not previously approved, (ii) obliged
to cure any defaults of any prior landlord (including, without limitation,
Borrower) under the Lease which occurred or arose prior to the time that Lender
or such other purchaser succeeded to the interest of Borrower in the Property,
(iii) subject to any offsets, credits, or defenses which Tenant may be entitled
to assert against any prior landlord (including, without limitation, Borrower)
unless same resulted from acts or omissions previously approved by Lender.
-2-
<PAGE>
(iv) bound by any payment of base rent by Tenant to any prior landlord
(including, without limitation, Borrower) for more than thirty (30) days in
advance unless same has been transferred to or recovered by Lender or such other
purchaser or holder, (V) bound by any amendment, modification, extension, or
expansion of the Lease made without the consent of Lender or such other
purchaser or holder if such consent was required under the Trust Deed, (vi)
liable or responsible for the retention, application, and/or return to Tenant of
any security deposit paid to any prior landlord (including, without limitation,
Borrower), unless and until Lender or such other purchaser or holder has
actually received for its own account as landlord the full amount of such
security deposit, or (vii) liable or responsible for any act or omission of any
subsequent landlord or any other party which occurs after Lender or such other
purchaser or holder sells, assigns, or otherwise transfers its interest in the
Property or the Lease.
3. Nothing contained herein shall impair Borrower's obligation to pay the
entire indebtedness secured by, and to perform all obligations under, the Trust
Deed, nor shall Lender be deemed, by executing and delivering this Agreement, to
have waived any right to collect all such indebtedness and exercise all rights
and remedies under the Trust Deed.
4. This Agreement shall be binding upon the undersigned and their
respective heirs, successors, successors-in-interest, and assigns and will inure
to the benefit of all persons and entities now or hereafter having any right,
title, or interest in, under, or to the Trust Deed or the Lease.
IN WITNESS WHEREOF, the undersigned have executed this Subordination,
Nondisturbance and Attornment Agreement, by their duly-authorized signatories,
as of the day and year first above written.
TENANT:
-------
TELESENSORY CORPORATION,
a California corporation
By: /s/ William Schwarz
Title: EVP-CFO Exec. Vice President/
Chief Financial Officer
[Signatures continued on next page]
-3-
<PAGE>
LENDER:
-------
/s/ William E. Jarvis
WILLIAM E JARVIS, a married man as his sole and
separate property
/s/ Duane E. Dunwoodie
DUANE E. DUNWOODIE, as Trustee
of the Dunwoodie Family Trust
/s/ Marlene J. Dunwoodie
MARLENE J. DUNWOODIE, as Trustee
of the Dunwoodie Family Trust
/s/ Peter D. Lacy
PETER D. LACY, a married man
as his sole and separate property
STATE OF CALIFORNIA )
) ss
COUNTY OF Santa Clara )
Before me, JANE G. MOTT-SMITH, a Notary Public in and for the County and
State aforesaid, personally appeared WILLIAM E. SCHWARZ , personally known to me
(or proved to me on the to me on the basis of satisfactory evidence), to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she executed the same in his/her authorized capacity and that by his/her
signature on the instrument the entity on behalf of which the person acted
executed the instrument.
WITNESS my hand and official seal this 31 day of July, 1992.
[NOTARIAL SEAL]
/S/ Jane G. Mott-Smith
Notary Public
My commission expires: [Seal ommitted]
-4-
<PAGE>
STATE OF CALIFORNIA )
) ss
COUNTY OF Santa Clara )
Before me, Barbie Jackson a Notary Public in and for the County and State
aforesaid, personally appeared WILLIAM E. JARVIS, personally known to me (or
proved to me on the basis of satisfactory evidence), to be the person whose name
is subscribed to the within instrument and acknowledged to me that he/she
executed the same.
WITNESS my hand and official seal this 15th day of July, 1992.
[seal omitted] /s/ Barbie Jackson
Notary Public
My commission expires: 10/26/92
STATE OF CALIFORNIA )
) ss
COUNTY OF Santa Clara )
Before me, Barbie Jackson, a Notary Public in and for the County and State
aforesaid, personally appeared DUANE E. DUNWOODIE, personally known to me (or
proved to me on the basis of satisfactory evidence), to be the person whose name
is subscribed to the within instrument and acknowledged to me that he/she
executed the same in his/her authorized capacity and that by his/her signature
on the instrument the entity on behalf of which the person acted executed the
instrument.
WITNESS my hand and official seal this 8th day of July, 1992.
[Seal omitted]
/s/ [Barbie Jackson]
Notary Public
My commission expires: 10/26/92
STATE OF CALIFORNIA )
-5-
<PAGE>
State of California )ss
COUNTY OF Santa Clara )
Before me, Barbie Jackson, a Notary Public in and for the County and State
aforesaid, personally appeared MARLENE J. DUNWOODIE, personally known to me (or
proved to me.on the basis of satisfactory evidence), to be the person whose name
is subscribed to the within instrument and acknowledged to me that he/she
executed the same in his/her authorized capacity and that by his/her signature
on the instrument the entity on behalf of which the person acted executed the
instrument.
WITNESS my hand and official seal this 10th day of July, 1992
[Seal Ommitted]
/s/ [Barbie Jackson]
Notary Public
My commission expires: 10/26/92
STATE OF CALIFORNIA )
)ss
COUNTY OF Santa Clara )
Before me, Barbie Jackson, a Notary Public in and for the County and State
aforesaid, personally appeared PETER D. LACY, personally known to me (or proved
to me on the basis of satisfactory evidence), to be the person whose name is
subscribed to the within instrument and acknowledged to me that he/she executed
the same.
WITNESS my hand and official seal this 7th day of July, 1992 .
[Seal Ommitted]
/s/ [Barbie Jackson]
Notary Public
My commission expires: 10/26/92
-6-
<PAGE>
Exhibit 10.9
INDUSTRIAL LEASE
-NET-NET-NET-
1. PARTIES. This Lease, dated, for reference purposes only, June 26, 1992, is
made by and between Joint Land Development Company Number Two (herein
called "Landlord") and TeleSensory Corporation (herein called "Tenant").
2. PREMISES. Landlord hereby leases to Tenant and Tenant leases from Landlord
for the term, at the rental, and upon all of the conditions set forth
herein, that certain real property situated in the City of Mountain View,
County of Santa Clara, State of California, commonly known as 455 North
Bernardo Avenue, + or - 48,411 square feet, referred to as Existing Space,
and 465 North Bernardo, + or - 19,789 square feet, referred to as Expansion
Space. Said real property, including the land and all improvements
thereon, is herein called "the Premises".
3. Term
----
3.1 TERM. The term of this Lease shall be as specified in Lease
Addendum 1.
3.2 EARLY POSSESSION. In the event that Landlord shall permit Tenant to
occupy the Premises prior to the commencement date of the term, such
occupancy shall be subject to all of the provisions of this Lease.
Said early possession shall not advance the termination date of this
Lease.
3.3 DELIVERY OF POSSESSION. Tenant shall be deemed to have taken
possession of the Premises when this Lease is executed.
4. Rent
----
4.1 Tenant shall pay to Landlord as rent for the Premises equal monthly
installments as specified in Lease Addendum 1. Rent for any period
during the term hereof which is for less than one month shall be a
pro rata portion of the monthly installment. Rent shall be payable
without notice or demand and without any deduction, offset, or
abatement in lawful money of the United States of America to
Landlord at the address stated herein or to such other persons or at
such other places as Landlord may designate in writing. No common
area expenses under Section 11 and 17, taxes, or other amounts
specified in this agreement shall be due on the Expansion space for
any period prior to the commencement of Tenant's, rent obligations
for the Expansion Space under Addendum 1.
4.2 ADDITIONAL CHARGES. This Lease is what is commonly called a "net
lease", it being understood that Landlord shall receive the rent set
forth in Article 4.1 free and clear of any and all impositions,
taxes, real estate taxes, liens, charges or expenses of any nature
whatsoever in connection with the ownership and operation of the
Premises except as otherwise expressly provided in this Lease or
Addenda hereto. In addition to the rent reserved by Article 4.1,
Tenant shall pay to the parties respectively entitled thereto all
impositions, insurance premiums, operating charges, maintenance
charges, construction costs, and any other charges, costs and
expenses which arise or may be contemplated under any provisions of
this Lease during the term hereof except as otherwise expressly
provided in this Lease or Addenda hereto. All of such charges, costs
and expenses shall constitute additional charges, and upon the
failure of Tenant to pay any of such costs, charges or expenses,
Landlord shall have the same rights and remedies as otherwise
provided in this Lease for the failure of Tenant to pay rent. It Is
the intention of the parties hereto that this Lease shall not be
terminable for any reason by the Tenant and that the Tenant shall in
no event be entitled to any abatement of or reduction in rent
payable hereunder, except as herein expressly provided. Any present
or future law to the contrary shall not alter this agreement of the
parties.
5. SECURITY DEPOSIT. Tenant shall deposit with Landlord upon execution hereof
the sum of None ($0.00) Dollars as security for Tenant's faithful
performance of Tenant's obligations hereunder. If Tenant fails to pay rent
or other charges due
<PAGE>
hereunder, or otherwise defaults with respect to any provision of this
Lease, Landlord 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 Landlord may become obligated by reason of
Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer hereby. If Landlord so uses or applies all or any
portion
(PAGE 1 NET-NET-NET)
<PAGE>
of said deposit, Tenant shall within ten (10) days after written demand
therefore deposit cash with Landlord in an amount sufficient to restore
said deposit to the full amount hereinabove stated and Tenant's failure to
do so shall be a breach of this Lease, and Landlord may at his option
terminate this Lease. Landlord shall not be required to keep said deposit
separate from its general accounts. If Tenant performs all of Tenant's
obligations hereunder, said deposit or so much thereof as had not
theretofore been applied by Landlord, shall be returned, without payment of
interest or other increment for its use, to Tenant (or, at Landlord's
option, to the last assignee, if any, of Tenant's interest hereunder)
within fifteen (15) days after the expiration of the term hereof, or after
Tenant has vacated the Premises, whichever is later.
6. USE
6.1 USE. The Premises shall be used and occupied only for electronic
products manufacturing and repair, electronics engineering
laboratory, manufacturing operations office and general business.
6.2 COMPLIANCE WITH LAW. Tenant shall, at Tenant's expense, comply
promptly with all applicable statutes, ordinances, rules,
regulations, orders and requirements, including zoning, in effect
during the term or any part of the term hereof regulating the use by
Tenant of the Premises. Tenant shall not use or permit the use of
the Premises in any manner that will tend to create waste or a
nuisance, or, if there shall be more than one tenant of the building
containing the Premises, which shall tend to unreasonably disturb
such other tenants. This paragraph 6.2 shall not, however, apply to
any statute, rule, regulation, order, or requirement relating to
hazardous materials and environmental matters, all of which are
otherwise expressly provided for in this Lease.
6.3 CONDITION OF PREMISES. Tenant hereby accepts the Promises in their
condition existing as of the date of the possession hereunder,
subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the
Premises, and subject to its right to make improvements as specified
in this Lease, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto.
Tenant acknowledges that neither Landlord nor Tenant's agent has
made any representation or warranty as to the suitability of the
Premises for the conduct of Tenant's business.
6.4 INSURANCE CANCELLATION. Notwithstanding the provisions of Article
6.1 hereinabove, no use shall be made or permitted to be made of the
Premises nor acts done which will cause the cancellation of any
insurance policy covering said Promises or any building of which the
Premises way be a part, and if Tenant's use of the Premises causes
an increase in said insurance rates Tenant shall pay any such
increase.
6.5 LANDLORD'S RULES AND REGULATIONS. Tenant shall faithfully observe
and comply with the rules and regulations that Landlord shall from
time to time promulgate provided such rules and regulations do not
unreasonably adversely affect Tenant's use. Landlord reserves the
right from time to time to make all reasonable modifications to said
rules and regulations. The additions and modifications to those
rules and regulations shall be binding upon Tenant upon delivery of
a copy of them to Tenant. Landlord shall not be responsible to
Tenant for the nonperformance of any of said rules and regulations
by any other tenants or occupants.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 TENANT'S OBLIGATIONS. Except as otherwise provided for in this
Lease or Addenda hereto, Tenant shall, during the term of this
Lease, keep in good order, condition and repair, the Premises and
every part thereof, within the Premises. Landlord shall incur no
expense nor have any obligation of any kind whatsoever in connection
with maintenance of the Premises except as herein provided, and
Tenant expressly waives the benefits of any statute now or hereafter
in effect which would otherwise afford Tenant the right to make
repairs at Landlord's expense or to terminate this Lease because of
Landlord's failure to keep the Premises in good order, condition and
repair.
<PAGE>
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Tenant shall surrender the Premises to Landlord in good
condition, broom clean, ordinary wear and tear excepted. Tenant
shall repair any damage to the Promises occasioned by its use
thereof, or by the removal of Tenant's trade fixtures, furnishings
and equipment pursuant to Article
(PAGE 2 NET-NET-NET)
<PAGE>
7.4(c), which repair shall include the patching and filling of holes
and repair of structural damage.
7.3 LANDLORD'S RIGHTS. If Tenant fails to perform Tenant's obligations
under this Article 7, Landlord may at its option (but shall not be
required to) enter upon the Premises, after ten (10) days prior
written notice to Tenant, and put the same in good order, condition
and repair, and the cost thereof together with interest thereon at
the rate of fifteen (15%) percent per annum shall become due and
payable as additional rental to Landlord together with Tenant's next
rental installment.
7.4 ALTERATIONS AND ADDITIONS. [See also Addendum #1]
(a) Tenant shall not, without Landlord's prior written consent not
unreasonably withheld, make any alterations, improvements, or
additions, in, on or about the Premises, subject to 7.4 (b),
except for non-structural alterations not exceeding $10,000 in
cost, with respect to any one alteration or addition and
further except to the extent covered by the improvement
allowance set forth in paragraph 18. As a condition to giving
such consent, Landlord may require that Tenant remove, any such
alterations, improvements, additions or utility installations
at the expiration of the term, and to restore the Premises to
their prior condition. Landlord's consent as contained herein
is conditional upon Tenant obtaining all necessary permits and
compliance therewith and Tenant's right to make any alteration
or additions is subject to Tenant not being in default under
any terms and provisions of the Lease.
(b) Before commencing any work relating to alterations, additions
and improvements affecting the Premises, Tenant shall notify
Landlord in writing of the expected date of commencement
thereof, and shall submit plans and/or detailed description of
the work to be performed. Landlord shall then have the right at
any time and from time to time to post and maintain on the
Premises such notices as Landlord reasonably deems necessary to
protect the Premises and Landlord from mechanics' liens,
materialmens' liens or any other liens. In any event, Tenant
shall pay, when due, all claims for labor or materials
furnished to or for Tenant at or for use in the Premises.
Tenant shall not permit any mechanics' or materialmens' liens
to be levied against the Promises for any labor or material
furnished to Tenant or claimed to have been furnished to Tenant
or to Tenant's agents or contractors in connection with work of
any character -performed or claimed to have been performed on
the Premises by or at the direction of Tenant.
(c) Unless Landlord requires their removal, as set forth in Article
7.4(a), all alterations, improvements or additions which may be
made on the Premises, shall become the property of Landlord and
remain upon and be surrendered with the Premises at the
expiration of the term. Notwithstanding the provisions of this
Article 7.4(c), Tenant's machinery, equipment and other trade
fixtures other than that which is affixed to the Premises so
that it cannot be removed without material damage to the
Premises, unless Tenant repairs such damage at Tenant's
expense, shall remain the property of Tenant and may be removed
by Tenant subject to the provisions of Article 7.2.
8. INSURANCE; INDEMNITY.
8.1 INSURING PARTY. As used in this Article 8, the term "insuring
party" shall mean the party who has the obligation to obtain the
insurance required hereunder. The insuring party in this case shall
be designated in Article 26. Whether the insuring party is the
Landlord or the Tenant, Tenant shall, as additional rent for the
Premises, pay the cost of all insurance required hereunder. If
Landlord is the insuring party Tenant shall, within ten (10) days
following demand by Landlord, reimburse Landlord for the cost of the
insurances so obtained.
8.2 LIABILITY INSURANCE. The Tenant shall obtain and keep in force
during the term of this Lease a policy of comprehensive public
liability insurance insuring Landlord and Tenant against any
liability arising out of the
<PAGE>
ownership, use, occupancy or maintenance of the Premises and all
areas appurtenant thereto. Such insurance shall be in an amount of
not less than $500,000 for injury to or death of one person in any
one accident or occurrence and in an amount of not less than
$1,000,000 for injury to or death of more than one person in any one
accident or occurrence. Such insurance shall further insure Landlord
and Tenant against liability for property damage of at least
$100,000. The limits of said
(PAGE 3 NET-NET-NET)
<PAGE>
insurance shall not, however, limit the liability of Tenant
hereunder. In the event that the Premises constitute a part of a
larger property said insurance shall have a Landlord's Protective
Liability endorsement attached thereto. If the Tenant shall fail to
procure and maintain said insurance the Landlord may, but shall not
be required to, procure and maintain the same, but at the expense of
Tenant.
8.3 PROPERTY INSURANCE. The insuring party shall obtain and keep in
force during the term of this Lease a policy or policies of
insurance covering loss or damage to the Premises, in the amount of
the full replacement value thereof, providing protection against all
perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, special extended perils
(all risk) and sprinkler leakage. Said insurance shall provide for
payment for loss thereunder to Landlord or to the holder of a first
mortgage or deed of trust on the Premises. If the insuring party
shall fail to procure and maintain said insurance the other party
may, but shall not be required to, procure and maintain the same,
but at the expense of Tenant. Tenant will not be obligated to
Landlord for the cost of earthquake insurance premiums.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies rated A+ AAA or better in "Best's Insurance Guide". The
insuring party shall deliver prior to possession to the other party
copies of policies of such insurance or certificates evidencing the
existence and amounts of such insurance with loss payable clauses
satisfactory to Landlord. No such policy shall be cancellable or
subject to reduction of coverage or other modification except after
ten (10) days prior written notice to Landlord. If Tenant is the
insuring party, Tenant shall, within ten (10) days prior to the
expiration of such policies, furnish Landlord with renewals or
"binders" thereof, or Landlord may order such insurance and charge
the cost thereof to Tenant, which amount shall be payable by Tenant
upon demand. Tenant shall not do or permit to be done anything which
shall invalidate the insurance policies referred to in Article 8.3.
Tenant shall forthwith, upon Landlord's demand, reimburse Landlord
for any additional premiums attributable to any act or omission, or
operation of Tenant causing such increase in the cost of insurance.
If Landlord is the insuring party, and if the insurance policies
maintained hereunder cover other improvements in addition to the
Premises, Landlord shall deliver to Tenant a written statement
setting forth the amount of any such insurance cost increase and
showing in reasonable detail the manner in which it has been
computed.
8.5 WAIVER OF SUBROGATION. Tenant and Landlord each waives any and all
rights of recovery against the other, or against the officers,
employees, agents and representatives of the other, for loss of or
damage to such waiving party or its property or the property of
others under its control, where such loss or damage is of the type
required to be insured against by this Lease or is insured against
under any insurance policy in force at the time of such loss or
damage. Tenant and Landlord shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carriers
that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.6 HOLD HARMLESS. Tenant shall indemnify, defend and hold Landlord
harmless from any and all claims arising from Tenant's use of the
Premises or from the conduct of its business or from any activity,
work or things which may be permitted or suffered by Tenant in or
about the Premises and shall further indemnify, defend and hold
harmless from and against any and all claims arising from any breach
or default in the performance of any obligation on Tenant's part to
be performed under the provision of this Lease or arising from any
negligence of Tenant or any of its agents, contractors, employees or
invitees and from any and all costs, attorneys' fees, expenses and
liabilities incurred in the defense of any such claim or any actions
or proceeding brought thereon. Tenant hereby assumes all risk of
damage to property or injury to persons in or about the Premises
from any cause, and Tenant hereby waives all claims in respect
thereof against Landlord, excepting where said damage arises out of
negligence of Landlord.
8.7 EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that
Landlord shall not be liable for injury to Tenant's business or any
loss of income therefrom or for damage to the goods, wares,
merchandise or other property of Tenant, Tenant's employees,
invitees, customers, or any other person in or about the Premises;
nor, unless through its negligence, shall Landlord be liable for
injury to the person of Tenant. Tenant's employees, agents or
contractors and invitees, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain,
<PAGE>
or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures,
(PAGE 4 NET-NET-NET)
<PAGE>
or from any other cause, whether the said damage or injury results
from conditions arising upon the Premises or upon other portions of
the building of which the Premises are a part, or from other sources
or places, and regardless of whether the cause of such damage or
injury or the means of repairing the same is inaccessible to
Landlord or Tenant. Landlord shall not be liable for any damages
arising from any act or neglect of any other tenant, if any, of the
building in which the Premises are located.
9. DAMAGE OR DESTRUCTION.
9.1 SEE ADDENDUM #1.
9.2 DAMAGE NEAR END OF TERM. If the Premises are partially destroyed or
damaged during the last six (6) months of the term of this Lease,
Landlord or Tenant may, at its option, cancel and terminate this
Lease as of the date of occurrence of such damage by giving written
notice to the other of the election to do so within ten (10) days
after the date of occurrence of such damage.
9.3 PRORATIONS. Upon termination of this Lease pursuant to this Article
9, a pro rata adjustment of rent based upon a thirty (30) day month
shall be made. Landlord shall, in addition, return to Tenant so much
of Tenant's security deposit as has not theretofore been applied by
Landlord.
9.4 WAIVER. Landlord and Tenant waive the provisions of any statutes
which relate to the termination of lease when leased property is
destroyed or damaged and agree that such event shall be governed by
the terms of this Lease.
10. REAL PROPERTY TAXES. [See also Addendum #1]
10.1 PAYMENT OF TAXES. Tenant shall pay all real property taxes
applicable to the Premises during the term of this Lease.
10.2 DEFINITION OF "REAL PROPERTY" TAXES. As used herein, the term "real
property" taxes shall include any form of assessment, license fee,
rent tax, levy, penalty, or tax (other than inheritance, income,
franchise, or estate taxes), including all future taxes and
assessments, imposed by any authority having the direct or indirect
power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other
improvement district thereof, as against any legal or equitable
interest of Landlord in the Premises or in the real property of
which the Premises are a part, as against Landlord's right to rent
or other income therefrom, or as against Landlord's business of
leasing the Premises.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Tenant's liability shall be an equitable proportion of the real
property taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by
Landlord based on square footage of the Premises as a percentage of
total building square footage within the Middlefield Bernardo Park.
10.4 PERSONAL PROPERTY TAXES.
(a) Tenant shall pay prior to delinquency all taxes assessed
against and levied upon leasehold improvements, trade fixtures,
furnishings, equipment and all other personal property of
Tenant contained in the Premises or elsewhere. Tenant shall
cause said leasehold improvements, trade fixtures, furnishings,
equipment and all other personal property to be assessed and
billed separately from the real property of Landlord.
(b) If any of Tenant's said personal property shall be assessed
with Landlord's real property, Tenant shall pay Landlord the
taxes attributable to Tenant within ten (10) days after receipt
of a written statement setting forth the taxes applicable to
Tenant's property.
11. COMMON AREAS.
WHEN, IN FACT, THERE ARE COMMON AREAS, THE FOLLOWING SHALL APPLY:
<PAGE>
11.1 DEFINITIONS. The phrase "Common Areas" means all areas and
facilities outside the Premises that are provided and designated for
general use and convenience of Tenant and other
(PAGE 5 NET-NET-NET)
<PAGE>
tenants and their respective officers, agents, and employees,
customers, and invitees. Common Areas include (but are not limited
to) pedestrian sidewalks, landscaped areas, roadways, parking areas
and railroad tracks, if any. Landlord reserves the right from time
to time to make changes in the shape, size, location, number, and
extent of the land and improvements constituting the Common Areas.
Landlord may designate from time to time additional parcels of land
for use as a part thereof; and any additional land so designated by
Landlord for such use shall be included until such designation is
revoked by Landlord.
11.2 MAINTENANCE. During the term of this Lease, Landlord shall operate,
manage and maintain the Common Areas so that they are clean and free
from accumulations of debris, filth, rubbish, and garbage. The
manner in which such Common Areas shall be so maintained, and the
expenditures for such maintenance, shall be at the sole discretion
of Landlord, and the use of the Common Areas shall be subject to
such reasonable regulations and changes therein as Landlord shall
make from time to time, including (but not by way of limitation) the
right to close from time to time, if necessary, all or any portion
of the Common Areas to such extent as may be legally sufficient, in
the opinion of Landlord's counsel, to prevent a dedication thereof
or the accrual of rights of any person or of the public therein, or
to close temporarily all or any portion of such Common Areas for
such purposes.
11.3 TENANT'S RIGHTS AND OBLIGATIONS. Landlord hereby grants to Tenant,
during the term of this Lease, the license to use, for the benefit
of Tenant and its officers, agents, employees, customers, and
invitees, in common with the other entitled to such use, the Common
Areas as they from time to time exist, subject to the rights,
powers, and privileges herein reserved to Landlord. Storage, either
permanent or temporary, of any materials, supplies or equipment in
the Common Area is strictly prohibited. Should Tenant violate this
provision of the Lease, then in such event, Landlord may remove said
materials, supplies or equipment from the Common Area and place such
items in storage, the cost thereof to be reimbursed by Tenant within
ten (10) days from receipt of a statement submitted by Landlord. All
subsequent costs in connection with the storage of said items shall
be paid to Landlord by Tenant as accrued. Failure of Tenant to pay
these charges within ten (10) days from receipt of statement shall
constitute a breach of this Lease. Subject to Paragraph 19, Tenant
and its officers, agents, employees, customers and invitees shall
park their motor vehicles only in areas designated by Landlord for
that purpose from time to time. Within five (5) days after request
from Landlord, Tenant shall furnish to Landlord a list of the
license numbers assigned to its motor vehicles, and those of its
officers, agents and employees. Tenant shall not at any time park or
permit the parking of motor vehicles, belonging to it or to others,
so as to interfere with the pedestrian sidewalks, roadways, and
loading areas, or in any portion of the parking areas not designated
by Landlord for such use by Tenant. Tenant agrees that receiving and
shipping of goods and merchandise and aft removal of refuse shall be
made only by way of the loading ares constituting part of the
Premises. Tenant shall repair, at its cost, all deteriorations or
damages to the Common Areas, occasioned by its lack of ordinary
care.
11.4 CONSTRUCTION. Landlord, while engaged in constructing improvements
or making repairs or alterations in or about the Premises or in
their vicinity, shall have the right to make reasonable use of the
Common Areas.
12. UTILITIES. Tenant shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises,
together with any taxes thereon. If any such services are not separately
metered to Tenant, Tenant shall pay a reasonable proportion to be
determined by Landlord of all charges jointly metered with other premises.
See Addendum #1.
13. ASSIGNMENT AND SUBLETTING.
13.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise
transfer or encumber all or any part of Tenant's interest in this
Lease or in the Premises without Landlord's prior written consent,
which Landlord shall not unreasonably withhold. Any attempted
assignment, transfer, mortgage, encumbrance, or
<PAGE>
subletting without such consent shall be void and shall constitute a
breach of the Lease. Any transfer of Tenant's interest in this Lease
or in the Premises from Tenant by merger, consolidation, or
liquidation, or by any subsequent change in the ownership of thirty
(30%) percent or more of the capital stock of Tenant shall be deemed
a prohibited assignment within the meaning of this Article 13,
unless the resultant entity with responsibility for this Lease shall
have net worth in excess of $1,000,000 and further
(PAGE 6 NET-NET-NET)
<PAGE>
provided that no transfer of a greater percentage of such stock in
conjunction with an Employee Stock Ownership Plan or Incentive Plan
shall constitute such an assignment.
13.2 NO RELEASE OF TENANT. Regardless of Landlord's consent, no
subletting or assignment shall release Tenant of Tenant's obligation
to pay the rent and to perform all other obligations to be performed
by Tenant hereunder for the term of this Lease. The acceptance of
rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting.
14. DEFAULTS: REMEDIES.
14.l DEFAULTS. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant for 60
days during any 90 day period.
(b) The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when
due, where such failure shall continue for a period of ten (10)
days after written notice thereof from Landlord to Tenant.
(c) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be
observed or performed by Tenant, other than described in
Paragraph (b) above, where such failure shall continue for a
period of thirty (30) days after written notice thereof from
Landlord to Tenant; provided, however, that if the nature of
Tenant's default is such that more than thirty (30) days are
reasonably required for its cure, then Tenant shall not be
deemed to be in default if Tenant commenced such cure within
said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(d) (i) The making by Tenant of any general assignment, or general
arrangement for the benefit of creditors; (ii) the filing by or
against Tenant of a petition to have Tenant adjudged a bankrupt
or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within sixty (60) days;
(iii) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within thirty (30) days;
or (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or
of Tenant's interest in this Lease, where such seizure is not
discharged within thirty (30) days.
(e) If any other representation contained herein or in any other
document delivered to Landlord by Tenant is false.
14.2 REMEDIES IN DEFAULT. In the event of any such default or breach by
Tenant, Landlord may at any time thereafter, with or without notice
or demand and without limiting Landlord in the exercise of any right
or remedy which Landlord may have by reason of such default or
breach:
(a) Terminate Tenant's right to possession of the Premise's by any
lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises
to Landlord. In such event Landlord shall be entitled to
recover from Tenant all damages incurred by Landlord by reason
of Tenant's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the Premises,
reasonable attorneys' fees, and any real estate commission
actually paid; the worth at the time of award by the court
having jurisdiction thereof of the amount by which the unpaid
rent for the balance of be term after be the of such award
exceeds the amount of such
<PAGE>
rental loss for the same period that Tenant proves could be
reasonably avoided, computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at
the time of the award, plus one percent (1%), and that portion
of the leasing commission paid by Landlord applicable to the
unexpired term of this Lease. In the event Tenant shall have
abandoned the Premises, Landlord shall have the option of (i)
retaking possession of the Premises
(PAGE 7 NET-NET-NET)
<PAGE>
and recovering from Tenant the amount specified in this Article
14.2(a), or (ii) proceeding under Article 14.2(b).
(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant shall have
abandoned the Premises. In such event, Landlord shall be
entitled to enforce all of Landlord's rights and remedies under
this Lease, including the right to recover the rent as it
becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the State in which the
Premises are located.
14.3 DEFAULT BY LANDLORD. Landlord shall not be in default unless
Landlord fails to perform obligations required of Landlord within a
reasonable time, but in no event later than thirty (30) days after
written notice by Tenant to Landlord and to the holder of any first
mortgage or deed of trust covering the Premises whose name and
address shall have theretofore been furnished to Tenant in writing,
specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance
then Landlord shall not be in default if Landlord commences
performance within such thirty (30) day period and thereafter
diligently prosecutes the same to completion. If Landlord does not
cure such default, Tenant may cure the default and bill Landlord the
reasonable costs of cure, plus interest thereon at 15% from the date
Tenant incurred the debt until reimbursed by Landlord.
14.4 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include,
but are not limited to, processing and accounting charges, and late
charges which may be imposed on Landlord by the terms of any
mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Tenant shall not be
received by Landlord or Landlord's designee within ten (10) days
after written notice that said amount is past due, then Tenant shall
pay to Landlord a late charge equal to ten percent (10%) of such
overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the cost Landlord will
incur by reason of late payment by Tenant. Acceptance of such late
charge by Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount nor prevent Landlord
from exercising any of the other rights and remedies granted
hereunder.
15. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold by Landlord under the threat of the
exercise of said power (all of which is herein referred to as
"condemnation"), this Lease shall terminate as to the part so taken as of
the date the condemning authority takes title or possession, whichever
occurs first. If more than twenty-five percent (25%) of the floor area of
the Premises, or more than twenty-five percent (25%) of the common area or
parking of the Premises is taken by condemnation, either Landlord or Tenant
may terminate this Lease as of the date the condemning authority takes
possession by notice in writing of such election within twenty (20) days
after Landlord shall have notified Tenant of the taking or, in the absence
of such notice, then within twenty (20) days after the condemning authority
shall have taken possession.
If this Lease is not terminated by either Landlord or Tenant then it shall
remain in full force and effect as to the portion of the Premises
remaining, provided the rental shall be reduced in proportion to the floor
area of the buildings taken within the Premises as bears to the total floor
area of all buildings located on the Premises. In the event this Lease is
not so terminated then Landlord agrees, at Landlord's sole cost, to as soon
as reasonably possible restore the Premises to a complete unit of like
quality and character as existed prior to the condemnation. All awards for
the taking of any part of the Premises or any payment made under the threat
of the exercise of power of eminent domain shall be the property of
Landlord, provided, however, that Tenant shall be entitled to any award for
loss of or damage to Tenant's removable trade fixtures and removable
personal property, and the bonus value attributable to the leasehold.
<PAGE>
16. GENERAL PROVISIONS.
16.1 OFFSET STATEMENT.
(a) Tenant shall at any time upon not less than ten (10) days prior
written notice from Landlord execute, acknowledge and deliver
to Landlord a statement in writing (i)
(PAGE 8 NET-NET-NET)
<PAGE>
certifying that this Lease in unmodified and in full force and
effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is
in full force and effect) and the date to which the rent,
security deposit, and other charges are paid in advance, if
any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord
hereunder, or specifying such defaults, in any, which are
claimed. Any such statement may be conclusively relied upon by
any prospective purchaser or encumbrancer of the Premises.
(b) If Landlord desires to finance or refinance the Premises, or
any part thereof, Tenant hereby agrees to deliver to any lender
designated by Landlord such financial statements of Tenant as
may be reasonably required by such lender. Such statements
shall include the past three (3) years financial statements of
Tenant. All such financial statements shall be received by such
lender in confidence and shall be used only for the purposes
herein set forth.
16.2 LANDLORD'S INTERESTS. The term "Landlord" as used herein shall mean
only the owner or owners at the time in question of the fee title or
a Tenant's interest in a ground lease of the Premises. In the event
of any transfer of such title or interest, Landlord herein named
(and in case of any subsequent transfers the then grantor) shall be
relieved from and after the date of such transfer of all liability
as respects Landlord's obligations thereafter to be performed,
provided that any funds in the hands of Landlord or the then grantor
at the time of such transfer, in which Tenant has an interest shall
be delivered to the grantee.
16.3 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.
16.4 INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Landlord or Tenant not paid when due
shall bear interest at fifteen percent (15%) per annum from the date
due. Payment of such interest shall not excuse or cure any default
by Landlord or Tenant under this Lease.
16.5 TIME OF ESSENCE. Time is of the essence.
16.6 CAPTIONS. Article and paragraph captions are not a part hereof.
16.7 INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease, Lease
Addendum 1, Lease Addendum 2, and the letter of William E Jarvis to
Tenant regarding payment of T/I allowance under Paragraph 18,
Contain all agreements of the parties with respect to any matter
mentioned herein. No prior agreement or understanding pertaining to
any such matter shall be effective.' This Lease may be modified in
writing only, signed by the parties in interest at the time of the
modification.
16.8 WAIVERS No waiver by Landlord or Tenant of any provision hereof
shall be deemed a waiver of any other provision hereof or of any
subsequent breach by Landlord or Tenant of the same or any other
provision. Landlord's or Tenant's consent to or approval of any act
shall not be deemed to render unnecessary the obtaining of
Landlord's or Tenant's consent to or approval of any subsequent act
by Landlord or Tenant. The acceptance of rent hereunder by Landlord
shall not be a waiver of any preceding breach by Tenant of any
provision hereof, other than the failure of Tenant to pay the
particular rent so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent.
16.9 RECORDING. Tenant shall not record this Lease. Any such recordation
shall be a breach under this Lease.
16.10 HOLDING OVER. If Tenant remains in possession of the Premises or any
part thereof after the expiration of the term hereof with the
express written consent of Landlord, such occupancy shall be a
tenancy from month-to-month at a rental in the amount of the last
monthly rental plus all other charges
<PAGE>
payable hereunder, and upon the terms hereof applicable to month-to-
month tenancy.
16.11 CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive, but shall wherever possible, be cumulative with all other
remedies at law or in equity.
(PAGE 9 NET-NET-NET)
<PAGE>
16.12 COVENANTS AND CONDITIONS. Each provision of this Lease performable
by Tenant and/or Landlord shall be deemed both a covenant and a
condition.
16.13 BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Tenant and subject to the
provisions of Article 16.2, this Lease shall bind the parties, their
personal representatives, successors and assigns. Ibis Lease, shall
be governed by the laws of the state where the Premises are located.
16.14 SUBORDINATION.
(a) This Lease, at a lender'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 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, Tenant's right to
quiet possession of the Premises shall not be disturbed if
Tenant is not in default and so long as Tenant shall pay the
rent and observe and perform all of 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 Tenant, 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.
(b) Tenant 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.
16.15 ATTORNEY'S FEES. If either party named herein brings an action to
enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to
his reasonable attorney's fees to be paid by the losing party as
fixed by the court.
16.16 LANDLORD'S ACCESS. Landlord and Landlord's agents shall have the
right to enter the Promises at reasonable times and with reasonable
notice for the purpose of inspecting the same, showing the same to
prospective purchasers, or lenders, and making such alterations,
repairs, improvements or additions to the Promises or to the
building of which they are a part as Landlord may deem necessary or
desirable. Landlord may at any time place on or about the Premises
any ordinary "For Sale" signs and Landlord may at any time during
the last one hundred twenty (120) days of the term hereof place on
or about the Premises any ordinary "For Sale or Lease" signs, all
without rebate of rent or liability to Tenant.
16.17 AUCTIONS. Tenant shall not place any auction sign upon the Promises
or conduct any auction thereon without Landlord's prior written
consent.
16.18 MERGER. The voluntary or other surrender of this Lease by Tenant, or
a mutual cancellation thereof, shall not work a merger, and shall,
at the option of Landlord, terminate all or any existing
subtenancies or may, at the option of Landlord, operate as an
assignment to Landlord of any or all of such subtenancies.
16.19 CORPORATE AUTHORITY. If Tenant 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.
16.20 LANDLORD'S LIABILITY. The liability of the Landlord pursuant to this
Lease shall be limited to the interest of the Landlord in the
Premises which Landlord represents to have a net worth (being the
excess of be FMV of the
<PAGE>
Premises over the amount of all indebtedness encumbering the
Premises) at the execution of this Lease of not less than ten
million dollars ($10,000,000); and Tenant, its successors and
assigns hereby waive all rights to proceed against any of the
officers, shareholders or directors of the Landlord, except to the
extent of their interest in the Premises. The term "Landlord", as
used in this Article, shall mean only the owner or owners at the
time in question of the fee title or its interest in a ground
(PAGE 10 NET-NET-NET)
<PAGE>
lease of the Premises, and in the event of any transfer of such
title or interest, Landlord herein named (and in case of any
subsequent transfers the then grantor) shall be relieved from and
after the date of such transfer of all liability as respects
Landlord's obligations thereafter to be performed, provided that any
funds in the hands of Landlord or the then grantor at the time of
such transfer, in which Tenant has an interest, shall be delivered
to the grantee. The obligations contained in this Lease to be
performed by Landlord shall, subject as aforesaid, be binding on
Landlord's successors and assigns, only during their respective
periods of ownership.
17. COMMON AREAS. The obligations and duties of the Landlord with respect to
common areas as provided in Section 11 of this Lease shall be without cost
or charge of any kind or nature to the Landlord; the Tenant shall pay its
pro rata share of all impositions, taxes (per Paragraph 10), real estate
taxes (per Paragraph 10), liens, operating charges, maintenance charges,
and expenses of any nature whatsoever in connection with the ownership and
operation of the common areas. The Tenant's pro rata share shall be 39.80%
of common area expenses. Common area expenses shall not include, nor shall
Tenant have any obligation to pay, any of the following: (i) depreciation
on real property, interest expense, or rent due pursuant to any underlying
ground leases; (ii) the cost to correct any defective design or
construction of the Premises or common areas; (iii) the cost to correct or
repair damage to the premises or common areas to the extent it is covered
by insurance or warranty; (iv) the cost of repairs to common areas or
premises required resulting from the negligence of Landlord, its agents or
contractors; (v) the cost of management and leasing, unless incurred in a
reasonable effort to mitigate damages resulting from Tenant's default, of
the Premises or common areas and other buildings within the project, (vi)
imposition, taxes, real estate taxes, liens and assessments (covered by
separate provisions), (vii) any costs relating to hazardous materials or
environmental laws and regulations, except to the extent caused by Tenant's
storage, use or disposal of the hazardous material in question, and (viii)
any costs for which Landlord has a right of reimbersement from others.
Common area expenses shall not include, nor shall Tenant have any
obligation to pay capital expenditures made to the common areas or promises
except to the extent that Tenant's share thereof during any twelve (12)
month period is equitably determined based upon Tenant's usage and
amortized over the useful life of the capital item in question.
18. TENANT IMPROVEMENT ALLOWANCE. Landlord agrees to provide a $250,000 tenant
improvement allowance for its Existing Space at 455 North Bernardo Avenue.
This Allowance shall be for approved improvements as outlined in the
attached Tenant Imporovements ("T/I") Exhibit which are competetively bid
to at least two licensed general contractors. Tenant shall be responsible
for all permits and related items and approvals, at its sole expense, or
these costs can be part of the allowance granted herein. All plans,
drawings, and specifications are to be in compliance with local, state and
federal building and fire codes. Tenant shall have all obligations of
supervising and coordinating construction. Progress payments from the
allowance shall be paid by Landlord to contractors performing the work
within ten (10) days of when each item of the improvements has been
substantially completed, and proof of substantial completion, appropriate
lien releases, and authorization of payment by Tenant to contractor(s) have
been presented to Landlord. Tenant agrees to obtain unconditional lien
releases from all contractors and subcontractors and to indemnify Landlord
against all claims by contractors or subcontractors and to cure any liens
placed by such contracts or subcontractors on the Premises at no cost to
the Landlord.
In addition to the above, Landlord agrees to provide to Tenant a further
allowance in the amount of $100,000 for use in the Expansion Space. All
conditions and obligations set forth above related to the improvement
allowance for the Existing Space shall likewise apply to this allowance.
Tenant shall have the right, at its discretion, to shift up to 20% of
either building improvement allowance to the other building.
All improvements shall remain at the Premises and shall become a part of
the building at the expiration of the term herof. Landlord shall herewith
provide the majority partners net worth certification and assumption of
payment guarantee in the event Landlord fails or is unable to make payment
of tenant improvement allowance.
<PAGE>
19. PARKING SPACES. Tenant shall have the right to mark up to ten (10) parking
spaces as visitors parking or reserved parking at the front entrance
parking area of each building. At Tenant's request Landlord shall identify
up to 175 parking spaces which are intended for use by Tenant and shall
institute procedures to prevent unauthorized vehicles from using these
spaces. Tenant shall request this parking detail from Landlord only if
Tenant's employees and visitors experience difficulty in finding available
common area parking spaces near to Tenant's premises.
(PAGE 11 NET-NET-NET)
<PAGE>
20. APPROVALS. Whenever this Lease requires the approval or consent of either
party, such approval or consent shall not be unreasonably withheld or
delayed.
21. LIEN WAIVER. Landlord, within ten (10) days after demand from Tenant,
shall execute and deliver any document required by any supplier, lessor, or
lender in connection with the installation in the Premises of Tenant's
personal property or Tenant's trade fixtures in which Landlord waives any
rights it may have or acquire with respect to that property, if the
supplier, lessor, or lender agrees in writing that:
(a) It will remove that property from the Promises before the expiration
of the term, or its sooner termination, but if it does not remove the
property within thirty (30) days it shall have waived any rights it
may have had to the property; and,
(b) It will make whatever repairs and restoration to the Premises that are
necessitated by the installation and removal of such property.
22. PRIOR LEASE. The lease dated September 25, 1986, and amended June 14,
1989, between Joint Land Development Company Number Two and TeleSensory
Corporation, or its predecessors, remains in full force and effect until
December 16, 1992.
23. HAZARDOUS WASTE AND MATERIALS. [See Lease Addendum #2]
24. BROKERS. The parties hereto acknowledge there were no real estate brokers
that represented the parties herein, and that no other commissions are due
to any brokers whatsoever, other than the above-named brokers.
25. NOTICES. Whenever under this Lease provision is made for any demand, notice
or declaration of any kind, or where it is deemed desirable or necessary by
either party to give or serve any such notice, demand or declaration to the
other party, it shall be in writing and served either personally or sent by
United States mail, postage prepaid, addressed at the addresses set forth
hereinbelow, but no such mailed demand, notice or declaration shall be
deemed effectively given until three (3) days after deposited with the U.S.
Mail, postage prepaid, via certified mail with request for return receipt.
TO LANDLORD AT:
Joint Land Development Company Number Two
490 Jarvis Drive
Morgan Hil1, California 95037
TO TENANT AT:
TeleSensory Corporation
455 North Bernardo Avenue
Mountain View, California 94043
26. INSURING PARTY. The insuring party under this Lease shall be the Landlord.
LEASE ADDENDUM 1
----------------
This Lease Addendum 1 is an addendum to that certain Lease Agreement dated
June 26, 1992, by and between Joint Land Development Company Number Two
("Landlord"), and TeleSensory Corporation ("Tenant").
3.1 TERM:
FOR THE EXISTING SPACE:
----------------------
Five (5) years, commencing December 17, 1992 and expiring December 16,
1997.
FOR THE EXPANSION SPACE:
-----------------------
Immediately (as of execution of the Lease), and expiring December 16,
1997.
<PAGE>
(PAGE 12 NET-NET-NET)
<PAGE>
4.1 RENT:
-----
FOR THE EXISTING SPACE:
----------------------
December 17, 1992 - December 16, 1993, $29,046.60 per month
($.60 NNN per square foot per month)
December 17, 1993 - December 16, 1995, $30,498.93 per month
($.63 NNN per square foot per month)
December 17, 1995 - December 16, 1997, $32,435.37 per month
($.67 NNN per square foot per month)
FOR THE EXPANSION SPACE:
-----------------------
From substantial completion of tenant improvements, but not later than
the 91st day after the signing of the Lease Agreement, for fifteen
(15) months, $3,957.80 per month
($.20 NNN per square foot per month)
From expiration of the preceding fifteen (15) month term to December
16, 1993, $7,915.60 per month
($.40 NNN per square foot per month)
December 17, 1993 - December 16, 1995, $12,269.18 per month
($.62 NNN per square foot per month)
December 17, 1995 - December 16, 1997, $12,862.85 per month
($.65 NNN per square foot per month)
7.1(a) Landlord's Obligation: Landlord shall be responsible for maintaining and
---------------------
repairing the exterior walls, concrete floors (excepting tile, carpet or
other floor coverings), roof structure and other structural parts of the
building excepting any repairs required due to the acts of Tenant. Tenant
shall be responsible for routine maintenance and repair of the premises
including the roof, exterior walls, and floor such as repair of leaks in
the roof except that Landlord shall be responsible for any painting of
the exterior wall surfaces which may be required and any such painting
shall not be a common area expense. Tenant will be responsible for all
routine maintenance and repair of HVAC units, plumbing and roof unless
any "individual repair" shall exceed $1,000, in which event Landlord is
responsible for such costs. Notwithstanding the provisions of this
Paragraph 7.1(a), Landlord agrees that in regard to the roof on the
Expansion Space, Landlord will, at Landlord's election and sole expense
either (i) replace such roof within ninety (90) days after the date of
this Lease in a manner reasonably satisfactory to Tenant, or (ii)
resurface and reseal such roof during such 90-day period using Tenant's
roofing contractor to perform such work in a manner reasonably
satistactory to Tenant, or (iii) indemnify, defend and hold harmless
Tenant against all losses, costs, claims and damages arising from or
relating in any manner to such roof (including, without limitation,
damage to Tenant's equipment and inventory resulting from water leaks).
The indemnity provided in c1ause (iii) of the foregoing sentence shall be
effective as of the date of this Lease and shall remain in full force and
effect until Landlord has completed the replacement or resurfacing of
such roof in accordance with the foregoing clause (i) or clause (ii).
Landlord shall make its election regarding such roof by giving written
notice therof to Tenant within forty-five (45) days after the date of
this Lease. Failure to make such written election will result in
Landlord's being deemed to have elected option (i). If Landlord elects
either to resurface such roof or to continue to indemnify Tenant in
accordance with clause (ii) or clause (iii), Landlord shall nonetheless
promptly replace such roof if, in the reasonable opinion of a qualified
roofing consultant, such roof is no longer in serviceable or reparable
condition at any time during the term of this Lease.
7.4(c) Trade Fixtures: It is agreed between the parties hereto that the term
--------------
"trade
<PAGE>
fixtures" also includes the Tenant's computer installation, including
special purpose raised computer room floor and computer room air
conditioning installed by Tenant, a telephone system installed by Tenant,
and air compressors and electrical generators installed by Tenant.
9.1(a) LANDLORD'S OBLIGATION TO REBUILD: If, during the term of this Lease,
--------------------------------
including any extension hereof, the Premises shall be destroyed or
damaged, or partially destroyed or damaged, to such a limited extent that
the repair of such destruction or damage and the restoration of the
Premises can be accomplished, with reasonable diligence within ninety
(90) calendar days after such destruction or damage, Landlord shall
promptly repair such destruction or damage and cause the Premises to be
(PAGE 13 NET-NET-NET)
<PAGE>
restored to their condition prior to the event causing the destruction or
damage. If, during the term of this Lease, including any extension
hereof, the Premises shall be destroyed or damaged, or partially
destroyed or damaged, to such an extent that the repair of such
destruction or damage and the restoration of said premises cannot be
accomplished with reasonable diligence, within ninety (90) calendar days
after such destruction or damage, then Landlord shall promptly notify
Tenant in writing of such fact, and Tenant shall have the right, during a
period of thirty (30) calendar days following such notification, to
terminate this Lease by written notice to Landlord, declaring this Lease
to be terminated upon receipt of such notice. Unless such notice of
immediate termination shall be given within such period, Landlord shall
repair and restore the Premises as provided above and this Lease shall
continue in full force and effect.
9.1(b) RENT ABATEMENT: In the event the Premises are destroyed or damaged, or
--------------
are partially destroyed or damaged, the rent per month shall be equitably
reduced on the basis of the area that Tenant is unable to use or occupy
as a result thereof and the length of time said area cannot be so used or
occupied. If this Lease shall be terminated as provided in this Article,
Landlord shall refund to Tenant all sums received by Landlord as rent or
deposit under this Lease in excess of rent due, through the date of such
termination, with rent due for any part of a month to be determined by
prorating rent due for a full month on a daily basis.
10.5 TAXES: In the event of a transfer of Landlord interest in the Premises,
-----
Tenant shall in no event be responsible at any time thereafter for any
resulting increase in real property taxes in excess of 10% of the amount
paid by Tenant for real property taxes in the year immediately preceding
such transfer.
12. UTILITIES: Tenant shall pay the entire cost of separately metered gas,
---------
electricity and telephone service to the Premises. Tenant shall pay a pro
rata portion of 39.80% of the cost of common area electricity, domestic
sewer and water service, landscape water service, fire sprinkler alarm
monitoring and service.
Tenant shall pay the actual cost of refuse disposal service required by
Tenant. Tenant is responsible for arranging refuse service with the
Mountain View refuse disposal company. Tenant, at Tenant's sole option,
may contract for the monitoring and maintenance of the perimeter security
alarm system installed in the Premises and owned by Honeywell Protective
Services, Inc. If the Tenant elects to use the perimeter alarm system,
Tenant shall pay all the costs of monitoring and maintaining said system.
LANDLORD
Dated: July 15, 1992 Joint Land Development Company Number Two,
a California general partnership
By: /s/ Peter Lacy
Its: Partner
By: /s/ Duane E. Dunwoodie
Its: Partner
By: /s/ William E. Jarvis
Its: Partner
TENANT
Dated: ___________________ TeleSensory Corporation, a California
corporation
By: /s/ William Schwarz
Its: EVP - CFO
PAGE 14 NET-NET-NET)
<PAGE>
LEASE ADDENDUM 2
-----------------
THIS LEASE ADDENDUM 2 ("Second Addendum") is dated for reference purposes
as of June 26, 1992, and in made between Joint Land Development Company
Number Two ("Landlord") and TeleSensory Corporation ("Tenant") to be a part of
that certain Industrial Lease - Net-Net-Net and Lease Addendum I of even date
herewith between Landlord and Tenant (referred to herein collectively as the
"Lease Form") concerning approximately 48,411 square feet of space located at
455 North Bernardo Avenue and approximately 19,789 square feet of additional
space located at 465 North Bernardo Avenue, both of which are situated in the
Middlefield-Bernardo Park (the "Project") located in the City of Mountain View,
California. Landlord and Tenant agree that the Lease Form is modified and
supplemented by this Second Addendum.
1. REPAIRS AND MAINTENANCE: Notwithstanding anything to the contrary
-----------------------
in the Lease Form:
A. Landlord shall perform and construct, and Tenant shall have no
responsibility to perform or construct, any repair, maintenance or improvement
(i) necessitated by the acts or omissions of Landlord or any other occupant of
the Project, or their respective agents, employees or contractors, (ii)
occasioned by fire, acts of God or other casualty or by the exercise of the
power of eminent domain, (iii) required as a consequence of any violation of
law, (iv) for which Landlord has a right of reimbursement from others, (v) which
would be treated as a "capital expenditure" under generally accepted accounting
principles, and (vi) to any portion of the Project outside the demising walls of
the Premises. Tenant's obligation, if any, to reimburse Landlord for the costs
of such repairs, maintenance and improvements shall be governed by the other
provisions of this Lease.
B. If any of Tenant's obligations under the Lease (as modified by
this Second Addendum) would require Tenant to pay all or any portion of any
charge which could be treated as a capital improvement under generally accepted
accounting principles, then Tenant shall pay its share of such expense as
follows:
1. The cost of such improvement shall be amortized over the
useful life of the improvement (as reasonably determined by Landlord) with
interest on the unamortized balance at the then prevailing market rate Landlord
would pay if it borrowed funds to construct such improvements from an
institutional lender, and Landlord shall inform Tenant of the monthly
amortization payment required to so amortize such costs and shall also provide
Tenant with the information upon which such determination is made.
2. Tenant shall pay its proportionate share (based on the
percentage of the Project leased by Tenant or other equitable basis) of such
amortization payment for each month after such improvement is completed until
the first to occur of (i) the expiration of the Lease term or (ii) the and of
the term over which such costs were amortized, which amount shall be due at the
same time that base monthly rent is due.
3. Tenant shall not be required to pay any costs of the
improvements covered by the allowance described in Paragraph 18 of the Lease
Form, except to the extent that such costs are already incorporated indirectly
into the rental amounts described in Paragraph 4.1 to Lease Addendum 1 of the
Lease Form.
2. INDEMNITY: Notwithstanding anything to the contrary in the Lease Form:
---------
A. NEGLIGENCE OR MISCONDUCT: Tenant shall neither release Landlord
------------------------
from, nor indemnify Landlord with respect to: (i) the negligence or willful
misconduct of Landlord, the other occupants of the Project, or their respective
agents, employees, contractors or invitees; or (ii) a breach of Landlord's
obligations or representations under this Lease.
B. LANDLORD'S INDEMNIFICATION: Landlord shall-indemnify, defend,
--------------------------
protect and hold harmless Tenant from all damages, liabilities, claims,
judgments, actions, attorneys' fees, consultants' fees, costs and expenses
<PAGE>
arising from the negligence or willful misconduct of Landlord or its employees
agents, contractors or invitee, or the breach of Landlord's obligations or
representations under this Lease.
3. HAZARDOUS MATERIALS:
-------------------
A. TENANT INDEMNITY: Tenant shall indemnify, defend with counsel
----------------
reasonably acceptable to Landlord, protect, and hold harmless Landlord, its
employees, agents, contractors, stockholders, officers, directors, successors,
personal representatives, and assigns (collectively the "Landlord Indemnities")
from and against all claims, actions, suits, proceedings, judgments, losses,
costs, personal injuries, damages, liabilities, deficiencies, fines, penalties,
damages, attorneys' fees, consultants' fees, investigations, detoxifications,
remediations, removals, and expenses of every type and nature ("Claims"), to the
extent caused by the release, disposal, discharge or emission of Hazardous
Materials on or about the Premises during the term of this Lease by Tenant or
Tenant's employees or agents. Notwithstanding anything to the contrary in the
Lease Form, Tenant shall have no other liability, responsibility or duty to
reimburse Landlord with respect to any Hazardous Material on or about the
Premises, or the soil, improvements, groundwater or surface water thereof.
B. LANDLORD INDEMNITY: Landlord shall indemnify, defend with counsel
------------------
reasonably acceptable to Tenant, protect, and hold harmless Tenant, its
employees, agents, contractors, stockholders, officers, directors, successors,
subtenants, personal representatives, and assigns (collectively the "Tenant
Indemnities") from and against all claims, actions, suits, proceedings,
judgments, losses, costs, personal injuries, damages, liabilities, deficiencies,
fines, penalties, damages, attorneys' fees, detoxifications, remediations,
removals, and expenses of every type and nature ("Claims"), directly or
indirectly arising out of or in connection with any consultants' fees,
investigations, Hazardous Material present at any time on or about the Premises,
or the soil, air, improvements, groundwater or surface water thereof, or the
violation of any Environmental Law relating to any such Hazardous Material, the
Premises or the use of the Premises by any person other than Tenant, its agents
or employees; except to the extent that any of the foregoing actually results
from the release,disposal, discharge, or emission of Hazardous Materials on or
about the Premises during the term of this Lease by Tenant or Tenant's
employees or agents.
C. LANDLORD COVENANT TO COMPLY WITH ENVIRONMENTAL LAWS:
---------------------------------------------------
Notwithstanding anything to the contrary in the Lease, within the time permitted
by applicable law, Landlord, at its sole cost, shall perform or cause to be
performed, any investigation, remediation, removal action, detoxification of the
Premises or project, and shall comply with any Environmental Law, relating to
any Hazardous Material present at any time on or about the Premises or Project,
or the soil, air, improvements, groundwater or surface water thereof, except to
the extent that such Hazardous Material is released, discharged or emitted on or
about the Project during the term of this Lease by Tenant or Tenant's employees
or agents.
D. LANDLORD WAIVER: Landlord, for itself and each Landlord
---------------
Indemnitee, hereby waives and releases all Claims against Tenant and each Tenant
Indemnitee, and all rights to join Tenant or any Tenant Indemnitee in any
litigation or proceeding, arising out of or in connection with any matter which
is the subject of Landlord's indemnity obligations as set forth in subparagraph
3.B above; including, without limitation, any Claim arising under CERCLA, the
California Hazardous Substance Account Act or any other Environmental Law.
Tenant, for itself and each Tenant Indemnitee, hereby waives and releases all
Claims against Landlord and each Landlord Indemnitee, and all rights to join
Landlord or any Landlord Indemnitee in any litigation or proceeding, arising out
of or in connection with any matter which is the subject of Tenant's indemnity
obligations as set forth in subparagraph 3.A above; including, without
limitation, any Claim arising under CERCLA, the California Hazardous Substance
Account Act or any other Environmental Law. In this regard, Landlord, for itself
and each Landlord Indemnitee, and Tenant, for itself and each Tenant Indemnitee,
also waives the benefits of all laws which provide that a waiver of unknown
<PAGE>
claims is unenforceable or which would otherwise limit the obligations, waivers
or releases of the Landlord or Tenant as set forth in this paragraph.
E. LANDLORD'S REPRESENTATIONS: To the best knowledge of Landlord:
--------------------------
(i) no Hazardous Material is present on the Premises or Project or the soil,
surface water or groundwater thereof; (ii) no underground storage tanks or
asbestos containing building materials are present on the Premises or Project;
and (iii) no action, proceeding, or claim is pending or threatened concerning
the Premises or Project concerning any Hazardous Material or pursuant to any
Environmental Law. Landlord has delivered to Tenant all reports and
environmental assessments of the Premises or Project conducted at the request of
or otherwise available to Landlord and Landlord has complied with all
environmental disclosure obligations imposed upon Landlord by applicable Law
with respect to this transaction.
F. DEFINITION OF HAZARDOUS MATERIAL AND ENVIRONMENTAL LAWS: As used
-------------------------------------------------------
in this paragraph, the term "Hazardous Material" shall mean any material or
substance that is now or hereafter prohibited or regulated by any statute, law,
rule, regulation or ordinance or that is now or hereafter designated by any
governmental authority to be radioactive, toxic, hazardous or otherwise a danger
to health, reproduction or the environment. As used herein "Environmental Laws"
shall mean all local, state, or federal laws, statutes, ordinances, rules,
regulations, judgments, injunctions, stipulations, decrees, orders, permits,
approvals, treaties, or protocols now or hereafter enacted, issued or
promulgated by any governmental authority which relate to any Hazardous Material
or to the use, handling, transportation, production, disposal, discharge,
release, emission, sale, or storage of, or the exposure of any person to, a
Hazardous Material.
G. EXCLUSIVE PROVISIONS: This paragraph 3 constitutes the entire
--------------------
agreement of Landlord and Tenant regarding Hazardous Materials and Environmental
Laws. No other provision of the Lease shall be deemed to apply thereto.
4. COMMON AREAS: Notwithstanding anything to the contrary in the Lease
------------
Form, if Landlord is permitted to alter any Common Area of the Premises, such
alteration shall not unreasonably interfere with Tenant's use of the Premises or
Tenant's parking rights.
5. RULES AND REGULATIONS: Notwithstanding anything to the contrary in the
---------------------
Lease Form, Tenant shall not be required to comply with any new rule or
regulation, unless the same applies non-discriminatorily to all occupants of the
Project and does not unreasonably interfere with Tenant's use of the Premises or
Tenant's parking rights.
6. REASONABLE EXPENDITURES: Notwithstanding anything to the contrary in
-----------------------
the Lease Form, any expenditure by a party permitted or required under the
Lease, for which such party in entitled to demand and does demand reimbursement
from the other party, shall be limited to the fair market value of the goods and
services involved, shall be reasonably incurred, and shall be substantiated by
documentary evidence available for inspection and review by the other party or
its representatives during normal business hours.
7. QUIET POSSESSION: Notwithstanding anything to the contrary in the
----------------
Lease Form, Tenant shall peacefully have, hold and enjoy the Premises, subject
to the other terms of this Lease, provided that Tenant pays the rent and
performs all of Tenant's covenants and agreement contained in this Lease. This
covenant and the other covenants of Landlord contained in this Lease shall be
binding upon Landlord and its successors only with respect to breaches occurring
during its and their respective ownerships of Landlord's interest hereunder.
8. LANDLORD'S AUTHORITY TO EXECUTE: Notwithstanding anything to the
-------------------------------
contrary in the Lease Form, Landlord warrants and represents to Tenant that
Landlord has the full right, power and authority to enter into this Lease and
has obtained all necessary consents and approvals from its partners, officers,
board of directors or other members required under the documents governing its
affairs in order to consummate the Lease contemplated hereby. The persons
executing this
<PAGE>
Lease on behalf of Landlord have the full right, power and authority so to do
and affirm the foregoing warranty on behalf of Landlord and on their own behalf.
9. LIMITATION ON LIABILITY:
-----------------------
Notwithstanding paragraph 16.20 of the Lease Form, the limitation on
Landlord's liability provided therein shall not apply, and the partners of
Landlord shall be personally liable, to the extent that $10,000,000 exceeds the
net worth of the Premises from time to time. In addition, Tenant may take any
action permitted under law to recover (a) the proceeds from any loan entered
into by Landlord after the date Tenant first filed the action which resulted in
Landlord's liability and (b) all distributions if rentals and other cash
proceeds from the Premises to Landlord or its partners or shareholders at any
date after the filing of Tenant's action. Nothing herein shall prevent Tenant
from taking such action as may be permitted under law or in equity to recover
any funds so disbursed by Landlord in violation of the provisions of this
paragraph.
10. OFFSET STATEMENT, RECIPROCAL OBLIGATION: Notwithstanding anything to
---------------------------------------
the contrary in the Lease Form, paragraph 16.1 of the Lease Form shall be doomed
to impose a reciprocal obligation on Landlord for the benefit of Tenant.
11. EFFECT OF ADDENDUM: Each term used herein with initial capital letters
------------------
shall have the meaning ascribed to such term in the Lease Form unless
specifically otherwise defined herein. In the event of any inconsistency between
this Second Addendum and the Lease Form, the terms of this Second Addendum shall
prevail. As used herein, the term "Lease" shall mean the Lease Form, this Second
Addendum and all riders, exhibits, rules, regulations, covenants, conditions and
restrictions referred to in the Lease Form or this Second Addendum.
<TABLE>
<CAPTION>
LANDLORD: TENANT:
- -------- ------
<S> <C>
JOINT LAND DEVELOPMENT COMPANY TELESENSORY CORPORATION
NUMBER TWO a California corporation
a California general partnership
By: /s/ Peter Lacy By: /s/ W.S. Schwarz
General Partner
Printed Printed
Name: PETER LACY Name: W.S. Schwarz
Date: 7 July 1992 Title: CFO- EVP
Date: 7/6/92
By: /s/ Duane E. Dunwoodie
General Partner
Printed
Name: DUANE E. DUNWOODIE
Date: July 8, 1992
By: /s/ W.E. JARVIS
Printed
Name: W.E. Jarvis
Date: July 15, 1992
</TABLE>
-4-
<PAGE>
EXHIBIT "A"
That property in the City of Mountain View, Santa Clara County, California,
described as:
All of Parcel "A" as shown upon that certain parcel map entitled
"Parcel map being a portion of Lots 36 & 37, B.D. Murphy Subdivision,
recorded in Book 'I' of Maps Page 61", which Map was filed for record
in the Office of the Recorder of the County of Santa Clara on August
12, 1976 in Book 376 of Maps at Page 22.
<PAGE>
EXHIBIT 10.10
THIS AGREEMENT is entered into on NOVEMBER 30, 1993, between COMERICA BANK-
CALIFORNIA as secured party, whose address is 55 ALMADEN BLVD. SAN JOSE, CA and
Borrower, a corporation whose sole place of business (if it has only one), chief
executive office (if it has more than one place of business) or residence (if an
individual) is located at 455 N. BERNARDO MOUNTAIN VIEW, CA
The parties agree as follows:
1. DEFINITIONS
1.1 The term "this Agreement" means and includes this Loan and Security
Agreement (Accounts and Inventory), any concurrent or subsequent Rider to this
Loan and Security Agreement (Accounts and Inventory) and any extensions,
supplements, amendments or modifications to this Loan and Security Agreement
(Accounts and Inventory) and any such Rider.
1.2 The term "Bank Expenses" means and includes: all costs or expenses
required to be paid by borrower under this Agreement which are paid or advanced
by Bank; taxes and insurance premiums of every nature and kind of Borrower paid
by Bank; filing, recording, publication and search fees, appraiser fees, auditor
fees and costs, and title insurance premiums paid or incurred by Bank in
connection with Bank"s transactions with Borrower; costs and expenses incurred
by Bank in collecting the Receivables (with or without suit) to correct any
default or enforce any provision of this Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, disposing of,
preparing for sale and/or advertising to sell the Collateral, whether or not a
sale is consummated; costs and expenses of suit incurred by Bank in enforcing or
defending this Agreement or any portion hereof, including, but not limited to,
expenses incurred by Bank in attempting to obtain relief from any stay,
restraining order, injunction or similar process which prohibits Bank from
exercising any of its rights or remedies; and attorneys" fees and expenses
incurred by Bank in advising, structuring, drafting, reviewing, amending,
terminating, enforcing, defending or concerning this Agreement, or any portion
hereof or any agreement related hereto, whether or not suit is brought. Bank
Expenses shall include Bank's in-house legal charges at reasonable rates.
1.3 The term "Base Rate" as used in this Agreement means that a variable
rate of interest so announced by Bank at its headquarters office in San Jose,
California as its "Base Rate" from time to time and which serves as the basis
upon which effective rates of interest are calculated for those loans making
reference thereto.
1.4 The Term "Borrower's Books" as used in this Agreement means and
includes all of the Borrower's books and records including but not limited to:
minute books; ledgers; records indicating, summarizing or evidencing Borrower's
assets, liabilities, Receivables and all information relating thereto, business
operations or financial condition; computer programs, computer disk or tape
files; computer printouts; computer runs: and other computer prepared
information and equipment of any kind.
1.5 The term "Borrowing Base" as used in this Agreement means the sum of:
(1)EIGHTY percent 80.000% of the net amount of Eligible Accounts after deducting
therefrom all payments, adjustments and credits applicable thereto ("Accounts
Receivable Borrowing Base"); and (2) the amount, if any, of the advances against
inventory agreed to be made pursuant to any inventory Rider ("Inventory
Borrowing Base"), and other rider, amendment or modification to this Agreement,
that may now or hereafter be entered into by Bank and Borrower.
INCLUDING CANADIAN ACCOUNTS UP TO $400,000.00
1.6 The term "Collateral" means and includes each and all of the
following: the Receivables; the Intangibles; the Negotiable Collateral; the
Inventory; all money, deposit accounts and all other assets of Borrower in which
Bank receives a security interest or which hereafter come into the possession,
custody or control of Bank; and the proceeds of any of the foregoing, including,
but not limited to, proceeds of insurance covering the Collateral and any and
all Receivables, Intangibles, Negotiable Collateral, inventory, equipment,
money, deposit accounts or other tangible and intangible property of borrower
resulting from the sale or other disposition of the Collateral, and the proceeds
thereof. Notwithstanding
<PAGE>
anything to the contrary contained herein, Collateral shall not include any
waste or other materials which have been or may be designated as toxic or
hazardous by Bank.
1.7 The term "Eligible Accounts" means and includes those accounts of
Borrower which are due and payable within THIRTY (30) days, or less, from the
date of invoice, have been validly assigned to Bank and strictly comply with all
of Borrower's warranties and representations to Bank; but Eligible Accounts
shall not include the following: (a) accounts with respect to which the account
debtor is an officer, employee, partner, joint venturer or agent of Borrower;
(b) accounts with respect to which goods are placed on consignment, guaranteed
sale or other terms by reason of which the payment by the account debtor may be
conditional; (c) accounts with respect to which the account debtor is not a
resident of the United States; (d) accounts with respect to which the account
debtor is the United States or any department, agency or instrumentality of the
United States; (e)accounts with respect to which the account debtor is any State
of the United States or any city, county, town, municipality or division
thereof, (f) accounts with respect to which the account debtor is a subsidiary
of, related to, affiliated or has common shareholders, officers or directors
with Borrower; (g) accounts with respect to which Borrower is or may become
liable to the account debtor for goods sold or services rendered by the account
debtor to Borrower; (h) accounts not paid by an account debtor within ninety
(90) days from the date of the invoice; (i) accounts with respect to which
account debtors dispute liability or make any claim, or have any defense,
crossclaim, counterclaim, or offset; (j) accounts with respect to which any
Insolvency Proceeding is filed by or against the account debtor, or if an
account debtor becomes insolvent, falls or goes out of business; and (k)
accounts owed by any single account debtor which exceed twenty percent (20%) of
all of the Eligible Accounts; and (l) accounts with a particular account debtor
on which over twenty-five percent (25%) of the aggregate amount owing is greater
than ninety (90) days from the date of the invoice.
1.8 The term "Insolvency Proceeding" as used in this Agreement means and
includes any proceeding or case commenced by or against the Borrower, or any
guarantor of Borrowers Obligations, under any provisions of the Bankruptcy Code,
as amended, or any other bankruptcy or insolvency law including but not limited
to assignments for the benefit of creditors, formal or informal moratoriums,
composition or extensions with some or all creditors, any proceeding seeking a
reorganization, arrangement or any other relief under the Bankruptcy code, as
amended, or any other bankruptcy or insolvency law.
1.9 The term "Inventory" as used in this Agreement means and includes all
present and future inventory in which Borrower has any interest including, but
not limited to, goods held by Borrower for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, advertising materials, and packing
and shipping materials, wherever located and any documents if title representing
any of the above, and any equipment, fixtures or other property used in the
storing, moving, preserving, identifying, accounting for and shipping or
preparing for the shipping of inventory, and any and all other items hereafter
acquired by borrower by way of substitution, replacement, return, repossession
or otherwise, and all additions and accessions thereto, and the resulting
product or mass, and any documents of title respecting any of the above.
1.10 The term "Judicial Officer or Assignee" as used in this Agreement
means and includes any trustee, receiver, controller, custodian, assignee for
the benefit of creditors or any other person or entity having powers or duties
like or similar to the powers and duties of trustee, receiver, controller,
custodian or assignee for the benefit of creditors.
1.11 The term "Obligations" means and includes any and all loans,
advances, overdrafts, debts, liabilities (including, without limitation, any and
all amounts charged to Borrower's account pursuant to any agreement authorizing
Bank to charge Borrower's account), Obligations, lease payments, guaranties,
covenants and duties owing by Borrower to Bank of any kind and description
(whether advanced pursuant to or evidenced by this agreement; by any note or
other instrument; or by any other agreement between Bank and Borrower and
whether or not for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including, without limitation, any debt, ability
<PAGE>
or Obligation owing from Borrower to others which Bank may have obtained by
assignment, participation, purchase or otherwise, and further including, without
limitation, all interest not paid when due and all Bank Expenses which Borrower
is required to pay or reimburse by this Agreement, by law, or otherwise.
<PAGE>
[top line unreadable]
request of Bank, all financing statements, continuation financing statements,
security agreements, mortgages, assignments, certificates of title, affidavits,
reports, notices, schedules of accounts, letters of authority and all other
documents that Bank may request, in form satisfactory to Bank, to perfect and
maintain perfected Bank's security interest in the Collateral and in order to
fully consummate all of the transactions contemplated under this Agreement.
Borrower hereby irrevocably makes, constitutes and appoints Bank (and any of
Bank's officers, employees or agents designated by Bank) as Borrower's true and
lawful attorney-in-fact with power to sign the name of Borrower on any financing
statements, continuation financing statements, security agreement, mortgage,
assignment, certificate of title, affidavit, letter of authority, notice of
other similar documents which must be executed and/or filed in order to perfect
or continue perfected Bank's security interest in the Collateral.
Borrower shall make appropriate entries in Borrower's Books disclosing
Bank's security interest in the Receivables. Bank (through any of its officers,
employees or agents) shall have the right at any time or times hereafter during
Borrower's usual business hours, or during the usual business hours of any third
party having control over the records of Borrower, to inspect and verify
Borrower's Books in order to verify the amount or condition of, or any other
matter, relating to, said Collateral and Borrower's financial condition.
4.5 Borrower appoints Bank or any other person whom Bank may designate as
Borrower's attorney-in-fact, with power: to endorse Borrower's name on any
checks, notes, acceptances, money order, drafts or other forms of payment or
security that may come into Bank's possession; to sign Borrower's name on any
invoice or bill of lading relating to any Receivables, on drafts against account
debtors, on schedules and assignments of Receivables, on verifications of
Receivables and on notices to account debtors; to establish a lock box
arrangement and/or to notify the post office authorities to change the address
for delivery of Borrower's mail addressed to Borrower to an address designated
by Lender, to receive and open all mail addressed to Borrower, and to retain all
mail relating to the Collateral and forward all other mail to Borrower; to send,
whether in writing or by telephone, requests for verification of Receivables;
and to do all things necessary to carry out this Agreement. Borrower ratifies
and approves all acts of the attorney-in-fact. Neither Bank nor its attorney-in-
fact will be liable for any acts or omissions or for any error of judgement or
mistake of fact or law. This power being coupled with an interest, is
irrevocable so long as any Receivables in which Bank has a security interest
remain unpaid and until the Obligations have been fully satisfied.
4.6 In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards, warehousemen,
or any personnel to protect the Collateral, pay any service bureau, or, obtain
any records, and all costs for the same shall be added to the Obligations and
shall be payable on demand.
5. CONDITIONS PRECEDENT
5.1 Conditions precedent to the making of the loans and the extension of
the financial accommodations hereunder, Borrower shall execute, or cause to be
executed, and deliver to Bank, in form and substance satisfactory to Bank and
its counsel, the following:
(a) This Agreement and other documents required by Bank;
(b) Financing statements (Form UCC-1) in form satisfactory for filing and
recording with the appropriate governmental authorities;
(c) If Borrower is a corporation, then certified extracts from the minutes
of the meeting of its board of directors, authorizing the borrowing and the
granting of the security interest provided for herein and authorizing
specific officers to execute and deliver the agreements provided for
herein;
<PAGE>
(d) If Borrower is a corporation, then a certificate of good standing
showing that Borrower is in good standing under the laws of the state of
its incorporation and certificates indicating that Borrower is qualified to
transact business and is in good standing in any other state in which it
conducts business;
(e) If Borrower is a partnership, then a copy of Borrower's partnership
agreement certified by each general partner of Borrower;
(f) UCC searches, tax lien and litigation searches, fictitious business
statement filings, insurance certificates, notices or other similar
documents which Bank may require and in such form as Bank may require, in
order to reflect, perfect or protect Bank's first priority security
interest in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement;
(g) Evidence that Borrower has obtained insurance and acceptable
endorsements;
(h) Waivers executed by landlords and mortgagees of any real property on
which any Collateral is located;
(i) Warranties and representations of officers.
6. WARRANTIES, REPRESENTATIONS AND COVENANTS
6.1 If so requested by Bank, Borrower shall, at such intervals designated
by Bank, during the term hereof execute and deliver a Certification of
Borrowing Base, in form customarily used by Bank. Borrower's Borrowing Base
at all times pertinent hereto shall not be less than the advances made
hereunder, Bank shall have the right to recompute Borrower's Borrowing
Base in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account is not
paid in full by an account debtor within 90 days from the date of invoice,
or an account debtor disputes liability or makes any claim with respect
thereto, or a petition in bankruptcy or other application for relief under
the Bankruptcy Code or any other insolvency law is filed by or against an
account debtor, or an account debtor makes an assignment for the benefit of
creditors, becomes insolvent, falls or goes out of business, then Bank may
deem ineligible any and all accounts owing by that account debtor, and
reduce Borrower's Borrowing Base by the amount thereof. Bank shall retain
its security interest in all Receivables and accounts, whether eligible or
ineligible, until all Obligations have been fully paid and satisfied,
Returns and allowances if any, as between Borrower and its customers, will
be on the same basis and in accordance with the usual customary practices
of the Borrower, as they exist at this time. Any merchandise which is
returned by an account debtor or otherwise recovered shall be set aside,
marked with Bank's name, and Bank shall retain a security interest therein.
Borrower shall promptly notify Bank of all disputes and claims and settle
or adjust them on terms approved by Bank. After default by Borrower
hereunder, no discount, credit or allowance shall be granted to any account
debtor by Borrower and no return of merchandise shall be accepted by
Borrower without Bank's consent. Bank may, after default by Borrower,
settle or adjust disputes and claims directly with account debtors for
amounts and upon terms which Bank considers advisable, and in such cases
Bank will credit Borrower's account with only the net amounts received by
Bank in payment of the accounts, after deducting all Bank Costs in
connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that:
(a) Borrower has good and marketable title to the Collateral. Bank has and
shall continue to have a first priority perfected security interest in and
to the Collateral. The Collateral shall at all times remain free and clear
of all liens, encumbrances and security interests (except those in favor of
Bank).
(b) All accounts are and will, at all times pertinent hereto, be bona fide
existing Obligations created by the sale and delivery of merchandise or the
<PAGE>
rendition of services to account debtors in the ordinary course of
business, free of liens, claims, encumbrances and security interests
(except as held by Bank and except as may be consented to, in writing, by
Bank) and are unconditionally owed to Borrower without defenses, disputes,
offsets, counterclaims, rights of return or cancellation, and Borrower
shall have received no notice of actual or imminent bankruptcy or
insolvency of any account debtor at the time an account due from such
account debtor is assigned to Bank.
<PAGE>
6.12 All assessments and taxes, whether real, personal or otherwise, due or
payable by, or imposed, levied or assessed against, Borrower or any of its
property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by
law, and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof. Borrower will make timely payment
or deposit of all F.I.C.A. payments and withholding taxes required of it by
applicable laws, and will upon request furnish Bank with proof satisfactory to
it that Borrower has made such payments or deposit. If Borrower falls to pay any
such assessment, tax, contribution, or make such deposit, or furnish the
required proof, Bank may, in its sole and absolute discretion and without notice
to Borrower, (i) make payment of the same or any part thereof, or (ii) set up
such reserves in Borrower's account as Bank deems necessary to satisfy the
liability therefor, or both. Bank may conclusively rely on the usual statements
of the amount owing or other official statements issued by the appropriate
governmental agency. Each amount so paid or deposited by Bank shall constitute a
Bank Cost and an additional advance to Borrower.
6.13 There are no actions or proceedings pending by or against Borrower or
any guarantor of Borrower before any court or administrative agency and Borrower
has no knowledge of any pending, threatened or imminent litigation, governmental
investigations or claims, complaints, actions or prosecutions involving Borrower
or any guarantor of Borrower, except as heretofore specifically disclosed in
writing to Bank. If any of the foregoing arise during the term of the Agreement,
Borrower shall immediately notify Bank in writing.
6.14 Borrower, at its expense, shall keep and maintain its assets insured
against loss or damage by fire, theft, explosion, sprinklers and all other
hazards and risks ordinarily insured against by other owners who use such
properties in similar businesses for the full insurable value thereof. Borrower
shall also keep and maintain business interruption insurance and public
liability and property damage insurance relating to Borrower's ownership and use
of the Collateral and its other assets. All such policies of insurance shall be
in such form, with such companies, and in such amounts as may be satisfactory to
Bank. Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All such
policies of insurance (except those of public liability and property damage)
shall contain an endorsement in a form satisfactory to Bank showing Bank as a
loss payee thereof, with a waiver of warranties (Form 438-BFU), and all proceeds
payable thereunder shall be payable to Bank and, upon receipt by Bank, shall be
applied on account of the Obligations owing to Bank. To secure the payment of
the Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance (except those of public liability and property damage) and
the proceeds thereof, and Borrower shall direct all insurers under such policies
of insurance to pay all proceeds thereof directly to Bank.
Borrower hereby irrevocably appoints Bank (and any of Bank's officers,
employees or agents designated by Bank) as Borrower's attorney for the purpose
of making, settling and adjusting claims under such policies of insurance,
endorsing the name of Borrower on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance.
Borrower will not cancel any of such policies without Bank's prior written
consent. Each such insurer shall agree by endorsement upon the policy or
policies of insurance issued by it to Borrower as required above, or by
independent instruments furnished to Bank, that it will give Bank at least ten
(10) days written notice before any such policy or policies of insurance shall
be altered or cancelled, and that no act or default of Borrower, or any other
person, shall affect the right of Bank to recover under such policy or policies
of insurance required above or to pay any premium in whole or in part relating
thereto. Bank, without waiving or releasing any Obligations or any Event of
Default, may, but shall have no obligation to do so, obtain and maintain such
policies of insurance and pay such premiums and take any other action with
respect to such policies which Bank deems advisable. All sums so disbursed by
Bank, as well as reasonable attorneys' fees, court costs, expenses and other
charges relating thereto, shall constitute Bank Expenses and are payable on
demand.
<PAGE>
6.15 All financial statements and information relating to Borrower which
have been or may hereafter be delivered by Borrower to Bank are true and correct
and have been prepared in accordance with generally accepted accounting
principles consistently applied and there has been no material adverse change in
the financial condition of Borrower since the submission of such financial
information to Bank.
6.16 (a) Borrower at all times hereafter shall maintain a standard and
modern system of accounting in accordance with generally accepted accounting
principles consistently applied with ledger and account cards and/or computer
tapes and computer disks, computer printouts and computer records pertaining to
the Collateral which contain information as may from time to time be requested
by Bank, not modify or change its method of accounting or enter into, modify or
terminate any agreement presently existing, or at any time hereafter entered
into with any third party accounting firm and/or service bureau for the
preparation and/or storage of Borrower's accounting records without the written
consent of Bank first obtained and without said accounting firm and/or service
bureau agreeing to provide information regarding the Receivables and inventory
and Borrower's financial condition to Bank; permit Bank and any of its
employees, officers or agents, upon demand, during Borrower's usual business
hours, or the usual business hour of third persons having control thereof, to
have access to and examine all of the Borrower's Books relating to the
Collateral, Borrower's Obligations to Bank, Borrower's financial condition and
the results of Borrower's operations and in connection therewith, permit Bank or
any of its agents, employees or officers to copy and make extracts therefrom.
(b) Borrower shall deliver to Bank within thirty (30) days after the end of
each month, a monthly internal balance sheet and profit and loss statement
covering Borrower's operations and deliver to Bank within ninety (90) days
after the end of each of Borrower's fiscal years a(n) Audited Financial
statement of the financial condition of the Borrower for each such fiscal
year, including but not limited to, a balance sheet and profit and loss
statement and any other report requested by Bank relating to the Collateral
and the financial condition of the Borrower, and a certificate signed by an
authorized employee of Borrower to the effect that all reports, statements,
computer disk or tape files, computer printouts, computer runs, or other
computer prepared information of any kind or nature relating to the
foregoing or documents delivered or caused to be delivered to Bank under
this subparagraph are complete, correct and thoroughly present the
financial condition of borrower and that there exists on the date of
delivery to Bank no condition or event which constitutes a breach or event
of default under this Agreement.
(c) In addition to the financial statements requested above, the Borrower
agrees to provide Bank with the following schedules:
X Accounts Receivable Agings on a MONTHLY basis within 15 days of the
X Accounts Payable Agings on a MONTHLY basis end of the prior month
____ Job Progress Reports on a _____ basis
____________________ on a _____ basis
6.17 Borrower shall maintain the following financial ratios and covenants:
SEE ATTACHED EXHIBIT "B" FOR FINANCIAL RATIOS AND COVENANTS
(a) Borrower shall maintain working capital in an amount not less than
_______
(b) A TANGIBLE NET WORTH In an amount not less than ________n/a________
(c) a ratio of current assets to current liabilities of _______________
(d) a quick ratio of cash plus securities plus accounts receivable to
current liabilities of ______________________
(e) a ratio of TOTAL LIABILITIES to TANGIBLE NET WORTH of less than
_______________________________________________________________
<PAGE>
[top line partially unreadable]
any loss or damage thereto occurring or arising in any manner or fashion from
any cause; (c) any diminution in the value thereof; or (d) any act or default of
any carrier, warehouseman, bailee, forwarding agency or other person whomsoever.
All risk of loss, damage or destruction of inventory shall be borne by Borrower.
10.4 Borrower and Bank waive any right to trial by jury in any action or
proceeding relating to this Agreement or any transaction hereunder. Borrower
waives the right and the right to assert a confidential relationship, if any, it
may have with any accountant, accounting firm and/or service bureau or
consultant in connection with any information requested by Bank pursuant to or
in accordance with this Agreement, and agrees that a Bank may contact directly
any such accountants, accounting firm and/or service bureau or consultant in
order to obtain such information.
10.5 Borrower and Bank each waive any right to trial by jury in any action
or proceeding relating to this Agreement or any transaction hereunder, or
contemplated hereunder, or any other claim (including tort or breach of duty
claims) or dispute howsoever arising between Bank and Borrower.
10.6 In the event that Bank elects to waive any rights or remedies
hereunder, or compliance with any of the terms hereof, or delays or fails to
pursue or enforce any term, such waiver, delay or failure to pursue or enforce
shall only be effective with respect to that single act and shall not be
construed to affect any subsequent transactions or Bank's right to later pursue
such rights and remedies.
1l. ONE CONTINUING LOAN TRANSACTION
All loans and advances heretofore, now or at any time or times hereafter made by
Bank to Borrower under this Agreement or any other agreement between Bank and
Borrower, shall constitute one loan secured by Bank's security interests in the
Collateral and by all other security interests, liens, encumbrances heretofore,
now or from time to time hereafter granted by Borrower to Bank.
12. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
either party on the other relating to this Agreement shall be in writing and
sent by regular United States mail, postage prepaid, properly addressed to
Borrower or to Bank at the addresses stated in this Agreement, or to such other
addresses as Borrower or Bank may from time to time specify to the other in
writing. Requests to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE
Bank is hereby authorized to make loans and advances hereunder upon
telephonic or other instructions received from anyone purporting to be an
officer, employee, or representative of Borrower, or at the discretion of Bank
if said loans and advances are necessary to meet any Obligations of Borrower to
Bank. Bank shall have no duty to make inquiry or verity the authority of any
such party, and Borrower shall hold Bank harmless from any damage, claims or
liability by reason of Bank's honor of, or failure to honor, any such
instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS
Any documents, schedules, invoices or other papers delivered to Bank, may
be destroyed or otherwise disposed of by Bank six months after they are
delivered to or received by Bank, unless Borrower requests, in writing, the
return of the said documents, schedules, invoices or other Papers and makes
arrangements, at Borrower's expense, for their return.
15. CHOICE OF LAW
The validity of this Agreement, its construction, interpretation and
enforcement, and the rights of the parties hereunder and concerning the
Collateral,
<PAGE>
shall be determined according to the laws of the State of California. The
parties agree that if actions or proceedings arising in connection with this
Agreement shall be tried and litigated only in the state and federal courts in
the Northern District of California or County of Santa Clara.
16. GENERAL PROVISIONS
16.1 This Agreement shall be binding and deemed effective when executed by
the Borrower and accepted and executed by Bank at its office in SAN JOSE,
California.
16.2 This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however, that Borrower
may not assign this Agreement or any rights hereunder without Bank's prior
written consent and any prohibited assignment shall be absolutely void. No
consent to an assignment by Bank shall release Borrower or any guarantor from
their Obligations to Bank. Bank may assign this Agreement and its rights and
duties hereunder, Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in Bank's rights
and benefits hereunder. In connection therewith, Bank may disclose all documents
and information which Bank now or hereafter may have relating to Borrower or
Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth herein
for convenience only; unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein shall
be construed or resolved against Bank or Borrower, whether under any rule of
construction or otherwise; on the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto. When permitted by the context, the singular includes the
plural and vice versa.
16.5 Each provision of this Agreement shall be severable from every other
provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except as to
currently existing Obligations owing by Borrower to Bank, all prior agreements,
understandings, representations, warranties, and negotiations, if any, are
merged into this Agreement.
16.7 The parties intend and agree that their respective rights, duties,
powers, liabilities, obligations and discretions shall be performed, carried
out, discharged and exercised reasonably and in good faith. THIS LOAN AND
SECURITY AGREEMENT AMENDS AND SUPERCEDES ANY PRIOR LOAN AND SECURITY AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed at SAN JOSE, California as of the date first hereinabove written.
ATTEST: BORROWER: TELESENSORY CORPORATION
Title ______________ By: /s/ William Schwarz
Accepted and effective as of ______ Title: CFO & EVP
at Bank's place of business.
Comerica Bank By:
By: /s/ Philip M. Gould Title:
<PAGE>
PHILIP M. GOULD
Title: VICE PRESIDENT
<PAGE>
EXHIBIT "A"
PRIMO PACKAGING
1740 C. JUNCTION AVENUE
SAN JOSE, CA 95112
TELESENSORY IRELAND/COBVALE
35 AIRTON TERRACE
TALLAGHT, DUBLIN 24
REPUBLIC OF IRELAND
COMPUTER PLASTICS
1914 NATIONAL AVENUE
HAYWARD, CA 94545
CHEE YUEN
62 TSUN YIP STREET
KWUN TONG, KOWLOON
HONG KONG
MAXTAR
FLAT C 10TH FL 45 KUT SING ST
SHING KING INDUSTRIAL BLDG
CHAIWAN HONG KONG
<PAGE>
1. FINANCIAL COVENANTS - DOMESTIC OPERATIONS:
(A) MINIMUM ADJUSTED NET WORTH $1,250,000.00
INCREASING BY 03/31/94 TO $1,500,000.00
ADJUSTED NET WORTH TO BE CALCULATED BY ADDING TO BOOK EQUITY THE SUBORDINATED
DEBT DUE FROM THE IRISH SUBSIDIARIES AND SUBTRACTING ANY INTANGIBLES AND THE NET
DUE FROM THE SUBSIDIARIES.
(B) MAXIMUM DEBT TO ADJUSTED NET WORTH RATIO 7.00: 1.00
REDUCING BY 01/01/94 TO 6.00:1.00
REDUCING BY 06/30/94 TO 5.00:1.00
TO BE CALCULATED BY DIVIDING THE TOTAL OF LIABILITIES EXCLUDING INTERCOMPANY
DEBT BY THE ADJUSTED NET WORTH.
(C) MINIMUM WORKING CAPITAL $1,000,000.00
INCREASING BY 03/31/94 TO $1,500,000.00
TO BE CALCULATED BY SUBTRACTING TOTAL CURRENT LIABILITIES FROM TOTAL CURRENT
ASSET EXCLUDING PREPAIDS.
(D) MINIMUM CURRENT RATIO 1.00:1.00
INCREASING BY 03/31/94 TO 1.10:1.00
TO BE CALCULATED BY DIVIDING CURRENT ASSETS EXCLUDING PREPAIDS BY CURRENT
LIABILITIES.
(E) QUARTERLY LOSSES FROM DOMESTIC OPERATIONS IN THE FIRST TWO QUARTERS OF 1994
SHALL NOT EXCEED $150,000.00 PER QUARTER.
2. FINANCIAL COVENANTS - CONSOLIDATED COMPANY
(A) MAXIMUM DEBT TO TANGIBLE NET WORTH 2.25:1.00
TO BE CALCULATED BY DIVIDING TOTAL DEBT BY NET WORTH
LESS ANY INTANGIBLE ASSETS.
(B) COMPANY SHALL BE PROFITABLE ON A QUARTERLY BASIS STARTING WITH THE FIRST
QUARTER OF 1994.
(C) QUARTERLY SALES REVENUES SHALL BE NO LESS THAN 90% OF PROJECTIONS PROVIDED
THE BANK BY THE BORROWER.
<PAGE>
THIS EQUIPMENT RIDER (hereinafter referred to as "this Rider") dated the 30TH
day of NOVEMBER 1993, is hereby made a part of and incorporated in the Loan and
Security Agreement (Accounts and Inventory) (hereinafter referred to as
"Agreement", dated 1993 between Bank (Secured Party) and Borrower.
1. Borrower grants to Bank a security interest in the following (hereinafter
referred to as "Equipment"):
(a) All of Borrower's present machinery, equipment, fixtures, vehicles, office
equipment, furniture, furnishings, tools, dies, jigs and attachments,
wherever located, (including but not limited the items listed described on
the Schedule of Equipment attached hereto and marked Exhibit "A" and by
this reference made a part hereof as though fully set forth hereat);
(b) all of Borrower's additional equipment, wherever located, of like or unlike
nature, to be acquired hereafter, and all replacements, substitutes,
accessions, additions and improvements to any of the foregoing, and
(c) all of Borrower's general intangibles, including without limitation,
computer programs, computer disks, computer tapes, literature, reports,
catalogs, drawings, blueprints and other proprietary items.
2 Bank's security interest in the equipment may, in its sole security interest
in the Equipment as set forth above shall secure each, any and all of Borrower's
Obligations to Bank as the term "Obligations" is defined in the Agreement; and,
the payment of Borrower's indebtedness in the principal amount of THREE MILLION
FIVE HUNDRED THOUSAND AND NO/ 100 Dollars ($3,500,000.00) and interest,
evidenced by LOAN AND SECURITY AGREEMENT.
3. Bank may, in its sole discretion, from time to time hereafter make loans
to Borrower. Loans made by Bank to Borrower pursuant to this Rider shall be
included as part of the Obligations of Borrower to Bank and at Bank's option,
may be evidenced by promissory note(s), in form satisfactory to Bank. Such loans
shall bear interest at the rate and be payable in the manner specified in said
promissory note(s) in the event Bank exercises the aforementioned option, and in
the event Bank does not, such loans shall bear interest at the rate and be
payable in the manner specified in the Agreement.
4. Borrower represents and warrants to Bank that:
(a) It has good and indefeasible title to the Equipment;
(b) the Equipment is and will be free and clear of all liens, security
interests, encumbrances and claims, except as held by Bank.
(c) the Equipment shall be kept only at the following locations: SEE
EXHIBIT "A" ATTACHED AND MADE A PART HEREOF.
(d) the owners or mortgagees of the respective locations are: JOINT LAND
DEVELOPMENT COMPANY II
(e) Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours to inspect and examine
the Equipment and Borrower agrees to reimburse Bank for its reasonable
costs and expenses in so doing.
5. Borrower shall keep and maintain the Equipment in good operating condition
and repair, make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Borrower shall not permit any items of Equipment to become a fixture to real
estate or accession to other property, and the Equipment is now and shall at all
times remain and be personal property.
6. Borrower at its expense, shall keep and maintain: the Equipment insured
against loss or damage by fire, theft, explosion, sprinklers and all other
hazards, and risks ordinarily insured against by other owners who use such
properties and interest in properties in similar businesses for the full
insurable value thereof; and business interruption insurance and public
liability and property damage insurance relating to Borrower's ownership and use
of its assets. All such policies of insurance shall be in such form, with such
companies and in such amounts as may be satisfactory to Bank. Borrower shall
deliver to Bank certified copies of such
<PAGE>
policies of insurance and evidence of the payment of all premiums thereof. All
such policies of insurance (except those of public liability and property
damage) shall contain an endorsement in a form satisfactory to Bank showing loss
payable to Bank and all proceeds payable thereunder shall be payable to Bank and
upon receipt by Bank shall be applied on the account of Borrower's Obligations.
To secure the payment of Borrower's Obligations, Borrower grants Bank a security
interest in and to all such policies of insurance (except those of public
liability and property damage) and the proceeds thereof and directs all insurers
under such policies of insurance to pay all proceeds thereof directly to Bank.
Borrower hereby irrevocably appoints Bank (and any of Bank's officers, employees
or agents designated by Bank) as Borrower's attorney-in-fact for the purpose of
making, settling and adjusting claims under such policies of insurance and for
making all determinations and decisions with respect to such policies of
insurance. Each such insurer shall agree by endorsement upon the policy or
policies of insurance issued by it to Borrower as required above, or by
independent instruments furnished to Bank that it will give Bank at least ten
(10) days written notice before any such policy or policies of insurance shall
be altered or canceled, and that no act or default of Borrower, or any other
person, shall affect the right of Bank to recover under such policy or policies
of insurance required above or to pay any premium in whole or in part relating
thereto. Bank without waiving or releasing any obligations or defaults by
Borrower hereunder, may at any time or times hereafter, but shall have no
obligations to do so, obtain and maintain such policies of insurance and pay
such premiums and take any other action with respect to such policies which Bank
deems advisable. All sums so disbursed by Bank, including reasonable attorney's
fees, court costs, expenses and other charges relating thereto, shall be a part
of Borrower's Obligations and payable on demand.
7. Until default by Borrower under the Agreement or this Rider, Borrower may,
subject to the provisions of the Agreement and this Rider and consistent
therewith, remain in possession thereof and use the Equipment referred to herein
in the ordinary course of business at the location or locations hereinabove
designated.
8. All of the terms, conditions, warranties, covenants, agreements and
representations of the Agreement are incorporated herein and reaffirmed.
9. Upon a default by Borrower under the Agreement or this Rider, Borrower upon
request of Bank to do so agrees to assemble and make the Equipment or any part
thereof available to Bank at a place designated by Bank.
<PAGE>
10. Borrower shall upon demand by Bank immediately deliver to Bank and property
endorse, any and all evidences of ownership, certificates of title or
applications for titles to any of the aforesaid items of Equipment.
11. Bank shall not in any way or manner be liable or responsible for (a) the
safekeeping of the Equipment; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof or (d) any act or default by any person whomsoever. All risk of Loss,
damage or destruction of the Equipment shall be borne by Borrower.
ATTEST: BORROWER: TELESENSORY CORPORATION
BY ____________________________ BY: /s/ William Schwarz
_______________________________ EVP & CFO
Title Title
Accepted this 17th day of December at Bank's place of business in______________
State of California.
/s/ Philip M. Gould
BY PHILIP M. GOULD
VICE PRESIDENT
Title
<PAGE>
You are hereby authorized to disburse the proceeds of that certain note,
executed by the undersigned, as follows:
<TABLE>
<S> <C> <C>
Credit Account of No. $
Pay by Draft to $
Pay by Cashier's Check to $
Pay off Loan No.__________ In the name of $
Pay off Loan No.__________ In the name of $
Pay off Loan No.__________ In the name of $
Other $
Other $
Other $
Other $
Other $
Other $
Other $
Other $
Life Insurance $______ Accident & Health Ins. $_______
Total Acc., Health, Life Premium $
</TABLE>
<TABLE>
<CAPTION>
(Due From Borrower Financed Fees
Miscellaneous Fees Due to Bank or Third Before Funding) and Charges
and Charges Party Shown Below
<S> <C> <C>
Recording/Filing Fees ( $ ) $
Title Insurance Fees ( $ ) $
Documentation Fee ( $250.00 ) $
Origination Fee ( $ ) $
Reconveyance Fee ( $ ) $
Loan Fee ( $ ) $
Credit Report Fee ( $ ) $
Appraisal Fee ( $ ) $
Application Fee ( $ ) $
Flood Certification Fee ( $ ) $
Tax Service Fee ( $ ) $
Sub-Escrow Fee ( $ ) $
Assumption Fee ( $ ) $
Miscellaneous Fees DOC FEE WAIVED, PER: ( $ ) $
Other /S/Philip M. Gould ( $ ) $
Other PHILIP M. GOULD, VICE PRESIDENT ( $ ) $
Other ( $ ) $
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Other ( $ ) $
BORROWER (S): TELESENSORY CORPORATION DATED: NOVEMBER 30, 1993
/s/ W.S. Schwarz
</TABLE>
<PAGE>
COMERICA INVENTORY RIDER
(REVOLVING ADVANCE)
COMERICA BANK - CALIFORNIA
Borrower(s): TELESENSORY CORPORATION
Borrower has entered into a certain Revolving Credit and Security Agreement
(Accounts and Inventory) or a certain Loan and Security Agreement (Accounts and
Inventory (either hereinafter referred to as "Agreement") dated NOVEMBER 30,
1993 with Bank (Secured Party). This INVENTORY RIDER (hereinafter referred to as
this Rider) dated MARCH 7, 1996 is hereby made a part of and incorporated into
that agreement.
1. At the request of Borrower, made at any time and from time to time during
the term of the Agreement, and so long as no event of default under the
Agreement has occurred and Borrower is in full, faithful and timely compliance
with each and all of the covenants, conditions, warranties and representations
contained in the Agreement, this Rider and/or any other agreement between Bank
and Borrower, Bank agrees to lend Borrower __TWENTY-FIVE AND NO/1000 Percent(
25.000%) of the lower of cost or market value of Borrower's raw materials and
finished goods Inventory, and as may be adjusted by Bank, in Bank's discretion,
for age and seasonality or other factors affecting the value of the Inventory,
up to a maximum advance outstanding at any one time of N/A Dollars ($ N/A ) upon
Borrower's concurrent execution and delivery to Bank of a Designation of
Inventory, or Certification of Borrowing Base, in form customarily used by Bank.
All advances made and to be made pursuant to this Rider are solely and
exclusively to enable Borrower to acquire rights in and purchase new inventory,
and Borrower represents and warrants that all advances by Bank pursuant to this
Rider will be used solely and exclusively for such purpose; and since such
advances will be used for the foregoing purposes, Bank's security interest in
Borrower's inventory is and shall be at all times a purchase money security
interest as that term is described in Section 9107 of the California Uniform
Commercial Code.
2. Advances made by Bank to Borrower pursuant to this Rider shall be included
as part of the Obligations of Borrower to Bank as the term "Obligations" is
defined in the Agreement; and at Bank's option, advances pursuant to this Rider
may be evidenced by promissory note(s), in form and on terms satisfactory to
Bank. All such advances shall bear interest at the rate and be payable in the
manner specified in said promissory note(s) in the event Bank exercises the
aforementioned option, and in the event Bank does not, such advances shall bear
interest at the rate and be payable in the manner specified in the Agreement.
3. All of the terms, covenants, warranties, conditions, agreements and
representations of the Agreement are incorporated herein as though set forth in
their entirety and are hereby reaffirmed by Borrower and Bank as though fully
set forth hereat.
BORROWER(S): TELESENSORY CORPORATION
By: /S/ Pres. By:
By: By:
<PAGE>
Accepted this 7TH day of March, 1996 at Bank's place of business in SAN JOSE, CA
95113.
/S/ Philip Gould
By: PHILIP GOULD, VICE PRESIDENT
<PAGE>
FIRST MODIFICATION TO LOAN AND SECURITY AGREEMENT
(Accounts Receivable and Inventory)
This First Modification to Loan and Security Agreement (Accounts Receivable and
Inventory) is made and entered into this 30th day of November, 1993, by and
between COMERICA BANK - CALIFORNIA ("Bank") and TELESENSORY CORPORATION
("Borrower").
WHEREAS Bank and Borrower have previously entered into that certain Loan and
Security Agreement (Accounts Receivable and Inventory) dated 30th November, 1993
hereinafter referred to as the "Loan Agreement".
WHEREAS the parties are desirous of modifying the Loan Agreement in accordance
with the terms hereof.
1. Notwithstanding anything to the contrary contained in the Loan Agreement,
paragraph 1.5 of section 1. Definitions is hereby deleted and replaced with
the following:
The term "Borrowing Base" as used in this Agreement means the sum of (1)
eighty percent (80.00%) of the net amount of Eligible Accounts, including
Canadian accounts up to four hundred thousand dollars (US$400,000.00) after
deducting therefrom all payments, adjustments and credits applicable
thereto ("Accounts Receivable Borrowing Base"); and (2) one million dollars
($1,000,000.00) in "Over Formula Advances" with the agreement that such
advances shall be repaid in full for thirty (30) consecutive days in each
calendar year.
2. Notwithstanding anything to the contrary contained in the Loan Agreement,
paragraph 2.2 of section 2. Loan and Terms of Payment is hereby amended by
the addition of the following at the end of the first paragraph of that
section:
"Over Formula Advances" made under the Credit shall bear interest, on the
Daily Balance owing of these advances, at a rate one and one half
percentage points (1.500 per annum above the Base Rate ("the Rate").
Except as modified hereby, the Loan Agreement remains in full force and effect.
Acknowledged and Agreed to Accepted
TELESENSORY CORPORATION COMERICA BANK - CALIFORNIA
/s/ William Schwarz /s/ Philip M.F. Gould
CFO & EVP Philip M.F. Gould
Senior Corporate Officer
<PAGE>
SECOND MODIFICATION TO LOAN AND SECURITY AGREEMENT
(Accounts and Inventory) dated November 9, 1994
This second modification to that certain Loan and Security Agreement (Accounts
and Inventory) dated November 30,1993 by and between COMERICA BANK - CALIFORNIA
("Bank") and TELESENSORY CORPORATION., ("Borrower") is made and entered into as
of November 9, 1994.
WHEREAS the parties wish to amend that certain Loan and Security Agreement
(Accounts and Inventory) in accordance with the terms hereof,
NOW THEREFORE, for valuable consideration already acknowledged, the parties
agree that the following terms and conditions of the above referenced agreement
are hereby amended and restated as follows:
Section 1.5 Replaced with "The term "Borrowing Base" as used in the Agreement
means the sum of (1) EIGHTY percent (80.00%) of the net amount of
Eligible Accounts after deducting therefrom all payments,
adjustments and credits applicable thereto ("Accounts Receivable
Borrowing Base"); and (2) ONE MILLION DOLLARS ($1,000,000.00) in
"OVER FORMULA ADVANCES" with the agreement that such advances shall
be repaid in full for thirty (30) consecutive days in each calendar
year."
Section 2.3 Replaced with "Without affecting Borrower's obligation to repay
immediately any Overadvances in accordance with section 2.1 hereof,
all Overadvances shall bear additional interest on the amount
thereof at a rate equal to __ N/A (N/A)___ percentage points per
month in excess of the interest rate set forth in Section 2.2, from
the date incurred and for each month thereafter, until repaid in
full."
Section 6.17 Replaced with "Borrower shall maintain the following financial
ratios and covenants on consolidated accounts:
(a) Borrower shall maintain working capital in an amount not less than
$2,500,000.00. (Calculated as Cash+Accounts Receivable+Inventory less Total
Current Liabilities.)
(b) a TANGIBLE NET WORTH in an amount not less than $4,000,000.00.
(c) a ratio of current assets to current liabilities of 1.30 to 1.00
(Current assets to be calculated as the total of Cash, Accounts Receivable
and Inventory).
(e) a ratio of TOTAL LIABILITIES to TANGIBLE NET WORTH of less than
2.25 to 1.00.
(g) Borrower shall maintain a positive net profit after tax on a
quarterly basis commencing with the quarter ending December 31, 1994."
Except as expressly modified by this Second Modification, the Loan and Security
Agreement (Accounts and Inventory), Rider(s) and Amendments shall continue in
full force and effect.
TELESENS0RY CORPORATION COMERICA BANK - CALIFORNIA
By: /s/ William Schwarz /s/ Philip Gould
Its: CFO VP Finance SENIOR CORPORATE OFFICER
<PAGE>
MODIFICATION TO LOAN & SECURITY AGREEMENT
-----------------------------------------
(Accounts and Inventory)
-----------------------
This third modification to the Loan & Security Agreement (Accounts and
Inventory this "Modification") is entered into by and between TELESENSORY
CORPORATION ("Borrower") and COMERICA BANK - CALIFORNIA ("Bank") as of this 12th
day of April 1995 at San Jose, California.
RECITALS
--------
A. Bank and Borrower have previously entered into or are concurrently herewith
entering into a Loan & Security Agreement (Accounts and Inventory) (the
"Agreement") dated November 10, 1993.
B. Borrower has requested, and Bank has agreed, to modify the Agreement as set
forth below.
AGREEMENT
---------
For good and valuable consideration, the parties agree as set forth below:
Incorporation by reference. The Agreement is modified hereby and the
--------------------------
Recitals are incorporated herein by this reference:
1.5 The term "Borrowing Base" as used in this agreement means the sum of :
(1) eighty percent (80.00%) of the net amount of Eligible Accounts after
deducting therefrom all payments, adjustments and credits applicable thereto
("Accounts Receivable Borrowing Base); and (2) the amount if any, of the
advances against inventory agreed to be made pursuant to any Inventory Rider
("Inventory Borrowing Base"), and other rider, amendment or modification to this
agreement that may now or hereafter be entered into by Bank and Borrower.
6.17 Borrower shall maintain the following financial ratios and covenants
on a monthly basis, unless otherwise stated:
(a) Borrower shall maintain working capital in an amount not less than two
million seven hundred and fifty thousand dollars ($2,750,000.00). (Calculated by
subtracting total current liabilities from the total of cash, near cash,
accounts receivable and inventory.)
(b) A TANGIBLE NET WORTH in an amount not less than three million two
hundred thousand ($3,200,000.00) increasing to three million seven hundred and
fifty thousand ($3,750,000.00) by December 31, 1995. (Calculated as book net
worth less any intangible assets).
(c) a ratio of current assets to current liabilities of N/A.
(d) a quick ratio of cash plus securities plus accounts receivable to
current liabilities of 0.75 to 1.00. (Calculated by dividing the sum of cash,
near cash and accounts receivables by current liability.)
<PAGE>
(e) a ratio of TOTAL LIABILITIES to TANGIBLE NET WORTH of less than 2.50
to 1.00 reducing to 2.25 to 1.00 by December 31, 1995. (Calculated by dividing
the total liabilities by the Tangible Net Worth as in (b) above.)
(f) a ratio of TOTAL LIABILITIES (less debt subordinated to Bank) to
TOTAL NET WORTH of less than N/A.
(g) Borrower shall maintain a funds flow of net profit after tax plus
non-cash charges (such as depreciation and amortization) to current portion
long term debt and capitalized lease of 2.00 to 1 00, to be measured quarterly.
(Calculated as the sum of quarterly netprofit after taxes plus non-cash charges
multiplied by four (to annualize) and then divided by the total of the current
portions of long term debt and capitalized leases.)
(h) Borrower shall maintain a net profit after taxes on a quarterly
basis.
Legal effect. Except as specifically set forth in this Modification, all of
the terms and conditions of the Agreement remain in full force and effect.
Integration. This is an integrated Modification and supersedes all prior
negotiations and agreements regarding the subject matter hereof. All amendments
hereto must be in writing and signed by the parties.
IN WITNESS WHEREOF, the parties have agreed as of the date first set forth
above.
TELESENSORY CORPORATION COMERICA BANK - CALIFORNIA
By: /s/ Larry Israel By: /s/
Larry Israel, President. Philip M.F. Gould, Senior Corporate Officer.
<PAGE>
COMERICA
Comerica Bank-California
1245 South Winchester Boulevard
San Jose, California 95128
(408) 244-1700
FOURTH MODIFICATION TO THE LOAN & SECURITY AGREEMENT
This fourth Modification to Loan & Security Agreement (this "Modification")
is entered into by and between TELESENSORY CORPORATION ("Borrower") and Comerica
Bank-California ("Bank") as this 1st day of November, 1995 at San Jose,
California.
RECITALS
--------
A. Bank and Borrower have previously entered into or are concurrently
herewith entering into a Loan & Security Agreement (Accounts & Inventory) (the
"Agreement") dated November 30, 1993.
B. Borrower has requested, and Bank has agreed, to modify the Agreement
as set forth below.
AGREEMENT
---------
For good and valuable consideration, the parties agree as set forth below:
Incorporation by Reference. The Agreement as modified hereby and the
--------------------------
Recitals are incorporated herein by this reference.
Section 2. Loan and Terms of Payment
2.2 Except as hereinbelow provided, the Credit shall bear
interest, on the Daily Balance owing, at a rate THREE-
QUARTERS percentage points per annum above the Base Rate
(the "Rate"). The Credit shall bear interest, from and after
the occurrence of an Event of Default and without
constituting a waiver of any such Event of Default, on the
Daily Balance owing, at a rate five (5) percentage points
per annum above the Rate. ALL interest chargeable under this
Agreement that is based upon a per annum calculation shall
be computed on the basis of a three hundred sixty (360) day
year for actual days elapsed.
<PAGE>
Legal effect. Except as specifically set forth in this Modification, all of
------------
the terms and conditions of the Agreement remain in full force and effect.
Integration. This is an integrated Modification and supersedes all prior
-----------
negotiations and agreements regarding the subject matter hereof. All amendments
hereto must be in writing and signed by the parties.
IN WITNESS WHEREOF, the parties have agreed as of the date first set forth
above.
TELESENSORY CORPORATION COMERICA BANK-CALIFORNIA
/S/ Larry Israel /S/ Philip Gould
Philip Gould
Larry Israel, VP-CEO Senior Vice President
<PAGE>
FIFTH MODIFICATION TO LOAN AND SECURITY AGREEMENT
(Accounts and Inventory)
This Fifth Modification to that certain Loan and Security Agreement (Accounts
and Inventory) (this Modification) is entered into by and between COMERICA
BANK-CALIFORNIA ("Bank") and TELESENSORY CORPORATION ("Borrower") as of this
22nd day of March, 1996, at San Jose, California.
RECITALS
--------
A. Bank and Borrower have previously entered into or are concurrently herewith
entering into a Loan & Security Agreement (Accounts Receivable & Inventory) (the
"Agreement") dated November 30, 1993 as previously modified.
Borrower has requested and Bank has agreed, to modify the Agreement as set
forth below.
For good and valuable consideration, the parties agree as set forth below:
Incorporation by Reference. The Agreement as modified hereby and the
--------------------------
Recitals are incorporated herein by this reference.
SECTION 1.5 The term "Borrowing Base" as used in this Agreement means
the Sum of (1) eighty per cent (80%) of the net amount of
Eligible Domestic Accounts after deducting therefrom all
payments, adjustments and (credits applicable thereto
("Domestic Accounts Receivable Borrowing Base"); and (2)
fifty per cent (50%) of the net amount of Eligible
International Accounts after deducting therefrom all
payments, adjustments and credits applicable thereto
("International Accounts Receivable Borrowing Base"); and
(3) the amount, if any of be advances against inventory
agreed to be made pursuant to any Inventory Rider
("Inventory Borrowing Base"), and any other rider, amendment
or modification to this Agreement, that may now or hereafter
be entered into by Bank and Borrower
SECTION 1.7 a) The term "Eligible Domestic Accounts" as used in this
Agreement means and includes those accounts of Borrower
which are due and payable within thirty (30) days, or less,
from date of invoice, have been validly assigned to Bank and
strictly comply with orrower's warranties and
representations to Bank; but Eligible Domestic Accounts
shall not include the following: (a) accounts with respect
to which the account debtor is an officer, employee,
partner, joint venturer or agent of Borrower; (b) accounts
with respect to which goods are placed on consignment,
guaranteed sale or other terms by reason of which the
payment of the account debtor may be conditional; (c)
accounts with respect to which the account debtor is not a
resident of the United States; (d) accounts with respect to
which the account debtor is the
<PAGE>
United States or any department, agency or instrumentality
of the United States; (e) accounts with respect to which the
account debtor is a subsidiary of, related to, affiliated or
has common shareholders, officers or directors with
Borrower; (f) accounts with respect to which Borrower is or
may become liable to the account debtor for goods sold or
services rendered by the account debtor; (g) accounts not
paid by an account debtor within ninety days (90) from the
date of invoice; (h) accounts with respect to which account
debtors dispute liability or make claim, or have any
defense, crossclaim, counterclaim, or offset; (i) accounts
with respect to which any insolvency Proceeding is filed by
or against account debtor, or if an account debtor becomes
insolvent, fails or goes out of business; (j) accounts owed
by a single account debtor which exceed twenty percent (20%)
of all of the Eligible Domestic Accounts, and (k) accounts
with a particular account debtor on which over twenty-five
percent (25%) of the aggregate amount owing is greater than
ninety (90) days from date of invoice.
SECTION 1.7 b) The term "Eligible International Accounts" as used in this
Agreement means and includes those accounts of Borrower
generated in the United States which are due and payable
within sixty (60) days, or less, from date of invoice, have
been validly assigned to Bank and strictly comply with
Borrower's warranties and representations to Bank; but
Eligible International Accounts shall not include the
following: (a) accounts with respect to which the account
debtor is an officer, employee, partner, joint venturer or
agent of Borrower; (b) accounts with respect to which goods
are placed on consignment, guaranteed sale or other terms by
reason of which the payment of the account debtor may be
conditional; (c) accounts with respect to which the account
debtor is a resident of the United States; (d) accounts with
respect to which the account debtor is the United States or
any department, agency or instrumentality of the United
States; (e) accounts with respect to which the account
debtor is a subsidiary of, related to, affiliated or has
common shareholders, officers or directors with Borrower;
(f) accounts with respect to which Borrower is or may become
liable to the account debtor for goods sold or services
rendered by the account debtor; (g) accounts not paid by an
account debtor within one hundred and twenty (120) days from
the date of invoice; (h) accounts with respect to which
account debtors dispute liability or make claim, or have any
defense, crossclaim, counterclaim, or offset; (i) accounts
with respect to which any insolvency Proceeding is filed by
or against account debtor, or if an account debtor becomes
insolvent, fails or goes out of business; (j) accounts owed
by a single account debtor which exceed twenty percent (20%)
of all of the Eligible International Accounts, and (k)
accounts with a particular account debtor on which over
twenty-five percent (25%) of the aggregate amount owing is
greater than one hundred and twenty (120) days from date of
invoice.
<PAGE>
SECTION 6.16 (b) Borrower shall deliver the Bank within thirty (30) days
after the end of each month, a monthly company prepared
balance sheet and profit and loss statement covering the
Borrower's operations and deliver the Bank within ninety
(90) days after the end of each of the Borrower's fiscal
years an annual audited statement of the financial condition
of the Borrower for each such fiscal year, including but not
limited to, a balance sheet and profit and loss statement
and any other report requested by Bank relating to the
collateral and the financial condition of Borrower, and a
certificate signed by an authorized employee of Borrower to
the effect that all reports, statements, computer disk or
tape files, computer printouts, computer runs, or any other
computer prepared information of any kind or nature relating
to the foregoing or documents delivered or caused to be
delivered to Bank under this subparagraph are complete,
correct and thoroughly present the financial condition of
Borrower and that there exists on the date of delivery to
Bank no condition or event which constitutes a breach or
event of default under this Agreement.
(c) In addition to the financial statements requested above, the
Borrower agrees to provide Bank with the following
schedules:
Accounts Receivable Agings on a Monthly basis
Accounts Payable Agings on a Monthly basis
Compliance Certificate on a Monthly basis
SECTION 6.17 Borrower shall maintain the following financial ratios and
covenants:
(a) Borrower shall maintain Working Capital (calculated as
cash, cash equivalents, accounts receivable and inventory
less total current liabilities) in an amount not less than
two million dollars($2,000,000.00)
(b) Borrower shall maintain a Tangible Net Worth
(calculated as total stockholders' equity, less any treasury
stock, and intangible assets) in an amount not less than
three million dollars ($3,000,000.00)
(c) A Quick Ratio (calculated as cash, cash equivalents and
accounts receivable divided by total current liabilities) of
0.65: 1.00.
(d) A ratio of Total Liabilities (less any debt
subordinated to Bank) to Tangible Net Worth (as in (b)
above) of 3.50: 1.00.
(e) A Debt Service Coverage ratio (calculated as the sum of
net profit plus non cash charges such as depreciation,
divided by current portion long term
<PAGE>
debt) to be no less than 1.50 : 1.00. (Calculated quarterly
at the end of the first three fiscal quarters on four times
that quarters results, calculated annually on annual
results).
(f) Borrower to be profitable on an quarterly basis.
(Calculated as net profit after provision for taxes).
Legal Effect: Except as specifically set forth in this Modification, all
terms and conditions of the Agreement as nodded remain in full force and effect.
Integration: This is an integrated Modification and supersedes all prior
negotiations and agreements regarding the subject matter hereof. All
modifications hereto must be in writing and signed by the parties.
IN WITNESS WHEREOF, the parties have agreed as of the date first set forth
above.
TELESENSORY CORPORATION COMERICA BANK - CALIFORNIA
By: /S/ Larry Israel By: /s/ Philip Gould
Its: President Its: Vice President
<PAGE>
Comerica Bank-California
University Division
COMERICA
Palo Alto Branch
250 Lytton Avenue
Palo Alto, California 94301
(415) 462-6000
SIXTH MODIFICATION TO LOAN AND SECURITY AGREEMENT
This Sixth Modification to that certain Loan and Security Agreement (Accounts
and Inventory) (this Modification) is entered into by and between COMERICA BANK-
CALIFORNIA ("Bank") and TELESENSORY CORPORATION ("Borrower") as of this 7th day
of June, 1996, at San Jose, California.
RECITALS
A. Bank and Borrower have previously entered into or are concurrently herewith
entering into a Loan and Security Agreement (Accounts Receivable and
Inventory)(the "Agreement") dated November 30, 1993 as previously modified.
Borrower has requested and Bank has agreed, to modify the Agreement as set
forth below.
For good and valuable consideration, the parties agree as set forth below:
Incorporation by Reference, The Agreement as modified hereby and the
Recitals are incorporated herein by this reference.
SECTION 6.5 Guarantee or otherwise become in any way liable with respect
to the Obligations of any person, firm, association, entity
or corporation except by endorsement of instruments or items
of payment for deposit to the general account of Borrower or
which are transmitted or turned over to Bank on account of
Borrower's Obligations, and except a guarantee for the
benefit of Sensory Systems Limited in an amount not to
exceed $170,000.00;
Legal Effect: Except as specifically set forth in this Modification, all
terms and conditions of the Agreement as modified remain in full force and
effect.
Integration: This is an integrated Modification and supersedes all prior
negotiations and agreements regarding the subject matter hereof. All
modifications hereto must be in writing and signed by the parties.
IN WITNESS WHEREOF, the parties have agreed as of the date first set forth
above.
TELESENSORY CORPORATION COMERICA BANK-CALIFORNIA
By: /s/ Larry Israel By: /s/ Philip Gould
Its: President Its: Vice President
<PAGE>
EXHIBIT 10.11
L E A S E
DATED 2 JUNE 1993
PARTIES
(1) WATERGLADE DEVELOPMENTS (EDGEWARE ROAD) LIMITED (1) whose
registered office is at Waterglade House 5-7 Ireland Yard
London EC4V 5DQ ("the Landlord") and
(2) SENSORY SYSTEMS LIMITED whose registered office is at Unit 10
Cameron House 12 Castlehaven Road London NW1 8QU ("the Tenant")
OPERATIVE PROVISIONS:
1. INTERPRETATION
1.1 Definitions
In this Lease the following words and expressions shall where the context
so admits be deemed to have the following meanings:
"the Building"
means the building if which the Demised Premises from part and refers to
each and every part of the Building which is shown edged blue on the Plan
"the Common Parts"
means those parts of the Building (whether or not situated within the
structure of the Building) to be used in common by the Tenant, other
tenants and occupiers of the Building, the Landlord, and those properly
authorised or permitted to do so, or by any of them, and "Common Parts"
include (but without limitation) the
1.
<PAGE>
passages, staircases, accessways, car park ramp, visitor car parking
spaces, service areas and any other areas but do not include any such
parts as may be within the Demised Premises
"Conducting Media"
means drains sewers conduits flues gutters gullies channels ducts
shafts watercourses pipes cables wires and mains or any of them
"the Demised Premises"
means the property described in Part I of the Schedule and refers
to each and every part of the Demised Premises and includes
(1) the inside and outside of the windows and other lights and the frames
glass equipment and fitments relating to windows and lights of the
Demised Premises;
(2) the doors door frames equipment and fitments and any glass relating to
the doors of the Demised Premises;
(3) the internal plaster or other surfaces of load bearing walls and columns
within the Demised Premises and of walls which form boundaries of the
Demised Premises;
(4) the whole of all non-load bearing walls within the Demised Premises;
(5) the flooring raised floors and floor screeds down to but excluding the
joists or other structural parts supporting the flooring of the
Demised Premises;
(6) the plaster or other surfaces of the ceilings and the whole of any false
ceilings within the Demised Premises and the voids between the ceilings
and any false ceilings;
2.
<PAGE>
(7) all the Conducting Media within and exclusively serving the Demised
Premises;
(8) appurtenances fixtures fittings and rights demised by this Lease; and
(9) all machinery and plant situated within and exclusively serving the
Demised Premises;
but excludes the structural parts loadbearing framework roof foundations
joists and external walls and the Conducting Media and machinery and
plant within but not exclusively serving the Demised Premises
"the Encumbrances"
means the restrictions stipulations covenants rights reservations
provisions and other matters contained imposed by or referred to in the
instruments brief particulars of which are set out in Part V of the
schedule
"Insured Risks"
means the risks perils lose of rent and service charge and third party
and public liability cover and other contingencies against which the
Demised Premises and the Building are required to or which may from time
to time be insured under the provisions of this Lease and includes any
incidental cover costs fees and expenses covered by the insurance policy
but subject to any exclusions limitations or conditions imposed by or
contained in the policy of insurance, and "Insured Risks" include (but
without limitation) fire, lightning, explosion, storm, tempest, flood,
bursting or overflowing of water tanks, apparatus or pipes, earthquake,
aircraft (but not hostile aircraft), and other aerial devices or other
articles dropped from them, and riot and civil commotion and such other
risks as the Landlord deems expedient
3.
<PAGE>
"Interest"
means interest at the rate of 4% over the base rate of National
Westminster Bank Plc for the time being and from time to time prevailing
(as well after as before judgment) or such other comparable rate as the
Landlord may reasonably designate if the base rate shall cease to be
published
"the Landlord"
includes all persons entitled to the reversion immediately expectant upon
the determination of this Lease
"this Lease"
includes any instruments supplemental to it
"Outgoings"
means all non-domestic rates water rates water charges and all existing
and future rates taxes charges assessments impositions and outgoings
whatsoever (whether parliamentary municipal parochial or otherwise) which
are now or may at any time in the future be payable charged or assessed
on property or the owner or occupier of property, but" taxes" does not
include value added tax nor any taxes imposed on the Landlord in respect
of the yearly rent reserved by this Lease or in respect of a disposal of
the reversionary interest in the Demised Premises
"the Plan"
means the Basement Ground First and Second Floor Plans annexed hereto
4.
<PAGE>
"the Tenant"
includes the Tenant's successors in title and assigns in whom this Lease
shall for the time being be vested
"the Term"
means the term of years granted by this Lease and any statutory
continuation or extension of the term of years
"Unsecured Underletting"
Means an underletting of the Demised Premises in relation to which the
underlessor and the underlessee have agreed to exclude the provisions of
sections 24 to 28 of the Landlord and Tenant Act 1954 and their agreement
to do so has been duly authorized beforehand by the Court
1.2 Interpretation of restrictions on the Tenant
In any case where the Tenant is placed under a restriction by reason of
the covenants and conditions contained in this Lease the restriction
shall be deemed to include the obligation on the Tenant not to permit or
allow the infringement of the restriction by any person claiming rights
to use enjoy or visit the Demised Premises through under or in trust for
the Tenant
1.3 Clauses and clause headings
1.3.1 The clause and paragraph headings in this Lease are for ease of reference
only and shall not be taken into account in the construction or
interpretation of any covenant condition or proviso to which they refer
5.
<PAGE>
1.3.2 References in this Lease to a clause Schedule paragraph or Part are
references where the context so admits to a clause schedule paragraph of
a Schedule or Part of a Schedule in this Lease and references in a
Schedule to a paragraph or a Part are (unless the context otherwise
requires) references to a paragraph or Part of that Schedule
1.4 Singular and plural meanings
Words in thin Lease importing the singular meaning shall where the
context so admits include the plural meaning and vice versa
1.5 Statutes and statutory instruments
References in this Lease to any statutes or statutory instruments shall
include and refer to any statute or statutory instrument amending
consolidating or replacing them respectively from time to time and for
the time being in force
1.6 Gender
Words in this Lease of the masculine gender shall include the feminine
and neuter genders and vice versa and words denoting natural persons
shall include corporations and vice versa
1.7 Joint and several obligations
Where the party of the second part to this Lease is or shall be two or
more persons the expression "the Tenant" shall include the plural number
and obligations in this Lease expressed or implied to be made with the
Tenant or by the Tenant shall be deemed to be made with or by such
individuals jointly and severally
6.
<PAGE>
2. THE DEMISE
2.l In consideration of the rent and the covenants reserved by and contained
in this Lease:-
2.1 the Landlord DEMISES to the Tenant:
2.1.1 ALL the Demised Premises;
2.1.2 TOGETHER WITH the rights set out in Part II of the Schedule; and
2.1.3 EXCEPT AND RESERVED to the Landlord as stated in Part III of the
Schedule;
2.2 for the TERM of 10 years from 10th December 1992 subject to the
Encumbrances; and
2.3 the Tenant PAYING during the Term;
2.3.1 the yearly rent of pound 23,415 (subject to the provisions for revision
contained in clause 6) by equal quarterly payments in advance on the
usual quarter days in every year the first (or a proportionate part) of
such payments in respect of the period commencing on 2 June 1993 and
ending on the quarter day next following to be made on the date of this
Lease;
2.3.2 as additional rent the monies payable by the Tenant under clause
3.3 as from 2 June 1993
3. TENANTS COVENANTS
THE TENANT COVENANTS with the Landlord as follows:-
7.
<PAGE>
3.1 Rent
3.1.1 To pay the yearly rent reserved by this Lease (and any value added tax on
rent) at the times and in the manner required under clause 2.3.1 and by
means of a standing order to the Tenants bankers and the additional rents
reserved by this Lease at the times and in the manner specified in
relation to each of them
3.1.2 If the whole or any part of the rents and other monies due under this
Lease shall remain unpaid seven days after they shall have become due (in
the case of the yearly rent whether formally demanded or not) or if the
Landlord shall reasonably refuse to accept the tender of rents because of
a breach of covenant on the part of the Tenant then to pay Interest on
such rents (or part of the rents) and other monies as from the date they
became due until they are paid to (or accepted by) the Landlord
3.2 Outgoings
3.2.1 To pay and discharge all Outgoings in respect of the Demised Premises
3.2.2 To refund to the Landlord on demand (in case any of the Outgoings are
payable charged or assessed on the Building as a whole or any part of the
Building or other property including the Demised Premises) a fair and
proper proportion attributable to the Demised Premises such proportion to
be conclusively determined by the Landlord or the Landlord's Surveyor
3.2.3 With respect to the non-domestic rate of unoccupied property if there
occurs a period of vacancy of the Demised Premises which is continuing at
the determination of this Lease then to indemnify the Landlord for the
relevant amount - that is to say the amount of the non-domestic rate for
unoccupied property for the length of time that is equivalent to that
part of the period of vacancy occurring before the determination of this
Lease (but limited in
8.
<PAGE>
any event to the length of time that the Demised Premises may be left
unoccupied without incurring liability for the non-domestic rate)
3.2.4 To pay for all gas and electricity consumed on the Demised Premises
and all charges for meters and all standing charges
3.3 Insurance premium party expenses and service charge
3.3 To pay to the Landlord the due proportion of the insurance premiums
incurred with respect to the Insured Risks as to which the following
provisions shall apply:-
3.3.l.1 the insurance premiums shall include all monies expended or required
to be expended by the Landlord in effecting and/or maintaining cover
against the insured Risks;
3.3.1.2 the Tenant's liability shall include the whole of any increase in the
insurance premiums or expense of renewal payable by reason of any act
or omission of the Tenant or any person deriving possession occupation
or enjoyment of the Demised Premises through the Tenant and also the
whole of any increase in the insurance premium for the Building
attributable to the character of the Tenant or to the particular use
of the Demised Premises made by the Tenant and those deriving title
under the Tenant or to the condition of the Demised Premises;
3.3.1.3 the cover may take due account of the effects of inflation and
escalation of costs and fees and the Landlord's estimate of the market
rent (as defined in clause 6) of the Demised Premises in the context
of ensuing rent reviews and/or the expiration of the Term;
3.3.1.4 the due proportion of the insurance premiums shall be payable by the
Tenant to the Landlord on demand;
9.
<PAGE>
3.3.l.5 the due proportion of the insurance premiums shall be determined in
the same manner as applies to the determination of the due proportion
of the service charge as referred to in Part IV of the Schedule
3.3.2 To pay to the Landlord on demand a fair and proper proportion (to be
conclusively determined by the Landlord or the Landlord's surveyors)
of the expense of cleaning lighting repairing renewing decorating
maintaining and rebuilding any party walls fences gutters drains
roadways pavements entrance ways stairs and passages access ways and
service areas which are or may be used or enjoyed by an occupier of
the Demised Premises or the Building in common with any other person
or persons;
3.3.3 To pay to the Landlord the due proportion of the service charge and to
observe and perform the obligations relating to the service charge and
services as set out in Part IV of the Schedule
3.4 Repair
From time to time and at all times well and substantially to repair
and clean the Demised Premises and to keep the Demised Premises in
good and substantial repair and condition together with all
improvements and additions to the Demised Premises and all Landlord's
fixtures fittings and appurtenances of what nature affixed or fastened
to the Demised Premises (damage by Insured Risks excepted unless and
to the extent that the policies of insurance in respect of Insured
Risks effected by the Landlord are vitiated or the policy monies are
withheld by reason of any act or omission of the Tenant its employees
or agents)
3.5 Decorations
3.5.1 In the year 1997 and thereafter in every fifth year of the Term and in
the last three months of the Term howsoever determined to decorate all
parts of the Demised Premises usually requiring to
10.
<PAGE>
be painted with two coats of good quality paint or good quality polish
and with paper for those parts normally papered or other suitable and
appropriate materials of good quality in a workmanlike manner such
decorations in the last three months of the Term to be executed in
such colours patterns and materials as the Landlord may reasonably and
properly require
3.5.2 Not without the consent of the Landlord to alter cover up or change
any part of the architectural decorations or the external colour of
the Demised Premises
3.6 Landlord's right of inspection and right of repair
3.6.l To permit the Landlord and its servants or agents at all reasonable
times to enter into inspect and view the Demised Premises and examine
their condition and also to take a schedule of fixtures in the Demised
Premises
3.6.2 If any breach of covenant defects disrepair removal of fixtures or
unauthorized alterations or additions shall be found upon such
inspection for which the Tenant is liable then upon notice by the
Landlord to the Tenant to execute all repairs works replacements or
removals required within two months (or sooner if necessary) after the
receipt of such notice to the reasonable satisfaction of the Landlord
or its surveyor
3.6.3 In case of default it shall be lawful for workmen or agents of the
Landlord to enter into the Demised Premises and execute such repairs
works replacements or removals
3.6.4 To pay to the Landlord on demand all expenses so incurred with
Interest from the date of expenditure until the date they are paid by
the Tenant to the Landlord (such expenses and Interest to be
recoverable as if they were rent in arrear)
11.
<PAGE>
3.7 Yield up in repair at the and of the Term
At the expiration or earlier determination of the Term or at such
later time as the Landlord recovers possession of the Demised Premises
from the Tenant:-
3.7.l quietly to yield up the Demised Premises (together with all additions
and improvements to the Demised Premises and all fixtures which during
the Term may be fixed or fastened to or upon the Demised Premises
other than Tenant's fixtures removable by the Tenant) decorated
repaired cleaned and kept in accordance with the Tenant's covenants
contained in this Lease (damage by Insured Risks excepted unless and
to the extent that the policies of insurance in respect of Insured
Risks effected by the Landlord are vitiated or the policy monies are
withheld by reason of any act or omission of the Tenant its employees
or agents);
3.7.2 if so requested by the Landlord to remove from the Demised Premises
all the Tenant's belongings - that is to say trade fixtures and
fittings and all notices notice boards and signs bearing the name of
or otherwise relating to the Tenant (including in this contest any
persons deriving title to the Demised Premises under the Tenant) or
its business; and
3.7.3 to make good to the satisfaction of the Landlord all damage to the
Demised Premises and the Building resulting from the removal of the
Tenant's belongings from the Demised Premises
3.8 Landlord's right of entry for repairs, etc.
3.8.1 To permit the Landlord and the agents workmen and others employed by
the Landlord or by the other owners tenants or occupiers of the
Building or any adjoining or neighbourinq property at reasonable times
after giving to the Tenant written notice (except in an emergency) to
enter upon the Demised Premises:-
12.
<PAGE>
3.8.1.1 to alter maintain or repair the Building or the adjoining premises or
property of the Landlord or person so entering; or
3.8.l.2 to construct alter maintain repair or fix anything or additional thing
serving such property and running through or on the Demised Premises;
or
3.8.l.3 to comply with an obligation to any third party having legal rights
over the Building and the Demised Premises; or
3.8.l.4 in exercise of a right or to comply with an obligation of repair
maintenance or renewal under this Lease; or
3.8.l.5 in connection with the development of the remainder of the Building or
any adjoining or neighbouring land or premises including the right to
build on or into or in prolongation of any boundary wall of the
Demised Premises -
without payment of compensation for any nuisance annoyance
inconvenience or damage caused to the Tenant subject to the Landlord
(or other person so entering) exercising such right in a reasonable
manner and making good any damage caused to the Demised Premises
without unreasonable delay
but not in all or any of these circumstances so as to reduce the total
area or volume of the Demised Premises
3.8.2 Upon becoming aware of any defects in the Building which are "relevant
defects" for the purposes of Section 4 of the Defective Premises Act
1972 to give notice of them to the Landlord
3.9 Alterations
3.9.1 Not to make any alterations or additions to or affecting the structure
or exterior of the Demised Premises or the appearance
13.
<PAGE>
of the Demised Premises as seen from the exterior
3.9.2 Not without the consent of the Landlord to make any other alterations
or additions to the Demised Premises (but the erection alteration or
removal by the Tenant of internal demountable partitioning is
authorized without such consent in any event so long as plans of the
partitions (or details of the alteration or removal of partitioning)
are forthwith deposited with the Landlord)
3.9.3 Not to install or erect any exterior lighting shade canopy or awning
or other structure in front of or elsewhere outside the Demised
Premises
3.9.4 At the expiration or earlier determination of the Term if and to the
extent required by the Landlord to reinstate the Demised Premises to
the same condition as they were in at the grant of this Lease such
reinstatement to be carried out under the supervision and to the
reasonable satisfaction of the Landlord or the Landlord's Surveyor
3.9.5 To procure that any alterations or additions to the Demised Premises
permitted by the Landlord under clause 3.9.2 shall be carried out only
by a contractor approved by the Landlord (such approval not to be
unreasonably withheld)
3.10 Alienation
3.10.1 Not to assign charge or underlet part only of the Demised Premises
3.10.2 Not to assign or charge the whole nor underlet the whole of the
Demised Premises without the consent of the Landlord (such consent not
to be unreasonably withheld)
14.
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3.10.3 Not otherwise than by assignment or underletting permitted under the
provisions of this clause 3.10 to:-
3.10.3.1 part with or share possession or occupation of the whole or any part
of the Demised Premises; or
3.l0.3.2 grant to the third parties any rights over the Demised Premises
3.10.4 Upon any assignment to obtain (if the Landlord shall so require)
guaran acceptable to the Landlord for any assignee and to obtain a
direct covenant by deed by the assignee with the Landlord to observe
and perform the covenants and conditions on the part of the Tenant
contained in thes Lease throughout the residue of the Term in such
form as the Landlord shall require and a direct covenant by such
garantors in the terms set out in Part VI of the Schedule
3.10.5 Upon the grant of any underlease to obtain covenants by deed on the
part of the underlessee direct, with the Landlord in such term as the
Landlord shall require that the underlessee will:-
3.10.5.1 not assign underlet or charge part only of the premises sub-demised;
3.10.5.2 not part with or share possession or occupation of the whole or any
part of the premises sub-demised nor grant to third parties rights
over them otherwise than by a permitted assignment or underletting;
3.10.5.3 not assign charge or underlet the whole of the premises sub-demised
without obtaining the previous consent of the Landlord under this
Lease;
15.
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3.10.5.4 provide for the inclusion in any sub-underlease granted out of such un
(whether immediate or mediate) of covenants to the same effect as
those contained in these clauses 3.10.5 and 3.10.6;
3.10.6 Upon the grant of any underlease:-
3.10.6.l to include provisions for the revision of the rent reserved by the
underlease in an upward only direction to correspond in time and
effect with the provisions for the revision of rent contained in this
Lease;
3.10.6.2 not to reserve or take a premium or fine;
3.10.6.3 not to underlet the Demised Premises otherwise than at the greater of
the market rent (as defined in Clause 6) or the rent reserved by this
Lease
3.10.6.4 to include such covenants on the part of the underlessee an shall
secure the due performance and observance of the convenants on the
part of the Tenant contained by this Lease
3.10.7 Not to underlet the Demised Premises otherwise than by way of Unsecure
Underletting
3.l0.8 The foregoing provisions of this clause 3.10 shall not apply to any
parting with possession or occupation or the sub-division of the
Demised Premises to or with any member of a group of companies of
which the Tenant is itself a member upon the conditions that:-
3.10.8.1 the interest in the Demised Premises so creaed shall be no more than a
licence-at-will; and
16.
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3.10.8.2 the possession occupation or subdivision shall forthwith be determine
if the Tenant and the relevant member shall cease for any reason
whatsoever to be members of the same group of companies; and -
for this purpose two companies shall be taken to be members of a group
if and only if one is a subsidiary of the other or both are
subsidiaries of a third company "subsidiary" having the meaning
assigned to it by Section 736 of the Companies Act 1985 (as amended)
3.11 Registration of dispositions of this Lease
Within one month after the execution of any disposition of this Lease
or the Demised Premises whether by assignment charge transfer or
underlease or assignment or surrender of any underlease or upon any
transmission by reason of a death or otherwise affecting the Demised
Premises to produce to and leave with the Solicitors for the time
being of the Landlord the deed instrument or other document of
disposition (and in each came a certified copy for retention by the
Landlord) and on each occasion to pay to such Solicitors a
registration fee of pound 25
3.12 Enforcement of underleases
3.l2.1 Not without the consent of the Landlord to vary the terms or waive the
benefit of any covenant on the part of a subtenant or condition
contained in an underlease of the Demised Premises
3.12.2 Not without the consent of the Landlord to accept a surrender of any
underlease of the Demised Premises
3.12.3 Diligently to enforce the covenants on the part of a subtenant and the
conditions contained in an underlease of the Demised Premises and (if
so required by the Landlord) to exercise by way of enforcement the
powers of re-entry contained in the underlease
17.
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3.12.4 Not without the consent of the Landlord to accept, any sum or payment
in kind by way of commutation of the rent payable by a subtenant of
the Demised Premises
3.12.5 Not to accept the payment of root from a subtenant of the Demised
Premises otherwise than by regular quarterly (or more frequent)
payments in advance
3.12.6 Duly and punctually to exercise all rights to revise the rent reserved
by an underlease of the Demised Premises and not to agree with a
subtenant a revised rent without the approval of the Landlord (such
approval not to be unreasonably withheld)
3.13 User
3.13.1 Not to use the Demised Premises otherwise than an offices with
associated parking spaces
3.13.2 Nothing contained in this Lease shall imply or be treated as a
warranty to the effect that the use of the Demised Premises for the
purposes above mentioned is in compliance with all Town Planning laws
and regulations now or from time to time in force
3.14 Restrictions affecting use of the Demised Premises
3.14.1 Not to erect nor install in the Demised Premises any engine furnace or
machinery whether driven by steam oil or electric energy or otherwise
which causes noise fumes or vibration which can be heard smelled or
felt outside the Demised Premises
3.14.2 Not to store in the Demised Premises any petrol or other specially
inflammable explosive or combustible substance
18.
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3.14.3 Not to use the Demised Premises for any noxious noisy or offensive
trade or business nor for any illegal or immoral act or purpose
3.14.4 Not to hold any sales by auction on the Demised Premises
3.14.5 Not to hold in or on the Demised Premises any public exhibition public
meeting or public entertainment
3.14.6 Not to permit any vocal or instrumental music in the Demised Premises
so that it can be heard outside the Demised Premises
3.14.7 Not to permit livestock of any kind to be kept on the Demised Premises
3.14.8 Not to do in or upon the Demised Premises anything which may be or
grow to be a nuisance annoyance disturbance inconvenience or damage to
the Landlord or its other tenants of the Building or to the owners
tenants and occupiers of adjoining and neighbouring properties
3.14.9 Not to load or use the floors walls ceilings or structure of the
Demised Premises or the Building in any manner which will cause strain
damage or interference with the structural parts loadbearing framework
roof foundations joists and external walls of the Building
3.14.10 Not to overload the lifts electrical installation or Conducting Media
in the Demised Premises and/or the Building
3.14.11 Not to do or omit to do anything which interferes with or which
imposes an additional loading on any ventilation heating air
conditioning or other plant or machinery serving the Building
19.
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3.14.12 Not to do anything whereby any policy of insurance on including or in
any way relating to the Demised Premises taken out by the Landlord may
become void or voidable or whereby the rate of premium thereon and on
the remainder of the Building may be increased but to provide one or
more efficient fire extinguishers of a type approved by the Landlord
and to take such other precautions against fire as may be deemed
necessary by the Landlord or its insurers
3.14.13 Not to use the Demised Premises as a betting shop or betting office
3.14.14 Not to use the Demised Premises for the sale of wines spirits beers or
any intoxicating liquor for consumption either on or off the Demised
Premises
3.14.15 Not to allow any person to sleep in the Demised Premises nor to use
the Demised Premises for residential purposes
3.14.16 Not at any time to place in the passages corridors staircases
lavatories access ways and service areas serving or demised with the
Demised Premises any goods mats trade empties rubbish or other
obstruction
3.14.17 Not to accumulate trade empties upon the Demised Premises
3.14.l8 Not to place leave or install any articles merchandise goods or other
things in front of or elsewhere outside the Demised Premises
3.14.19 Not to permit the drains to be obstructed by oil grease or other
deleterious matter but to keep the Demised Premises thoroughly cleaned
and the drains serving the Demised Premises as often as may be
necessary
20.
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3.14.20 Not to give any bill of sale or other preferential security on the
stock-in-trade or personal chattels of the Tenant for the time being
as may be on or about the Demised Premises
3.14.21 Not to use any portion of the accessways or service area for the
parking of vehicles otherwise than during the course of loading and
unloading nor to carry out any repairs or maintenance to vehicles on
the accessways service area or car parking spaces (including those
within the Demised Premises)
3.l4.22 To observe and perform or cause to be observed and performed the rules
and regulations from time to time made by the Landlord in connection
with the orderly and proper use of the staircases passages access ways
car parking spaces and service areas and other parts in common use in
the Building and also in connection with the security of the Building
3.15 Advertisements and signs
3.15.1 Not to place or display on the exterior of the Demised Premises or on
the windows or inside the Demised Premises so as to be visible from
the exterior of the Demised Premises any name writing notice sign
illuminated sign display of lights placard poster sticker or
advertisement other than the name of the Tenant signwritten on the
entrance doors of the Demised Premises in a style and manner approved
by the Landlord or the Landlords Surveyor;
3.15.2 If any name writing notice sign placard poster sticker or
advertisement shall be placed or displayed in breach of these
provisions to permit the Landlord to enter the Demised Premises and
remove such name writing notice sign placard poster sticker or
advertisement and to pay to the Landlord on demand the expense of so
doing
21.
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3.16 Compliance with statutes, etc
3.16.1 To comply in all respects with the provisions of all statutes and
instruments pursuant to them for the time being in force and
requirements of any competent authority relating to the Demised
Premises or anything done in or upon them by the Tenant and to
indemnify the Landlord against all actions proceedings claims or
demands which may be bought or made by reason of such statutes or
requirements or any default in compliance with them
3.16.2 In particular but without prejudice to the generality of clause
3.16.1:-
3.16.2.1 to execute all works and do all things on or in respect of the Demised
Premises which are required under the Offices Shops and Railway
Premises Act 1963;
3.16.2.2 to comply with all requirements under any present or future Act of
Parliament order by-law or regulation as to the use or occupation of
or otherwise concerning the Demised Premises;
3.16.2.3 to execute with all due diligence (commencing work within two months o
sooner if necessary and then proceeding continuously) all works to the
Demised Premises for which the Tenant is liable in accordance with
this clause 3.16 and of which the Landlord has given notice to the
Tenant; and
3.16.2.4 if the Tenant shall not comply with clause 3.16.2.3 to permit the Land
to enter the Demised Premises to carry out such works and to pay to
the Landlord on demand the expense of so doing (including surveyors"
and other professional advisors" fees) together with Interest from the
date of expenditure until payment by the Tenant to the Landlord (such
monies to be recoverable as if they were rent in arrear)
22.
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3.17 Planning permissions
3.17.1 Not without the consent in writing of the Landlord to make any
application under the Town and Country Planning Act 1990 to any local
planning authority for permission to develop (including change of use
of) the Demised Premises
3.17.2 To indemnify the Landlord against any development charges other
charges and expenses payable in respect of such applications and to
reimburse to the Landlord the costs it may properly incur in
connection with such consent
3.17.3 To pay to the Landlord on demand any sum or sums which may become
payable in consequence, of any two of the Demised Premises reverting
to that existing prior to such application being made
3.17.4 Forthwith to give to the Landlord full particulars in writing of the
grant of planning permission
3.17.5 Not to implement any planning permission if the Landlord shall make
reasonable objection to any of the conditions subject to which it has
been granted
3.18 Compliance with town planning requirements
3.18.1 To perform and observe all the provisions and requirements of all
statutes and regulations relating to town and country planning in
relation to the Demised Premises and to obtain any development or
other consent which may be requisite by reason of the development of
or on the Demised Premises by the Tenant
3.18.2 To indemnify the Landlord from and against any loss or expense
suffered by the Landlord by reason of the Tenant's failure to obtain
any necessary development or other consents as aforesaid
23.
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3.18.3 To give full particulars to the Landlord of any notice or proposal for
a notice or order or proposal for an order made given or issued to the
Tenant under or by virtue of any statute or regulation relating to
town and country planning or otherwise within seven days of the
receipt of any such by the Tenant and if so required by the Landlord
to produce such notice order or proposal for a notice or order to the
Landlord
3.18.4 Forthwith to take all reasonable and necessary steps to comply with
any such notice or order
3.18.5 At the request and cost of the Landlord to make or join with the
Landlord in making such objections or representations against or in
respect of any proposal for such a notice or order as the Landlord may
deem expedient
3.19 Claims made by third parties
To indemnify the Landlord against any claims proceedings or demands
and the costs and expenses so incurred which may be brought against
the Landlord by any employees workpeople agents or visitors of the
Tenant in respect of any accident loss or damage whatsoever to person
or property howsoever caused or occurring in or upon the Demised
Premises but not where such matters arise out of any breach or failure
by the Landlord to observe perform or otherwise discharge its
obligations under this Lease
3.20 Expenses of the Landlord
To pay all expenses (including solicitors" costs and surveyors" fees)
Incurred by the Landlord:-
24.
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3.20.1 incidental to or in contemplation of the preparation and service of a
Schedule of Dilapidations and/or a notice under Sections 146 and 147
of the Law of Property Act 1925 (notwithstanding that forfeiture is
avoided otherwise than by relief granted by the Court); and
3.20.2 in connection with every application for any consent or approval made
under this Lease whether or not such consent or approval shall be
granted or given
3.21 obstruction of windows or lights
3.21.1 Not to stop up darken or obstruct any windows or lights belonging to
the Demised Premises or any other buildings belonging to the Landlord
nor permit any new windows light opening doorway path passage drain or
other restriction encroachment or easement to be made
3.21.2 Not to permit any easement to be made or acquired into against or upon
the Demised Premises
3.21.3 Where any such window light opening doorway path passage drain or
other restriction encroachment or easement shall be made or attempted
to be made or acquired forthwith to give notice of the circumstances
to the Landlord and at the request and cost of the Landlord to adopt
such course as may be reasonably required or deemed proper by the
Landlord for preventing any such restriction encroachment or the
acquisition of any such easement
3.22 Cleaning of windows
3.22.1 To keep the glass in the windows of the Demised Premises clean
25.
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3.23 Value added tax
3.23.l To pay any value added tax lawfully imposed upon and added to any sum
in respect of goods and services supplied by or on behalf of the
Landlord in connection with this Lease
3.23.2 To indemnify the Landlord to the extent that input (value added) tax
fr which the Landlord may be liable to third parties in respect of
goods and services supplied to the Landlord in connection with this
Lease is not recoverable by the Landlord by credit against output
(value added) tax or repayment to the Landlord by the Commissioners of
Custom and Excise
3.24 Notices "to let" and "for sale"
3.24.1 To allow the Landlord or its agents to enter on the Demised Premises
at any time:-
3.24.1.1 within six months before the expiration or earlier determination of
the Term to fix upon the Demised Premises a notice board for reletting
the Demised Premises;
3.24.1.2 to fix on some part of the Demised Premises a notice board for the
sale of the interest of the Landlord;
3.24.1.3 not to remove or obscure any such notice board; and
3.24.1.4 to permit all persons authorized by the Landlord or its agents to view
the Demised Premises at reasonable hours without interruption in
connection any such letting or sale
3.25 Encumbrances
To observe and perform the obligations and liabilities comprising the
Encumbrances so far as they relate to the Demised Premises and are
capable of being enforced and to indemnify and keep
26.
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indemnified the Landlord against any liability whatsoever arising out
of the breach non-observance or non-performance of such obligations
and liabilities
4. PROVISOS
THE PARTIES AGREE to the following provisos:-
4.1 Proviso for Re-Entry
4.1.1 If
- any or any part of the rents reserved by this Lease shall be
unpaid for twenty one days after any of the days when they become
due for payment (whether or not they shall have been lawfully
demanded); or
- the Tenant shall at any time fail or neglect to perform or
observe any of the covenants conditions or agreements contained
in this Lease to be performed or observed by the Tenant or shall
allow any distress or execution to be levied on the Tenant's
goods; or
- an event of insolvency shall occur in relation to the Tenant or
one of the Tenants;
then and in any such case it shall be lawful for the Landlord or any
person or persons duly authorised by the Landlord for that purpose to
re-enter the Demised Premises or any part of them in the name of the
whole and peaceably to repossess and enjoy the Demised Premises as if
this Lease had not been made
4.1.2 Re-entry in exercise of the rights contained in clause 4.1.1 shall be
without prejudice to any right of action or remedy of the Landlord in
respect of any antecedent breach of any of the covenants by the Tenant
contained in this Lease
27.
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4.1.3 The expression "an event of insolvency" in clause 4.1.1 includes (in
relation to a company or other corporation which is the Tenant or one
of the Tenants or a guarantor) inability of the company to pay its
debts, entry into liquidation either compulsory or voluntary (except
for the purpose of amalgamation or reconstruction), the passing of a
resolution for a creditors winding up, the making of a proposal to the
company and its creditors for a composition in satisfaction of its
debts or a scheme of arrangement of its affairs, the application to the
court for an administration order, and the appointment of a receiver or
administrative receiver, and (in relation to an individual who is the
Tenant or a guarantor) inability to pay or having no reasonable
prospect of being able to pay his debts, the presentation of a
bankruptcy petition, the making of a proposal to his creditors for a
composition in satisfaction of his debts or a scheme of an arrangement
of his affairs, the application to the court for an interim order, and
the appointment of a receiver or interim receiver, and in relation to
the various events of insolvency they shall wherever appropriate be
interpreted in accordance and conjunction with the relevant provisions
of the Insolvency Act 1986
4.2 Rent abatement in case of damage by Insured Risks
4.2.1 If the whole or any part of the Demised Premises shall at any time be
destroyed or damaged (or the Building damaged rendering the Demised
Premises inaccessible) by any of the Insured Risks so as to render the
Demised Premises unfit for occupation and use or inaccessible and the
policy or policies of insurance shall not have been vitiated or payment
of the policy monies withheld in whole or in part in consequence of
some act or default of the Tenant its employees or agents then the
cents reserved by this Lease or a fair proportion of them according to
the nature and extent of the damage sustained shall cease and be
suspended until the Demised Premises shall be rendered fit for
occupation and use
28.
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and accessible again or until the earlier expiration of three years
from the date of the damage or destruction Provided that if at the end
of the period of 3 years from the date of damage or destruction the
Demised Premises have not been rendered fit for occupation and use and
accessible again then either party may by giving not less than two
months notice in writing to the other opt to treat the Term as
extinguished and at the expiry of the said notice this Lease shall be
deemed to have determined and each party shall be treated as being
discharged and released from all obligations to the other created
hereby or by any subsequent deed save and except for any liability an
the part of either party arising up to and including the date of the
expiry of the said notice
4.2.2 Any dispute as to the amount or extent of such cesser of rent shall be
referred to the award of a single arbitrator if the Landlord and the
Tenant can agree upon one and otherwise to an arbitrator appointed at
the request of either of them by the President for the time being of
the Royal Institution of Chartered Surveyors and in either case in
accordance with the provisions of the Arbitration Acts 1950-1979
4.3 Power for Landlord to deal with adjoining property
4.3.1 The Landlord may deal as it may think fit with other property belonging
to the Landlord adjoining or nearby and to erect or suffer to be
erected on such property any buildings whatsoever whether or not such
buildings shall affect or diminish the light or air which may now or at
any time be enjoyed by the Tenant in respect of the Demised Premises
4.3.2 The Landlord shall have power at all times without obtaining any
consent from or making any arrangement with the Tenant to alter
reconstruct or modify in any way whatsoever or change the use of
29.
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the common Parts so long as proper means of access to and egress from
the Demised Premises are afforded mad essential services are maintained
at all times
4.4 Arbitration of disputes between tenants
If any dispute or disagreement shall at any time arise between the
Tenant and the tenants and occupiers of the Building or any adjoining
or contiguous property or premises belonging to the Landlord relating
to the Conducting Media serving the Demised Premises the Building or
any adjoining or contiguous premises or any easements or privileges
whatsoever affecting or relating to the Demised Premises the Building
or any adjoining or contiguous property or premises the dispute or
disagreement shall from time to time be settled and determined by the
Landlord to which determination the Tenant shall from time to time
submit
4.5 Exemption from liability in respect of services
4.5.l The Landlord shall not be liable to the Tenant for any loss damage or
inconvenience which may be caused by reason of:-
4.5.1.1 temporary interruption of services during periods of inspection
maintenance repair and renewal;
4.5.1.2 the breakdown failure stoppage leaking bursting or defect of any hot or
cold water sanitary ventilation extraction plant and machinery or of
soil gas water or electricity or other plant and machinery or of the
Conducting Media in the Demised Premises the Building or neighbouring
or adjoining property or premises
Unless the same are caused by the neglect or willful act or
recklessness of the Landlord or any person acting with the Landlords
express or implied authority
30.
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4.5.2 The Landlord's duty of care to the Tenant's employees agents workpeople
and visitors in or about the Building shall in no way go beyond the
obligations involved in the common duty of care (within the meaning of
the occupiers Liability, Act 1957) or the duties imposed by the
Defective Premises Act 1972 by reason of the obligations of the
Landlord contained in this Lease
4.6 Accidents
The Landlord shall not be responsible to the Tenant or the Tenant's
licensees nor to any other person for any:-
4.6.1 accident happening or injury suffered in the Demised Premises; or
4.6.2 damage to or loss of any goods or property sustained in the Building
(whether or not due to any failure of any security system for which the
Landlord in any way responsible); or
4.7 Compensation for disturbance
Except where any statutory provision prohibits the Tenant's right to
compensation being reduced or excluded by agreement the Tenant shall
not be entitled on quitting the Demised Premises to claim from the
Landlord any compensation under the Landlord and Tenant Act 1954
4.8 Removal of property after determination of term
4.8.1 If at such time as the Tenant has vacated the Demised Premises after
the determination of this Lease any property of the Tenant shall remain
in or on the Demised Premises and the Tenant shall fail to remove the
same within fourteen days after being requested by the Landlord so to
do by a notice to that effect then the Landlord may as the agent of the
Tenant sell such
31.
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property and shall then hold the proceeds of sale after deducting the
costs and expenses of removal storage and sale reasonably, and properly
incurred by it to the order of the Tenant
4.8.2 The Tenant shall indemnify the Landlord against any liability incurred
by it to any third party whose property shall have been sold by the
Landlord in the bona fide mistaken belief (which shall be presumed
unless the contrary be proved) that such property belonged to the
Tenant and was liable to be dealt with as such pursuant to this clause
4.9 Notices consents and approvals
4.9.1 Any notice served under or in connection with this Lease shall be in
writing and be properly served if compliance is made with either the
provisions of section 196 of the Law of Property Act 1925 (as amended
by the Recorded Delivery Service Act 1962) or section 23 of the
Landlord and Tenant Act 1927
4.9.2 Any consent or approval under this Lease shall be required to be
obtained before the act or event to which it applies is carried out or
done and shall be effective only when the consent or approval is given
in writing
5. LANDLORD'S COVENANTS
THE LANDLORD COVENANTS with the Tenant as follows:-
5.1 Quiet enjoyment
That the Tenant paying the rents and performing the Tenants covenants
reserved by and contained in this Lease may lawfully and peaceably
enjoy the Demised Premises throughout The Term without any lawful suit
eviction or interruption by the Landlord or by any person lawfully
claiming through under or in trust for the Landlord
32.
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5.2 Insurance
5.2.1 To keep insured at all times throughout the Term in such a sum as shall
be determined from time to time by the Landlord the Demised Premises
(excluding glass insured by the Tenant) the Building and all fixtures
of an insurable nature (other than those which the Tenant is entitled
to remove) against loss or damage by the Insured Risks together with
site clearance costs Architects "Surveyors" and other requisite
professional advisers "fees in relation to the reinstatement of the
Demised Premises and three years" loss of rent and service charge in
respect of the Demised Premises
5.2.2 Whenever the whole or any part of the Demised Premises shall in
consequence of the occurrence of any of the Insured Risks be destroyed
or damaged so an to render the whole or part of the Demised Premises
unfit for occupation or use then with all due diligence to apply the
monies received for that purpose by virtue of the policy or policies of
insurance (or to require the monies to be laid out) in rebuilding
repairing and reinstating the Demised Premises with all convenient
speed
5.2.3 The Landlord's obligation under this clause 5.2 shall cease if and to
the extent that the insurance shall be vitiated or the policy monies
withheld by any act or default of the Tenant
5.3 Services
To observe and perform the Landlord's obligations relating to the
service charge and services as set out in Part IV of the Schedule
33.
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6. RENT REVIEW
6.1 The review dates
The yearly rent payable under this Lease shall be reviewed on the
expiration of the period of five years of the Term (referred to in this
clause 6 as "the review date") and as and from the review date the
reviewed rent (agreed or determined in accordance with the following
provisions of this clause) shall become payable in all respects as if
it were the yearly rent reserved by this Lease
6.2 Upward only rent reviews
The reviewed rent shall be the greater of:-
6.2.1 the yearly rent payable under this Lease immediately preceding the
review date; and
6.2.2 the market rent of the Demised Premises at the review date
6.3 The market rent
The expression "the market rent" shall for the purposes of this Lease
mean the yearly rental value of the Demised Premises having regard to
rental values as between a willing landlord and a willing tenant for
property at the relevant review date let without a premium for a term
of 10 years from the review date and subject to the provisions to the
same effect an those contained in this Lease (other than the amount of
rent but including these provisions for rent review) but upon the
assumption (if not the fact) that at the review date:-
34.
<PAGE>
6.3.l the Demised Premises are available to be let with vacant possession
(but such assumption shall not give rise to any discount or abatement
of the market rent to allow for any concessionary rent or rent-free
period which a willing landlord would grant to a willing tenant upon
such a letting)
6.3.2 the Demised Premises are fit and ready for immediate occupation and
use;
6.3.3 no work has been carried out to the Demised Premises by the Tenant or
any predecessor-in-title of the Tenant which has diminished the market
rent;
6.3.4 in case the Demised Premises have been destroyed or damaged (or have
become inaccessible by reason of damage to the Building) they have been
fully reinstated (or rendered accessible);
6.3.5 the Demised Premises and the Building are in a state of full repair and
the covenants of the Tenant have been fully observed and performed;
6.3.6 there is not in operation any statute order or instrument regulation or
direction which has the effect of regulating or restricting the amount
of rent of the Demised Premises which might otherwise be payable;
6.3.7 the Demised Premises may be lawfully used throughout the Term as
offices (and there shall be disregarded any actual restriction or
qualification which may be imposed on such use by the term of the user
covenant in clause 3 or otherwise) and that no capital is required to
be expended upon the Demised Premises to enable them to be so used; and
35.
<PAGE>
6.3.8 the Tenant and anyone who may become the Tenant is a taxable person who
makes only taxable supplies and no exempt supplies (words and
expressions used in this clause 6.3.8 having the meanings assigned to
them respectively in the Value Added Tax Act, 1983 and the regulations
made under that Act).
6.4 Matters to be disregarded
In agreeing or determining the market rent the effect upon it of the
following matters shall be disregarded:-
6.4.1 the occupation of the Demised Premises by the Tenant or any
predecessor-in-title of the Tenant
6.4.2 any goodwill attached to the Demised Premises by reason of the carrying
on at the Demised Premises of the business of the Tenant or
predecessors-in-title of the Tenant to that business;
6.4.3 any improvements to the Demised Premises made by the Tenant with the
consent of the Landlord other than those:-
6.4.3.1 made in pursuance of an obligation to the Landlord; or
6.4.3.2 completed by the Tenant and/or its predecessors in title more than
twenty-one years before the relevant review date
6.5 Procedure for determination of market rent
6.5.l The Landlord and the Tenant shall endeavour to agree the market rent at
any time not being earlier than twelve months before the review date
but if they shall not have agreed the market rent three months before
the review date the amount of the market rent may be determined by
reference to the arbitration of an arbitrator nominated by the
President for the time being of the Royal Institution of Chartered
Surveyors on the application
36.
<PAGE>
either of the Landlord or of the Tenant and the costs of the
arbitration shall be in the award of the arbitrator whose decision
shall be final and binding on the parties
6.6.2 The reference to and award of the arbitrator shall be in accordance
with the arbitration acts 1950-1979
6.6 Time limits
Time shall not be of the essence in agreeing or determining the
reviewed rent or of appointing an arbitrator
6.7 Rental adjustments
if the market rent shall not have been agreed or determined in
accordance with the provisions of this clause before the review date
then until the market rent shall have been so agreed or determined the
Tenant shall continue to pay on account rent at the rate of yearly rent
payable immediately before the review date and when the market rent
shall have been agreed or determined the Tenant shall forthwith pay to
the Landlord all arrears of the review rent which shall have accrued
with interest at a rate equal to the base lending rate of National
Westminster Bank Plc upon the arrears in respect of the period
commencing on the review date and ending with the payment of the
arrears by the Tenant to the Landlord
6.8 Memorandum of rent review
The parties shall cause a memorandum of the reviewed rent duly signed
by the Landlord and the Tenant to be endorsed on or securely annexed to
this Lease and the counterpart of this Lease
37.
<PAGE>
7. Option to determine
If the Tenant wishes to determine this Lease on the expiry of the fifth
year of the Term and gives to the Landlord not less than six months
notice to expire on the expiry of the fifth year of the Term then upon
the expiry of such notice the Term shall immediately cease and
determine but without prejudice to the respective rights of either
party in respect of any antecedent claim or breach of covenant
EXECUTED and DELIVERED as a deed on the date of this document
THE SCHEDULE
PART I
Description of the Demised Premises
ALL THAT the premises comprising Office Unit 1 297-303 EDGEWARE Road in the
London Borough of Brent shown edged red on the Plan
PART 11
Rights enjoyed with demise
1. The right to pass and repass at all times with or without vehicles over
the accessways and the car park ramps within the Building
2. The free and uninterrupted passage and running of water soil
electricity gas or other illuminant or power or other services leading
to or from or serving the Demised Premises through the Conducting Media
now or from time to time serving the Demised Premises
3. The right to use exclusively the car parking spaces numbered
4,12,13,14,20 and 21 and edged brown on the Plan within the
38.
<PAGE>
Building or in such alternative positions as the Landlord shall from
time to time (acting reasonably) designate
4. The right of support and protection as are now appurtenant to the
Demised Premises
5. The right on foot only to pass and repass over the passages and
staircases within the Common Parts
6. The right of access to and use of the toilet accommodation and washing
facilities allocated by the Landlord within the Building
7. The right at all reasonable times upon giving 24 hours previous notice
in writing (or in case of emergency at any time without notice) to
enter into and upon the Building for the purpose of repairing
maintaining cleaning renewing and replacing the Demised Premises or any
part thereof
8. The right to use the bin store ("the Bin Store") within the Building
PART III
Exceptions and reservations
1. The free and uninterrupted passage of water steam soil air gas
electricity and telephone communications from and to any part of the
Building or any adjoining or neighbouring property through the
Conducting Media commonly used for those purposes which are now or may
in the future be in upon or under the Demised Premises
2. All rights of entry upon the Demised Premises referred to in clause 3
39.
<PAGE>
PART IV
Service Charge Provisions
Section 1
1. Tenant's liability to pay service charge
The Tenant shall pay to the Landlord by way of additional rent the due
proportion (as defined below) of the total cost ("the service charge")
to the Landlord in any service charge period beginning or ending during
the Term of providing the services specified in Sections 2 and 3 of
this Part of the Schedule and defraying the costs and expenses relating
and incidental to such services
2. Definition of "due proportion"
2.1 In this Schedule the expression "the due proportion" shall in relation
to the service charge the proportion which is attributable to the
Demised Premises
2.2 The due proportion shall be calculated primarily on a comparison of the
net internal area of the Demised Premises with the net internal area of
the Building (and "net internal area" has the meaning assigned to it
and shall be ascertained in accordance with the code of Measuring
Practice published by the Royal Institution of Chartered Surveyors and
the Incorporated Society of Valuers and Auctioneers)
2.3 In the event of such comparison being inappropriate having regard to
the nature of the expenditure incurred or the premiums in or upon the
Building benefited thereby or otherwise the Landlord shall be at
liberty in its discretion to adopt such other method of calculation of
the due proportion of such expenditure (or relevant expenditure) to be
attributed to the Demised Premises as
40.
<PAGE>
shall be fair and reasonable in the circumstances (including if
appropriate the attribution of the whole of such expenditure to the
Demised Premises)
3. Advance payments on preliminary basis
3.1 The due proportion of the service charge shall be discharged by means
of advance payments to be made on the same days upon which rent is
payable under this Lease and by such additional payments as may be
required under paragraphs 4 and 5
3.2 The amount of each advance payment shall be such amount as the Landlord
may reasonably determine as likely to be equal in the aggregate to the
due proportion of the service charge for the relevant service charge
period and which is notified to the Tenant at or before the time when
the demand for an advance payment is made
3.3 For the purposes of this Part of the Schedule "service charge period"
means the period of twelve months from the first day of January to the
thirty first day of December in each year (or such other period as the
Landlord may from time to time determine)
3.4 The service charge shall be deemed to accrue an a day-to-day basis in
order to ascertain yearly rates and for the purposes of apportionment
in relation to periods other than of one year
4. Service charge accounts and adjustments
4.1 The Landlord shall an soon as may be practicable after the and of each
service charge period submit to the Tenant a statement duly certified
(if so requested) by the Landlords accountant or surveyor giving a
proper summary of the service charge for the service charge period just
ended
41.
<PAGE>
4.2 If the due proportion of the service charge as certified shall be more
or less than the total of the advance payments (or the grossed-up
equivalent of such payments if made for any period of less than the
service charge period) then any sum due to or payable by the Landlord
by way of adjustment in respect of the due proportion of the service
charge shall forthwith be paid or allowed as the case may be
4.3 The provisions of this paragraph shall continue to apply
notwithstanding the expiry or earlier determination of this Lease in
respect of any service charge period then current
4.4 The Tenant shall be entitled to:-
4.4.1 inspect the service charge records and vouchers of the Landlord at such
location as the Landlord may reasonably appoint for the purpose during
normal working hours on weekdays; and
4.4.2 at the Tenant's expense take copies of them
5. Exceptional expenditure
In the event that the Landlord shall be required during any service
charge period to incur heavy or exceptional expenditure which forms
part of the service charge the Landlord shall be entitled to recover
from the Tenant the due proportion of the service charge representing
the whole of that expenditure on the quarter day next following
6. Reserve Fund
6.1 With a view to securing so far as may reasonably be practicable that
the service charge shall be progressive and cumulative rather than
irregular and that tenants for the time being shall bear a proper part
of accumulating liabilities which accrue in the future the Landlord
shall be entitled to include in the
42.
<PAGE>
service charge for any service charge period an amount which the
Landlord reasonably determines is appropriate to build up and maintain
a reserve fund in accordance with the principles of good estate
management
6.2 Any such reserve fund shall be established and maintained to cover
prospective and contingent costs of carrying out repairs decoration
maintenance and renewals and of complying with statutes by-laws
regulations of all competent authorities and of the insurers in
relation to the use occupation and enjoyment of the Building
7. Advance payments deposit account
7.1 This paragraph applies to such part of the monies ("the relevant
monies") paid by the Tenant and other tenants and occupiers of the
Building by way of service charge as for the time being has not been
disbursed in payment of the costs and expenses of providing services in
and to the Building
7.2 The Landlord shall keep the relevant monies in a separate trust account
until and to the extent that they may be required for disbursement then
or in the then immediate future in payment of the costs and expenses of
providing services in and to the Building
7.3 Interest earned upon such account (less any tax payable) shall be
credited to the account at regular rents in each year
7.4 Until actual disbursement the relevant monies shall be held by the
Landlord for the benefit of the owners and occupiers of the building as
a class
43.
<PAGE>
8. Landlord's Protection provisions
The Tenant shall not be entitled to object to the service charge (or
any item comprised in it) or otherwise on any of the following
grounds:-
8.1 the inclusion in a subsequent service charge period of any item of
expenditure or liability omitted from the service charge for any
preceding service charge period
8.2 an item of service charge included at a proper cost might have been
provided or performed at a lower cost or
8.3 disagreement with any estimate of future expenditure for which the
Landlord requires to make provision so long as the Landlord has acted
reasonably and in good faith and in the absence of manifest error or
8.4 the manner in which the Landlord exercises its discretion in providing
services so long as the Landlord acts in good faith and in accordance
with the principles of good estate management or
8.5 the employment of managing agents to carry out and provide on the
Landlord's behalf services under this Part of this Schedule
9. Vacant parts of the Building and actions by the Landlord
9.1 In no event shall the due proportion of the service charge be increased
or altered by reason only that at any relevant time any part of the
building may be vacant or be occupied by the Landlord or that any
tenant or other occupier of another part of the Building may default in
payment of his due proportion of the service charge
44.
<PAGE>
9.2 If the Landlord recovers monies in exercise of its duties referred to
in paragraph 15 representing expenditure which has been or which would
otherwise fall to be included in the service charge, the Landlord shall
set off or credit such monies against the service charge accordingly
10. Service charge to exclude Tenant's liabilities
There shall be excluded from the items comprising the service charge
any liability or expense for which the Tenant or other tenants or
occupier of the Building shall individually be responsible under the
terms of the tenancy or other arrangement by which they use or occupy
the Building
11. Management charges
The Landlord shall be entitled to include in the service charge:-
11.1 a reasonable fee for the provision of services;
11.2 the cost of employing managing agents for the carrying out and
provision of services under this Part of the Schedule; and
11.3 any cost of the accountants or auditors for auditing the service charge
or providing other services in connection with the service charge
Provided that paragraphs 11.1 and 11.2 above shall be deemed to be
alternatives to one another
12. The Landlord's obligation to provide services
12.1 Subject to the payment of the due properties of the service charge by
the Tenant in the manner required and at the times required under this
Lease and to the following provisions of this
45.
<PAGE>
paragraph the Landlord shall provide the services specified in Section
2 of this Part of the Schedule and may provide the services specified
in Section 3 of this Part of the Schedule
l2.2 The Landlord shall not be liable to the Tenant for failure to provide
any services in Section 2 of this Part of the Schedule to the extent
that the Landlord is prevented from doing so by Insured Risks and other
such perils accident strikes combinations lockouts of workmen or other
cause beyond the Landlord's control
l2.3 The Landlord shall not be under any obligation to the Tenant to
continue the provision of the services specified in Section 3 of this
Part of the Schedule and may in its absolute discretion vary extend
alter or add to such services if the Landlord considers that by so
doing the amenities in the Building may be improved and/or the
management of the Building may be more efficiently conducted
Section 2
Essential services and heads of charge
13. Common Parts
13.1 The cleaning lighting and maintenance of the Common Parts
13.2 The payment of any Outgoings in respect of the common parts
13.3 Refuse disposal (but excluding trade waste arising from any occupiers
particular trade or business)
13.4 The cleaning and emptying of drains serving the Building
46.
<PAGE>
14. Repairs and statutory requirements
14.1 The repair decoration maintenance renewal rebuilding cleaning and
upkeep of the structure floors walls main drains foundations exterior
and roof of the Building and of the Common Parts and of the Conducting
Media and other common service facilities and of any car park service
or loading area or service road
14.2 Compliance with all statutes by-laws regulations and the requirements
of all competent authorities and of the insurers in relation to the use
occupation and enjoyment of the Building which shall for the time being
be in force
15. Legal proceedings
15.1 Making representations which the Landlord in its discretion reasonably
and properly considers should be made against, or otherwise contesting,
the incidence of the provisions of any legislation, order, regulation,
notice or statutory requirement relating to or affecting the whole or
any part of the Building
15.2 The proper costs of pursuing and enforcing any claim, and taking or
defending any proceedings which the Landlord may in its discretion make
take or defend for the purpose of establishing preserving or defending
any rights amenities or facilities used or enjoyed by the tenants and
occupiers of the Building or any part of it or to which they may be
entitled but not for the recovery of any service charge payments due
from any other tenant of part or parts of the Building
l6. General
The provision supply and replacement of any necessary tools appliances
plant and materials as the Landlord may in its absolute discretion deem
desirable or necessary for use in the provision and execution of the
services
47.
<PAGE>
16.1 The cost of purchasing rent leasing operating maintaining repairing and
replacing fire alarms fire equipment and appliances and such other fire
fighting equipment
16.2 The cost of maintaining and providing any necessary parking and
access control
16.3 The Cost of and incidental to pest control throughout the Building
16.4 Such other services that may be provided in the absolute discretion of
the Landlord or its respective surveyor for the benefit of the Building
in the interests of good estate management
Section 3
Discretionary services and heads of charge
17. Employees
17.1 Employment of cleaning staff or other staff for the maintenance and
upkeep of and the provision of services in the Building
17.2 The provision of uniforms overalls and protective clothing for such
employees or other staff required in connection with their duties
18. Security
18.1 Provision of security arrangements for the safety of occupiers and
users of the Building and their property kept in the Building
48.
<PAGE>
l9. Garden areas
Landscaping planting and replanting and the maintenance and upkeep of
garden or landscaped areas
PART V
The Encumbrances
The Property and Charges Registers Of Title No. MX193867
49.
<PAGE>
PART VI
Form of guarantee on assignment under clause 3.10.4
1. Guarantee
The Guarantor(s) (jointly and severally) guarantee(s) to the Landlord
that the Assignee and his successor-in-title and assigns will from the
date of the assignment pay the rents reserved by and perform and
observe all the covenants and stipulations on the Tenants part
contained in the Lease throughout the term of the Lease
2. No waiver of liability
The Guarantor(s) shall not be released from liability under this
covenant by reason of any forebearance the granting of any time or any
other indulgence on the part of the Landlord including (but without
prejudice to the generality of the foregoing any granting or extension
of time under or varying the procedure set out in clause 6.5 of the
Lease
3. Guarantor to accept new Lease upon disclaimer
If a Liquidator or trustee in bankruptcy of the Assignee or his
successor-in-title and assigns shall disclaim the Lease the Guarantor
will if the Landlord shall by notice in writing within three months
after such disclaimer so require take from the Landlord a new lease of
the Demised Premises for a term commensurate with the residue of the
term of the Lease which would have remained had there been no
disclaimer at the same rents and subject to the same covenants and
conditions as are reserved by and contained in the lease the new lease
to take effect from the date of the disclaimer and in such case the
Guarantor(s) shall pay the cost of the new lease and execute and
deliver to the Landlord a Counterpart of the new lease
50.
<PAGE>
EXECUTED under the Common )
Seal of WATERGLADE DEVELOPMENTS )
EDGEWARE ROAD) LIMITED )
Director
/s/
Secretary
/s/
51.
<PAGE>
Exhibit 10.13
-----
VARIABLE RATE-INSTALLMENT NOTE
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OBLIGOR # NOTE # NOTE DATE TAX IDENTIFICATION NUMBER
77-28633750 April 12, 1995 77-0208927
- --------------------------------------------------------------------------------------------------------------
AMOUNT MATURITY DATE
$250,000.00 SAN JOSE, California April 12, 1998
- --------------------------------------------------------------------------------------------------------------
</TABLE>
For Value Received, the undersigned promise(s) to pay to the order of COMERICA
BANK-CALIFORNIA ("Bank"), at any office of the Bank in the State of California,
TWO HUNDRED FIFTY THOUSAND AND NO/100 Dollars (U.S.) in installments of
$6,944.45 each _______ INCLUSIVE OF x PLUS interest on the unpaid balance
--------
from the date of this Note at a per annum rate equal to the Bank's rate from
time to time in effect plus 1.500 % per annum until maturity, whether by
acceleration or otherwise, or until Default, as later defined, and after that at
a default rate equal to the rate of interest otherwise prevailing under this
Note plus 3% per annum (but in no event in excess of the maximum rate permitted
by law). Interest shall be calculated for the actual number of days the
principal is outstanding on the basis of a 360 day year if this Note evidences a
business or commercial loan or a 365 day year if a consumer loan. The Bank's
"base rate" is that annual rate of interest so designated by the Bank and which
is changed by the Bank from time to time. Interest rate changes will be
effective for interest computation purposes as and when the Bank's base rate
changes. Installments of principal and accrued interest due under this Note
shall be payable on the 12TH day of each MONTH commencing MAY 12, 1995, and the
entire remaining unpaid balance of principal and accrued interest shall be
payable on maturity date set forth above. If the frequency of principal and
interest installments is not otherwise specified, installments of principal and
Interest due under this Note shall be payable monthly on the first day of each
month.
In the event the periodic installments set forth above are inclusive of
interest, these installments are calculated at an assumed fixed interest rate
and an assumed amortization term. The amortization term ends on
_______________________ (if left blank, the amortization terms ends on the
maturity date). In the event this Note evidences a business or commercial loan
and the Bank's base rate changes, the Bank, at its sole option, may from time to
time recalculate the periodic installment amount so that the remaining periodic
installments will fully amortize the remaining loan balance within the remaining
amortization term in equal installments at the interest rate then being charged
under this Note. THE UNDERSIGNED AGREE(S) TO PAY THE PERIODIC INSTALLMENTS AS
THEY MAY BE RECALCULATED BY THE BANK, AT THE BANK'S SOLE OPTION, FROM TIME TO
TIME AND ACKNOWLEDGE(S) THAT A RECALCULATION SHALL NOT AFFECT THE MATURITY DATE
OR THE OTHER TERMS AND PROVISIONS OF THIS NOTE. If this Note or any installment
under this Note shall become payable on a day other than a day on which the Bank
is open for business, this payment may be extended to the next succeeding
business day and interest shall be payable at the rate specified in this Note
during this extension. Any payments of principal in excess of the installment
payments required under this Note need not be accepted by the Bank (except as
required under applicable law), but if accepted shall apply to the Installments
fast falling due. A late installment charge equal to 5% of each late installment
may be charged on any installment payment not received by the Bank within 10
calendar days after the installment due date, but acceptance of payment of this
charge shall not waive any default under this Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other agreement which has
been, or will at any time(s) later be, executed by any (or all) of the
undersigned to or for the benefit of the Bank (collectively "Collateral").
Notwithstanding the above, (i) to the extent that any portion of the
indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security Interest In the undersigned's
principal dwelling which is not a purchase money security Interest as to that
portion, unless expressly provided to the contrary In another place, or (ii) if
the undersigned (or any of them) has (have) given or give(s) Bank a deed of
trust or mortgage covering real property, that deed of trust or mortgage shall
not secure this Note or any other indebtedness of the undersigned (or any of
them), unless expressly provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the Indebtedness ("guarantor") (a) fail(s) to pay this Note or any of
the indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to
pay any indebtedness owing on a demand basis upon demand; or (b) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any guarantor and the Bank; or (c) become(s)
insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy,
or a reorganization, arrangement or creditor composition proceeding, (if a
business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation) is the subject of a dissolution,
merger or consolidation: or (d) if any warranty or representation made by any of
the undersigned or any guarantor in connection with this Note or any of the
indebtedness shall be discovered to be untrue or incomplete; or (e) if there is
any termination, notice of termination, or breach of any guaranty, pledge,
collateral assignment or subordination agreement relating to all or any part of
the indebtedness; or (f) if there is any failure by any of the undersigned or
any guarantor to pay when due any of its indebtedness (other than to the Bank)
or in the observance or performance of any term, covenant or condition in any
document securing or relating to such indebtedness; or (g) if the Bank deems
itself insecure, believing that the prospect of payment of this Note or any of
the indebtedness is impaired or shall fear deterioration, removal or waste of
any of the Collateral; or (h) if there is filed or issued a levy or writ of
attachment or garnishment or other like judicial process upon the undersigned
(or any of them) or any guarantor or any of the Collateral, including without
limit, any accounts of the undersigned (or any of them) or any guarantor with
the Bank, then the Bank, upon the occurrence of any of these events (each a
"Default"), may at its option and without prior notice to the undersigned for
any of them), declare any or all of the indebtedness to be immediately due and
payable (notwithstanding any provisions contained in the evidence thereof to the
contrary), sell or liquidate all or any portion of the Collateral, set off
against the indebtedness any amounts owing by the Bank to the undersigned (or
any of them), charge interest at the default rate provided in the document
evidencing the relevant indebtedness and exercise any one or more of the rights
and remedies granted to the Bank by any agreement with the undersigned (or any
of them) or given to it under applicable law. In addition, if this Note is
secured by a deed of trust of mortgage covering real property, then the trustor
or mortgagor shall not mortgage or pledge the
<PAGE>
mortgaged premises as security for any other indebtedness or obligations. This
Note, together with all other Indebtedness secured by said deed of trust or
mortgage, shall become due and payable immediately, without notice, at the
option of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge
the mortgaged premises for any other indebtedness or obligations or shall
convey, assign or transfer the mortgaged promises by deed, installment sale
contact or other instrument, or (b) if the title to the mortgaged premises shall
become vested in any other person or party in any manner whatsoever, or (c) if
there is any disposition (through one or more transactions) of legal or
beneficial title to a controlling interest of said trustor or mortgagor. All
payments under this Note shall be in immediately available United States funds,
without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or, by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or Intent to demand, notice or acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or Indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge Order Section 3-605 of the California Uniform Commercial Code
and waive(s) all other suretyship defenses or right to discharge. The
undersigned agree(s) that the Bank has the right to sell, assign, or grant
participations, or any interest, in any or all of the indebtedness, and in
connection with this right, but without limiting its ability to make other
disclosures to the full extent allowable, the Bank may disclose all documents
and information which the Bank now or later has relating to the undersigned or
the indebtedness. The undersigned agree(s) that may provide information
relating to this Note or to the undersigned to the Bank's parent, affiliates,
subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note for
any and all costs and expenses (including without limit, court costs, legal
expenses and reasonable attorney fees, whether inside or outside counsel is
used, whether or not suit is instituted and, if suit is instituted, whether at
the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or incurred in any other matter or proceeding relating to this
Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity, if any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USURY CEILING.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
SEE LETTER AGREEMENT DATED MARCH 31, 1995 and April 12, 1995.
For Corporations, Partnerships, Trust, or Estates
<TABLE>
<S> <C> <C>
TELESENSORY CORPORATION By:___________________________________ Its:_________________________________
-------------------------------
OBLIGOR NAME TYPES/PRINTED SIGNATURE OF TITLE
455 NORTH BERNARDO AVENUE By:___________________________________ Its:_________________________________
-------------------------------
STREET ADDRESS SIGNATURE OF TITLE
MOUNTAIN VIEW By:___________________________________ Its:_________________________________
-------------------------------
CITY SIGNATURE OF TITLE
CA 94039 By:___________________________________ Its:_________________________________
-------------------------------
STATE ZIP CODE SIGNATURE OF TITLE
For Individuals or Sole Proprietorships
Name(s) of Obligor(s) (Type or Print): Signature(s) of Obligor(s):
______________________________________ _____________________________________
_______________________________ ______________________________________ _____________________________________
STREET ADDRESS
_______________________________ ______________________________________ _____________________________________
CITY
_______________________________ ______________________________________ _____________________________________
STATE ZIP CODE
</TABLE>
- -----------------------------------------------------
For Bank Use Only
- -----------------------------------------------------
-2-
<PAGE>
- ----------------------------------------------------
LOAN OFFICER INITIALS LOAN GROUP NAME
PHILLIP GOULD PENINSULA
- ----------------------------------------------------
LOAN OFFICER I.D. NO. LOAN GROUP NO.
48202 95745
- ----------------------------------------------------
-3-
<PAGE>
EXHIBIT 10.14
FIXED RATE-INSTALLMENT NOTE
<TABLE>
<CAPTION>
<S> <C> <C> <C>
OBLIGOR # NOTE # NOTE DATE TAX IDENTIFICATION NUMBER
77-28633750 April 12, 1995 77-0208927
- --------------------------------------------------------------------------------------------------
AMOUNT MATURITY DATE
$750,000.00 San Jose, California April 12, 1998
- --------------------------------------------------------------------------------------------------
</TABLE>
For Value Received the undersigned promise(s) to pay to the order of COMERICA
BANK-CALIFORNIA, ("Bank") at any office of the Bank in the State of California,
SEVEN HUNDRED FIFTY THOUSAND AND NO/100 Dollars (U.S.) in Installments of
$24,256.96 each x EXCLUSIVE OF _______ PLUS interest on the unpaid
-------
principal balance from the date of this Note at the rate of 10,000% per annum
until maturity whether by acceleration or otherwise, or until Default, as later
defined, and after that at a default rate equal to the rate of interest
otherwise prevailing under this Note plus 3% per annum (but in no event in
excess of the maximum rate permitted by law). Interest shall be calculated for
the actual number of days the principal is outstanding on the basis of a 360 day
year if this Note evidences a business or commercial loan or a 365 day year if a
consumer loan. Installments of principal and accrued interest due under this
Note shall be payable on the 12TH day of each MONTH, commencing MAY 12, 1995,
and the entire remaining unpaid balance of principal and accrued interest shall
be payable on APRIL 12, 1998. If the frequency of principal and interest
Installments is not otherwise specified, Installments of principal and interest
due under this Note shall be payable monthly on the first day of each month. If
this Note or any Installment of principal or interest under this Note shall
become payable on a day other than a day on which the Bank is open to business,
this payment shall be extended to the next succeeding business day and interest
shall be payable at the rate specified in this Note during this extension. A
late Installment charge equal to 5% of each late Installment may be charged on
any Installment payment not received by the Bank within 10 calendar days after
the Installment due date, but acceptance of payment of this charge shall not
waive any Default under this Note.
The Bank does not have to accept any prepayment of principal under this Note
except as described below or as required under applicable law. The undersigned
may prepay principal of this Note in increments of $500.00 at any time as long
as the Bank is provided written notice of the prepayment at least five business
days prior to the date of prepayment. The notice of prepayment shall contain
the following information: (a) the date of prepayment (the Prepayment Date) and
(b) the amount of principal to be prepaid. On the Prepayment Date the
undersigned will pay to the Bank, in addition to the other amounts then due on
this Note, the Prepayment Amount described below. The Bank, in its sole
discretion, may accept any prepayment of principal even if not required to do so
under this Note and may deduct from the amount to be applied against principal
the other amounts required as part of the Prepayment Amount.
The Prepaid Principal Amount (as defined below) will be applied to this Note in
the reverse order of which the principal payments would have been due under this
Note's principal amortization schedule. In other words, if this Note requires
multiple principal payments, then as opposed to prepaying the next Principal
Payment due, the Prepaid Principal Amount will be applied beginning with the
final principal payment due on this Note.
If the Bank exercises its right to accelerate the payment of the Note prior to
maturity, the undersigned will pay to the Bank, in addition to the other amounts
then due on this Note, on the date specified by the Bank as the Prepayment Date,
the Prepayment Amount.
The Bank's determination of the Prepayment Amount will be conclusive in the
absence of obvious error or fraud. If requested in writing by the undersigned,
the Bank will provide the undersigned a written statement specifying the
Prepayment Amount.
The following (the "Prepayment Amount") shall be due and payable in full on the
Prepayment Date:
(a) If the face amount of this Note exceeds Seven Hundred Fifty Thousand
Dollars ($750,000) (regardless of what the outstanding principal balance
may be on the Prepayment Date) then the Prepayment Amount is the sum of:
(i) the amount of principal which the undersigned has elected to prepay or
the amount of principal which the Bank has required the undersigned to
prepay because of acceleration, as the case may be (the "Prepaid Principal
Amount") (ii) interest accruing on the Prepaid Principal Amount up to, but
not including, the Prepayment Date, (iii) Five Hundred Dollars plus (iv)
the present value, discounted at the Reinvestment Rates (as defined below)
of the positive amount by which (A) the interest the Bank would have earned
had the Prepaid Principal Amount been paid according to the Note's
amortization schedule at the Note's interest rate exceeds (B) the interest
the Bank would earn by reinvesting the Prepaid Principal Amount at the
Reinvestment Rates.
(b) If the face amount of this Note Is Seven Hundred Fifty Thousand
Dollars ($750,000) or less (regardless of what the outstanding principal
balance may be on the Prepayment Date) then the Prepayment Amount is the
sum of: (i) the amount of principal which the undersigned has elected to
prepay or the amount of principal which the Bank has required the
undersigned to prepay because of acceleration, as the case may be (the
"Prepaid Principal Amount" ), (ii) interest accruing on the Prepaid
Principal Amount up to, but not including, the Prepayment Date, plus (iii)
an amount equal to one percent (1%) of the Prepaid Principal Amount
multiplied by the number of calendar years remaining until the maturity
date of this Note, in no event less than two percent (2%) of the Prepaid
Principal Amount. For purposes of this computation any portion of a
calendar year until the maturity date of this Note shall be deemed to be a
full calendar year.
"Reinvestment Rates" mean the per annum rates of interest equal to one half
percent (1/2%) above the rates of interest reasonably determined by the Bank to
be in effect not more than seven days prior to the Prepayment Date in the
secondary market for United States Treasury Obligations in amount(s) and with
maturity(ies) which correspond (as closely as possible) to the principal
installment amount(s) and the payment date(s) against which the Prepaid
Principal Amount will be applied.
BY INITIALING BELOW, THE UNDERSIGNED ACKNOWLEDGE(S) AND AGREE(S) THAT: (A) THERE
IS NO RIGHT TO PREPAY THIS NOTE, IN WHOLE OR IN PART, WITHOUT PAYING THE
PREPAYMENT AMOUNT, EXCEPT AS OTHERWISE REQUIRED UNDER APPLICABLE LAW; (B) THE
UNDERSIGNED SHALL BE LIABLE FOR PAYMENT OF THE PREPAYMENT AMOUNT IF THE BANK
EXERCISES ITS RIGHT TO ACCELERATE PAYMENT OF THIS NOTE, INCLUDING WITHOUT LIMIT
ACCELERATION UNDER A DUE-ON-SALE PROVISION; (C) THE UNDERSIGNED WAIVE(S) ANY
RIGHTS UNDER SECTION 2954.10 OF THE CALIFORNIA CIVIL CODE, OR ANY SUCCESSOR
STATUTE; AND (D) THE BANK HAS MADE THE LOAN EVIDENCED BY THIS NOTE IN RELIANCE
ON THESE AGREEMENTS. WAIVED
____________________________________________________________
UNDERSIGNED'S INITIALS
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge assignment and other security or collateral
agreement which has been, or will at any time(s) later be, executed by any (or
all) of the undersigned to or for the benefit of the Bank (collectively
"Collateral" ). Notwithstanding the above, (i) to the extent that any portion of
the Indebtedness is a consumer loan, that portion shall not be secured by any
deed of trust or mortgage on or other security interest in the undersigned's
principal dwelling which is not a purchase money security interest as to that
portion, unless expressly provided to the contrary in another place, or (ii) if
the undersigned (or any of them) has (have) given or give(s) Bank a deed of
trust or mortgage covering real property, that deed of trust or mortgage shall
not secure this Note or any other indebtedness of the undersigned (or any of
them), unless expressly provided to the contrary in another place.
If the undersigned (or any of them)or at any guarantor under a guaranty of all
or part of the indebtedness ("guarantor") (i) fail(s) to pay this Note or any of
the indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to
pay any indebtedness owing on a demand basis upon demand; or (ii) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any Guarantor and the Bank; or (iii) become(s)
insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy,
or a reorganization,
<PAGE>
arrangement or creditor composition proceeding, (if a business entity) cease(s)
doing business as a going concern, (if a natural person) die(s) or become(s)
incompetent, (if a partnership) dissolve(s) or any general partner of it dies,
becomes incompetent or becomes the subject of a bankruptcy proceeding or (if a
corporation) is the subject of a dissolution, merger or consolidation; or (a) if
any warranty or representation made by any of the undersigned or any guarantor
in connection with this Note or any of the Indebtedness shall be discovered to
be untrue or Incomplete; (b) or if there is any termination. notice of
termination, or breach of any guaranty, pledge, collateral assignment or
subordination agreement relating to all or any part of the indebtedness; or (c)
if there is any failure by any of the undersigned or any guarantor to pay when
due any of its indebtedness (other than to the Bank) or in the observance or
performance of any term, covenant or condition in any document evidencing,
securing or relating to such indebtedness; or (d) if the Bank deems itself
insecure believing that the prospect of payment of this Note or any of the
indebtedness is impaired or shall fear deterioration, removal or waste of any of
the Collateral; or (e) if there is filed or issued a levy or writ of attachment
or garnishment or other like judicial process upon the undersigned (or any of
them) or any guarantor or any of the Collateral, including without limit, any
accounts of the undersigned (or any of them) or any guarantor with the Bank,
then the Bank, upon the occurrence of any of these events (each a "Default"),
may at its option and without prior notice to the undersigned (or any of them),
declare any or all of the indebtedness to be immediately due and payable
(notwithstanding any provisions contained in the evidence of it to the
contrary), sell or liquidate all or any portion of the Collateral, set off
against the indebtedness any amounts owing by the Bank to the undersigned (or
any of them), charge interest at the default rate provided in the document
evidencing the relevant indebtedness and exercise any one or more of the rights
and remedies granted to the Bank by any agreement with the undersigned (or any
of them) or given to it under applicable law. In addition, if this Note is
secured by a deed of trust or mortgage covering real property, then the trustor
or mortgagor shall not mortgage or pledge the mortgaged promises as security for
any other indebtedness or obligations. This Note, together with all other
indebtedness secured by said deed of trust or mortgage, shall become due and
payable immediately, without notice, at the option of the Bank, (a) if said
trustor or mortgagor shall mortgage or pledge the mortgaged premises for any
other indebtedness or obligations or shall convey, assign or transfer the
mortgaged premises by deed, installment sale contract or other instrument, or
(b) if the title to the mortgaged premises shall become vested in any other
person or party in any manner whatsoever, or (c) if there is any disposition
(through one or more transactions) of legal or beneficial title to a controlling
interest of said trustor or mortgagor. All payments under this Note shall be in
immediately available United States funds, without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned 's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices, and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-605 of the California Uniform
Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the bank has the right to sell, assign
or grant participations, or any interest, in any or all of the indebtedness, and
that, in connection with this right, but without limiting its ability to make
other disclosures to the full extent allowable, the Bank may disclose all
documents and information which the Bank now or later has relating to the
undersigned or the indebtedness. The undersigned agree(s) that the Bank may
provide information relating to the Note or to the undersigned to the Bank's
parent, affiliates, subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not suit is instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding or
otherwise) incurred in collecting or attempting to collect this Note or incurred
in any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word undersigned means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
For Corporations, Partnerships, Trust, or Estates
<TABLE>
<S> <C> <C>
TELESENSORY CORPORATION By:__________________________________________ Its:_________________________________
- ----------------------------------
OBLIGOR NAME TYPES/PRINTED SIGNATURE OF TITLE
455 NORTH BERNARDO AVENUE By:__________________________________________ Its:_________________________________
- ----------------------------------
STREET ADDRESS SIGNATURE OF TITLE
MOUNTAIN VIEW By:__________________________________________ Its:_________________________________
- ----------------------------------
CITY SIGNATURE OF TITLE:
CA 94039 By:__________________________________________ Its:_________________________________
- ----------------------------------
STATE ZIP CODE SIGNATURE OF TITLE
For Individuals or Sole Proprietorships
Name(s) of Obligor(s) (Type or Print): Signature(s) of Obligor(s):
_____________________________________________ _____________________________________
__________________________________ _____________________________________________ _____________________________________
STREET ADDRESS
__________________________________ _____________________________________________ ____________________________________
CITY
__________________________________ _____________________________________________ ____________________________________
STATE ZIP CODE
</TABLE>
-2-
<PAGE>
- --------------------------------------------------------------------------------
For Bank Use Only
- --------------------------------------------------------------------------------
LOAN OFFICER INITIALS LOAN GROUP NAME
PHILLIP GOULD PENINSULA
- --------------------------------------------------------------------------------
LOAN OFFICER I.D. NO. LOAN GROUP NO.
48202 95745
- --------------------------------------------------------------------------------
-3-
<PAGE>
ComericA Bank-California
April 12, 1995 1299 Oakmead Parkway
Sunnyvale, California 94086
(408) 732-4003
Larry Israel
President
TELESENSORY CORPORATION
455 North Bernard Avenue
Mountain View CA 94039-7455
Dear Mr. Israel:
Pursuant to the extension of a term loan (Facility) by COMERICA BANK-CALIFORNIA,
(Bank) to TELESENSORY CORPORATION (Borrower) in the amount of One million
dollars ($1,000,000.00) please acknowledge the following.
In addition to the standard documentation, this Facility will be subject to the
following additional terms and conditions:
1. In addition to the repayment schedules set forth in the promissory notes
dated April 12, 1995 evidencing the Facility, the Borrower shall make
additional annual principal payments on the Facility within the first
ninety days of each fiscal year. The amount of these additional principal
payments shall be equal to fifty per cent (50.00%) of the Borrower's annual
net profit after taxes in excess of five hundred thousand dollars
($500,000.00)
Please acknowledge your understanding and acceptance of these conditions by
signing and returning to us the original of this letter retaining the copy for
your records.
Yours sincerely,
/s/ Philip M.F. Gould
Philip M.F. Gould
Senior Corporate Officer
Acknowledged and accepted
for TELESENSORY CORPORATION
Larry Israel
President.
<PAGE>
EXHIBIT 10.17
COMERICA
VARIABLE RATE-INSTALLMENT NOTE
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION#
$1,000,000.00 MARCH 22, 1996 MARCH 22, 1999 77-0208927
For Value Received, the undersigned promise(s) to pay to the order of COMERICA
BANK-CALIFORNIA ("Bank"), at any office of the Bank in the State of California,
ONE MILLION AND N0/100 Dollars (U.S.) in installments of $27,778.00 each
INCLUSIVE OF X PLUS interest on the unpaid balance from the date of this Note at
a per annum rate equal to the Bank's base rate from time to time in effect PLUS
1.500% per annum until maturity, whether by acceleration or otherwise, or until
Default, as later defined, and after that at a default rate equal to the rate of
interest otherwise prevailing under this Note plus 3% per annum (but in no event
in excess of the maximum rate permitted by law). Interest shall be calculated
for the actual number of days the principal is outstanding on the basis of a 360
day year if this Note evidences a business or commercial loan or a 365 day year
if a consumer loan. The Bank's "base rate" is that annual rate of interest so
designated by the Bank and which is changed by the Bank from time to time.
Interest rate changes will be effective for interest computation purposes as and
when the Bank's base rate changes. Installments of principal and accrued
interest due under this Note shall be payable on the 22ND day of each MONTH,
commencing APRIL 22, 1996, and the entire remaining unpaid balance of principal
and accrued interest shall be payable on the Maturity Date set forth Above. If
the frequency of principal and interest installments is not otherwise specified,
installments of principal and interest due under this Note shall be payable
monthly on the first day of each month.
In the event the periodic installments set forth above are inclusive of
interest, these installments are calculated at an assumed fixed interest rate
and an assumed amortization term. The amortization term ends on __________ (if
left blank, the amortization terms ends on the Maturity Date). In the event this
Note evidences a business or commercial loan and the Bank's base rate changes,
the Bank, at its sole option, may from time to time recalculate the periodic
installment amount so that the remaining periodic installments will fully
amortize the remaining loan balance within the remaining amortization term in
equal installments at the interest rate then being charged under this Note. THE
UNDERSIGNED AGREE(S) TO PAY THE PERIODIC INSTALLMENTS AS THEY MAY BE
RECALCULATED BY THE BANK, AT THE BANK'S SOLE OPTION, FROM TIME TO TIME AND
ACKNOWLEDGE(S) THAT A RECALCULATION SHALL NOT AFFECT THE MATURITY DATE OR THE
0THER TERMS AND PROVISIONS OF THIS NOTE. If this Note or any installment under
this Note shall become payable on a day other than a day on which the Bank is
open for business, this payment may be extended to the next succeeding business
day and interest shall be payable at the rate specified in this Note during this
extension. Any payments of principal in excess of the installment payments
required under this Note need not be accepted by the Bank (except as required
under applicable law), but if accepted shall apply to the installments last
falling due. A late installment charge equal to 5% of each late installment may
be charged on any installment payment not received by the Bank within 10
calendar days after the installment due date, but acceptance of payment of this
charge shall not waive any default under this Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other agreement which has
been, or will at any time(s) later be, executed by any (or all) of the
undersigned to or for the benefit of the Bank (collectively "Collateral").
Notwithstanding the above, (i) to the extent that any portion of the
Indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security interest in any of the undersigned's
principal dwelling or in any of the undersigned's real property which is not a
purchase money security interest as to that portion, unless expressly provided
to the contrary in another place, or (ii) if the undersigned (or any of them)
has (have) given or give(s)
<PAGE>
Bank a deed of trust or mortgage covering real property, that deed of trust or
mortgage shall not secure this Note or any other indebtedness of the undersigned
(or any of them), unless expressly provided to the contrary in another place.
If the undersigned (or any of them) or any guarantor under 2 guaranty of all or
part of the Indebtedness ("guarantor") (a) fail(s) to pay this Note or any of
the Indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to
pay any Indebtedness owing on a demand basis upon demand; or (b) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any guarantor and the Bank; or (c) become(s)
insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy,
or a reorganization, arrangement or creditor composition proceeding, (if a
business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation or a limited liability company) is
the subject of a dissolution, merger or consolidation: or (d) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the Indebtedness shall be discovered to be untrue or
incomplete; or (e) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the Indebtedness; or (f) if there is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (other than to the Bank) or in the observance or performance of any
term, covenant or condition in any document evidencing, securing or relating to
such Indebtedness; or (g) if the Bank deems itself insecure, believing that the
prospect of payment of this Note or any of the Indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (h) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
Indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence thereof to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the Indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant Indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law. In
addition, if this Note is secured by a deed of trust or mortgage covering real
property, then the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other indebtedness or obligations. This
Note, together with all other indebtedness secured by said deed of trust or
mortgage, shall become due and payable immediately, without notice at the option
of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge the
mortgaged premises for any other indebtedness or obligations or shall convey,
assign or transfer the mortgaged premises by deed, installment sale contact or
other instrument, or (b) if the title to the mortgaged premises shall become
vested in any other person or party in any manner whatsoever, or (c) if there is
any disposition (through one or more transactions) of legal or beneficial title
to a controlling interest of said trustor or mortgagor. All payments under this
Note shall be in immediately available United States funds, without setoff or
counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-605 of the California Uniform
Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell, assign,
or grant participations, or any interest, in any or all of the Indebtedness, and
that, in connection with this right, but without limiting its ability to make
other disclosures to the full extent
<PAGE>
allowable, the Bank may disclose all documents and information which the Bank
now or later has relating to the undersigned or the Indebtedness. The
undersigned agree(s) that the Bank may provide information relating to this Note
or to the undersigned to the Bank's parent, affiliates, subsidiaries and service
providers.
<PAGE>
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not suit is instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding or
otherwise) incurred in collecting or attempting to collect this Note or incurred
in any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USURY CEILING.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
THIS NOTE IS SUBJECT TO THE TERMS OF A LETTER AGREEMENT ______________________.
For Corporations, Partnerships, Trust or Estates
TELESENSORY CORPORATION By: /S/ {signature unreadable] Its: Pres
OBLIGOR NAME TYPED/PRINTED SIGNATURE OF TITLE
455 NORTH BERNARDO AVENUE By: Its:
STREET ADDRESS SIGNATURE OF TITLE
MOUNTAIN VIEW By: Its:
CITY SIGNATURE OF TITLE
CA 94039 By: Its:
STATE ZIP CODE SIGNATURE OF TITLE
For Individuals or Sole Proprietorships
Name(s) of Obligor(s)(Type or Print): Signature(s) of
Obligor(s):
STREET ADDRESS
CITY
STATE ZIP CODE
COMERICA Automatic Loan Payment Authorization
Date MARCH 22, 1996
<PAGE>
Comerica Bank-California COMERICA
Palo Alto Branch
University Division 250 Lytton Avenue
March 22, 1996 Palo Alto, California 94301
(415) 462-6000
Larry Israel
President
TELESENSORY CORPORATION
455 North Bernard Avenue
Mountain View, CA 94039-7455
Dear Mr. Israel:
Pursuant to the extension of a term loan (Facility) by COMERICA BANK-CALIFORNIA
(Bank) to TELESENSORY CORPORATION (Borrower) in the amount of One million
dollars ($1,000,000.00) please acknowledge the following.
In addition to the standard documentation, this facility will be subject to the
following additional terms and conditions:
1. In addition to the repayment schedules set forth in the promissory note
dated March 22, 1996 evidencing the Facility, the Borrower shall make
additional annual principal payments on the Facility within the first
ninety days of each fiscal year. The amount of these additional principal
payments shall be equal to fifty per cent (50.00%) of the Borrower's annual
net profit after taxes in excess of six hundred and twenty-five thousand
dollars ($625,000.00).
Please acknowledge your understanding and acceptance of these conditions by
signing and returning to us the original of this letter retaining the copy for
your records.
Yours sincerely,
/s/ Philip M.F. Gould
Philip M.F. Gould
Vice President
Acknowledged and accepted
for TELESENSORY CORPORATION
/s/ Larry Israel
Larry Israel
President.
<PAGE>
EXHIBIT 10.18
ASSET PURCHASE AGREEMENT
among
VTEK, INC. (BUYER),
TELESENSORY CORPORATION (PARENT)
SENSORY SYSTEMS LTD (SELLER)
and
JOHN TILLISCH (STOCKHOLDER)
Dated: March 29, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I - DEFINITIONS............................................................ 1
ARTICLE II - PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES......................... 5
2.1 Assets to be Purchased.................................................. 5
2.2 Excluded Assets......................................................... 6
2.3 Liabilities to be Assumed............................................... 6
2.4 Excluded Liabilities.................................................... 6
2.5 Sale of Undertaking..................................................... 7
ARTICLE III - PURCHASE PRICE....................................................... 7
3.1 Delivery of Purchase Price.............................................. 7
3.2 Adjustment of Purchase Price............................................ 8
3.3 Additional Adjustment of Purchase Price................................. 8
3.4 Post-Closing Adjustments................................................ 8
ARTICLE IV - CLOSING; CLOSING DELIVERIES........................................... 9
4.1 Closing................................................................. 9
4.2 Seller's Closing Deliveries............................................. 9
4.3 Buyer's Closing Deliveries.............................................. 10
4.4 Prorations at Closing................................................... 10
ARTICLE V - REPRESENTATIONS AND WARRANTIES
OF SELLER AND STOCKHOLDER............................................... 10
5.1 Organization; Qualification............................................. 11
5.2 Authorization........................................................... 11
5.3 Valid and Binding Agreement............................................. 11
5.4 No Violation............................................................ 12
5.5 Consents, Filings....................................................... 12
5.6 Good Title.............................................................. 12
5.7 Financial Statements.................................................... 12
5.8 No Undisclosed Liabilities.............................................. 12
5.9 Events Subsequent to December 31, 1995.................................. 13
5.10 Tangible Assets......................................................... 14
5.11 Supplies................................................................ 14
5.12 Owned Real Property..................................................... 14
5.13 Real Property Leases.................................................... 14
5.14 Customers and Suppliers................................................. 15
5.15 Agreements.............................................................. 16
5.16 Intellectual Property................................................... 17
5.17 Labor Matters........................................................... 17
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
PAGE
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<S> <C> <C>
5.18 Employee Benefit Plans................................................... 19
5.19 Environment, Health and Safety........................................... 19
5.20 Inventories and Accounts Receivable...................................... 20
5.21 Powers of Attorney....................................................... 21
5.22 Guaranties............................................................... 21
5.23 Compliance with Law...................................................... 21
5.24 Taxation................................................................. 21
5.25 Litigation............................................................... 23
5.26 Brokers.................................................................. 23
5.27 Product Warranty......................................................... 23
5.28 Product Liability........................................................ 23
5.29 Disclosure............................................................... 23
5.30 Investment............................................................... 23
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF BUYER................................ 24
6.1 Organization............................................................. 24
6.2 Authorization............................................................ 24
6.3 Valid and Binding Agreement.............................................. 24
6.4 No Violation............................................................. 24
6.5 Consents: Filings........................................................ 24
ARTICLE VII - CERTAIN COVENANTS OF THE PARTIES..................................... 25
7.1 Conduct of Business...................................................... 25
7.2 Access................................................................... 25
7.3 Consents to Assignment................................................... 25
7.4 Advice of Changes........................................................ 26
7.5 Books and Records........................................................ 26
7.6 Mail..................................................................... 26
7.7 Confidentiality.......................................................... 26
7.8 Reasonable Efforts....................................................... 26
7.9 Collection of Retained Receivable........................................ 26
7.10 Standoff Agreement....................................................... 27
7.11 Registration Rights...................................................... 27
7.12 Repatriation of Agreement................................................ 28
ARTICLE VIII - CONDITIONS TO THE OBLIGATIONS OF BUYER............................... 28
8.1 Representations and Warranties........................................... 28
8.2 Performance of Covenants................................................. 28
8.3 No Pending Action........................................................ 28
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
PAGE
----
<S> <C> <C>
8.4 Regulatory Approval...................................................... 29
8.5 Material Adverse Change.................................................. 29
8.6 Removal of Liens......................................................... 29
8.7 Consents................................................................. 29
8.8 Opinion of Counsel....................................................... 29
8.9 Employment Agreement..................................................... 29
8.10 Non-Competition Agreement................................................ 29
8.11 Financing................................................................ 29
8.12 Diligence................................................................ 29
8.13 Leases................................................................... 29
8.14 Closing Certificates..................................................... 29
8.15 Value Added Tax.......................................................... 30
8.16 Employee Plans........................................................... 30
ARTICLE IX - CONDITIONS TO THE OBLIGATIONS OF SELLER................................ 30
9.1 Representations and Warranties........................................... 30
9.2 Performance of Covenants................................................. 30
9.3 No Pending Action........................................................ 30
9.4 Regulatory Approval...................................................... 30
9.5 Closing Certificates..................................................... 30
9.6 Opinion of Counsel....................................................... 31
9.7 Leases................................................................... 31
ARTICLE X - SURVIVAL AND INDEMNIFICATION............................................ 31
10.1 Survival................................................................. 31
10.2 Indemnification of Buyer's Indemnified Persons........................... 31
10.3 Indemnification of Seller's Indemnified Persons.......................... 32
10.4 Escrow Fund.............................................................. 32
10.5 Offset of Payments under Noncompetition Agreement........................ 33
10.6 Limitation of Liability of Seller and Stockholder........................ 33
10.7 No Limitations........................................................... 34
10.8 Assumption and Defense of Third-Party Claims............................. 34
10.9 Notice................................................................... 34
10.10 Cooperation.............................................................. 35
ARTICLE XI - TERMINATION............................................................ 35
11.1 Termination of Agreement................................................. 35
11.2 Effects of Termination................................................... 35
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
PAGE
----
<S> <C> <C>
ARTICLE XII - GENERAL PROVISIONS.................................................... 36
12.1 Amendment and Waiver................................................... 36
12.2 Notices................................................................ 36
12.3 Counterparts........................................................... 37
12.4 Assignment and Succession.............................................. 37
12.5 Further Assurances..................................................... 37
12.6 Entire Transaction..................................................... 37
12.7 Remedies Cumulative.................................................... 37
12.8 Governing Law.......................................................... 38
12.9 Arbitration............................................................ 38
12.10 Attorneys' Fees........................................................ 38
12.11 Headings............................................................... 38
12.12 Expenses............................................................... 38
12.13 No Third-Party Beneficiaries........................................... 38
12.14 Severability........................................................... 39
</TABLE>
EXHIBIT A - NON-COMPETITION AGREEMENT
EXHIBIT B - ESCROW AGREEMENT
EXHIBIT C - OPINION OF TITMUSS SAINER & DECHERT
EXHIBIT D - EMPLOYMENT AGREEMENT
EXHIBIT E - OPINION OF WILSON, SONSINI, GOODRICH & ROSATI
EXHIBIT F - LEASE ASSIGNMENT
EXHIBIT G - VALUE ADDED TAX
ANNEX I - DECEMBER 31 BALANCE SHEETS
ANNEX II - UNAUDITED ACCOUNTS FOR JANUARY AND FEBRUARY 1996
-iv-
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (the "Agreement") is dated as of March
29, 1996 by and among VTEK, Inc., a Nevada corporation ("Buyer") and wholly-
-----
owned subsidiary of Telesensory Corporation, a California corporation
("Parent"), Sensory Systems Ltd., a private company limited by shares
------
incorporated under the laws of England and Wales (the "Seller"), and John
------
Tillisch, the sole stockholder of Seller, (the "Stockholder").
-----------
Seller is engaged in the business directly and through its wholly-owned
subsidiary Teletec Sarl, a company organized and existing under the laws of
France (the "Subsidiary") of distributing and selling products for visually
----------
impaired and blind individuals (the "Business").
--------
Buyer desires to purchase from Seller, and Seller desires to sell to Buyer,
substantially all of the assets relating to the Business, except certain
excluded assets, all as hereinafter more specifically described.
In consideration of the foregoing and the representations, warranties and
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
(a) Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the meaning specific
in this Article I.
"Affiliate" means, with respect to any Person, any other Person who,
---------
directly or indirectly, controls, is controlled by or is under common control
with such Person.
"Assets" has the meaning set forth in Section 2.1.
------
"Assumed Contracts" has the meaning set forth in Section 2.1(g).
-----------------
"Assumed Liabilities" has the meaning set forth in Section 2.3.
-------------------
"Business" has the meaning set forth in the preamble hereto.
--------
"Buyer" has the meaning set forth in the preamble hereto.
-----
"Buyer's Indemnified Persons" has the meaning set forth in Section
---------------------------
10.2.
<PAGE>
"Closing" has the meaning set forth in Section 4.1.
-------
"Closing Date" has the meaning set forth in Section 4.1.
------------
"Confidential Information" means any information concerning the
------------------------
Business other than information that (a) was already known to the Person having
a duty to keep confidential such information on a nonconfidential basis prior to
the time of disclosure, (b) is or becomes generally available to the public
through no act or omission of such Person or (c) becomes available to such
Person on a nonconfidential basis from a source other than any party hereto (or
any agent or representative thereof) if such source was not under a prohibition
against disclosing the information to such Person.
"December 31 Balance Sheets" means the consolidated audited balance
-------------------------
sheets of the Seller and the Subsidiary, dated December 31, 1995 and the audited
balance sheet of the Seller dated December 31, 1995, copies of which, together
with the other Financial Statements, are attached hereto as Annex I. When
-------
reference is made in this Agreement to any asset or liability being "set forth
on the face of the December 31 Balance Sheets," such reference shall mean that
the asset or liability is taken into account in the information set forth on the
face of the December 31 Balance Sheets and does not mean that there necessarily
is a separate line item for that asset or liability on the December 31 Balance
Sheets.
"Employees" has the meaning set forth in Section 5.17.
---------
"Environmental, Health and Safety Requirements" has the meaning set
---------------------------------------------
forth in Section 5.19.
"Excluded Assets" has the meaning set forth in Section 2.2.
---------------
"Expiration Date" means (i) with respect to the representations and
---------------
warranties in Sections 5.19 and 5.24, four years from the Closing Date, (ii)
with respect to the representations and warranties in Sections 5.1 through 5.4
and 6.1 through 6.4, six years from the Closing Date, and (iii) with respect to
all other representations and warranties in this Agreement, one year from the
Closing Date.
"Financial Statements" means the December 31 Balance Sheets and the
--------------------
unaudited balance sheets for the months ended January and February, 1996 and the
related unaudited income statements for the months ended January and February,
1996, copies of which are attached as Annex II.
"GAAP" means generally accepted accounting principles as
----
consistently applied in the United Kingdom (or France with respect to the
Subsidiary) as in effect from time to time.
"Governmental Agency" means any local, foreign or other governmental
-------------------
agency, instrumentality, commission, authority, board or body.
"Hazardous Materials" means pollutants, contaminants and chemical,
-------------------
industrial and hazardous materials and waste, and shall include, but not be
limited to, all substances regulated under Environmental, Health and Safety
Requirements.
-2-
<PAGE>
"Intellectual Property" means all inventions (whether patentable or
---------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, patent disclosures and inventions; all
mask works; all trademarks, service marks, trade dress, logos, trade names and
corporate names, together with all translations, adaptations, derivations and
combinations thereof, and all goodwill associated therewith; all copyright works
and all copyrights; all applications, registrations, applications and renewals
for any of the foregoing; all trade secrets, confidential business information,
ideas, know-how, production processes and techniques, research information,
drawings, specifications, designs, plans, improvements, technical and computer
data, documentation and computer software, financial, business and marketing
plans, customer and supplier lists and related information and all other
proprietary rights; and all copies and tangible embodiments of the foregoing.
"Intercompany Payables" means any Liability owed by the Seller or
---------------------
any of its Affiliates to the Buyer or Parent and any Liability owed by
Subsidiary to Seller.
"Liability" means any liability or obligation (whether known or
---------
unknown, absolute or contingent, liquidated or unliquidated or due or to become
due), including any liability for Taxes.
"Lien" means any lien, mortgage, pledge, security interest,
----
restriction, charge or other similar encumbrances.
"Losses" has the meaning set forth in Section 10.2.
------
"Material Adverse Change" means any material adverse change in the
-----------------------
business, financial condition or results of operations of the Seller relating to
the Business or the prospects or customer or supplier relations of the Seller
relating to the Business taken as a whole, including, without limitation, any
material adverse legislation or rule making.
"Material Adverse Effect" means any material adverse effect on the
-----------------------
Assets, business, financial condition or results of operations of the Seller
relating to the Business or the prospects or customer or supplier relations of
the Seller relating to the Business.
"Non-Competition Agreement" means the Non-Competition Agreement
-------------------------
between John Tillisch and Buyer, dated March 29, 1996, substantially in the form
attached hereto as Exhibit A.
---------
"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past practice (including with respect to quantity, quality and
frequency).
"Permitted Liens" means liens or charges arising by operation of law
---------------
in the Ordinary Course of Business.
"Person" means any individual, partnership, joint venture,
------
corporation, trust, unincorporated organization or other entity.
"Property" has the meaning set forth in Section 5.13.
--------
-3-
<PAGE>
"Purchase Price" has the meaning set forth in Section 3.1.
--------------
"Retained Payables" means all of the accounts payable of the Seller,
-----------------
except any payables due from Seller to Parent but including, without limitation,
United Kingdom Corporation Tax and Value Added Tax ("VAT").
"Retained Receivables" means all of the accounts receivable of the
--------------------
Seller, except any accounts receivable of Seller arising from an Intercompany
Payable.
"Returns" has the meaning set forth in Section 5.24.
-------
"Securities Act" means the United States Securities Act of 1933, as
--------------
amended.
"Seller" has the meaning set forth in the preamble hereto.
------
"Seller's Indemnified Persons" has the meaning set forth in Section
----------------------------
11.3.
"Shares" has the meaning set forth in Section 3.1.
------
"Subsidiary" has the meaning set forth in the preamble hereto.
----------
"Tax," "Taxation" or "Taxes" has the meaning set forth in Section
--- -------- -----
5.24.
"Third-Party Claim" has the meaning set forth in Section 10.5(a).
-----------------
"Tangible Net Worth of Seller" means the consolidated aggregate
----------------------------
assets of Seller, less the consolidated aggregate liabilities, excluding (i) any
intangibles such as goodwill and (ii) the book value or investment value of the
shares of the Subsidiary. In calculating the Tangible Net Worth of Seller,
inventory shall be valued at the lower of cost or market value, using Seller's
and Subsidiary's historical methods of valuation, which exclude shipping costs
and import duty as a component of inventory cost and which shall be interpreted
to reduce to zero value any items which do not represent current product lines
and in the opinion of Buyer (i) cannot reasonably be expected to be sold within
six months for a positive margin contribution or (ii) which do not otherwise
provide a reasonable opportunity to realize the stated value within six months.
Office equipment, furnishings and similar tangible assets shall be valued at
their stated net book value, including depreciation as if such depreciation has
been taken in accordance with GAAP. To be included in such valuation, each
tangible asset must be physically located and identified to the satisfaction of
Buyer.
(b) The words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
article, section or other subdivision of this Agreement.
-4-
<PAGE>
(c) Except where the context otherwise requires, where reference in
this Agreement, and in any document, certificate, annex, schedule or exhibit
delivered by Seller or on its behalf to Buyer pursuant to this Agreement, is
made to any United Kingdom statutory provisions (including subsidiary
legislation) or any principle or procedure of or under English law or equity in
relation to any statement concerning, or any matter or thing required to be done
or document signed, executed and/or delivered by or on behalf of or in relation
to, any corporation that is not incorporated in England and Wales, such
reference shall be deemed to be made to the provision, principle or procedure of
the jurisdiction of incorporation of the corporation that corresponds most
closely or is similar in effect to the relevant provision, principle or practice
of English law and equity.
ARTICLE II
PURCHASE OF ASSETS; ASSUMPTION OF LIABILITIES
2.1 Assets to be Purchased. On the terms and subject to the conditions
----------------------
of this Agreement, at the Closing, Seller shall sell, convey, assign, transfer
and deliver to Buyer all of its right, title and interest in and to all of the
assets (tangible and intangible) relating to the Business including all assets
as set forth on the December 31 Balance Sheets and not disposed of in the
Ordinary Course of Business since that date and all other assets acquired by
Seller relating to the Business after the date of the December 31 Balance Sheets
up to the Closing (the "Assets"), other than the Excluded Assets (as defined
------
below), including, without limitation, all:
(a) real property, leaseholds and subleaseholds listed on Schedule
2.1 (including all fixtures and improvements);
(b) all of the outstanding shares in the Subsidiary;
(c) machinery, equipment, inventory, supplies, vehicles and other
tangible personal property;
(d) client records and information;
(e) advertising and promotional materials and other printed matter;
(f) files, books and records and data (in whatever form);
(g) agreements to which Seller is a party that are not fully
performed as of the Closing Date and which are set forth on Schedule 5.15
attached hereto (the "Assumed Contracts");
-----------------
(h) licenses, permits and authorizations which are transferable or
salable under English law;
(i) Intellectual Property;
-5-
<PAGE>
(j) rights of Seller in Intellectual Property under employment and
consulting agreements to which Seller is a party;
(k) goodwill as a going concern; and
(l) intercompany receivables from Subsidiary.
2.2 Excluded Assets. The following assets (the "Excluded Assets")
--------------- ---------------
relating to the Business shall be excluded from the Assets:
(a) the rights of Seller to tax and other refunds and tax and other
credits or rebates associated with the Business relating to the period prior to
the Closing;
(b) the rights of Seller under this Agreement and the other
agreements, documents and instruments to be executed pursuant hereto;
(c) bank accounts, credit cards, cash and cash equivalents; and
(d) all rights to the Retained Receivables.
2.3 Liabilities to be Assumed. Except as set forth in Section 2.4,
-------------------------
on the terms and subject to the conditions of this Agreement, at the Closing,
Buyer without further action or the execution of any other instruments, shall
assume and shall perform, pay or discharge, as the same shall become due, the
following Liabilities (the "Assumed Liabilities") relating to the Business:
---------------------
(a) Liabilities of Seller and Subsidiary arising from or relating
to the conduct of the Business after the Closing Date;
(b) Liabilities under the Assumed Contracts arising on or after the
Closing Date; and
(c) Intercompany Payables; and
(d) All liabilities that are economically measurable and are
reflected on the Closing Balance Sheet of the Subsidiary.
2.4 Excluded Liabilities. Seller shall retain (and Buyer shall not
--------------------
assume or agree to perform, pay or discharge) all Liabilities of Seller and
Subsidiary, whether or not related to the Business or Assets, other than the
Assumed Liabilities (the "Excluded Liabilities"), including, without limitation,
--------------------
the following Liabilities:
(a) Liabilities of Seller and Subsidiary arising from or relating
to the conduct of the Business prior to the Closing (including, without
limitation, all Retained Payables and Liabilities for Taxes of Seller and
Subsidiary) except to the extent assumed specifically under this Agreement in
Section 2.3;
-6-
<PAGE>
(b) Liabilities for any employee benefits extended by Seller or
Subsidiary to or with respect to current or former employees of Seller and/or
the Subsidiary, including special benefits for particular employees of the
Business, arising from or relating to the conduct of the Business prior to the
Closing;
(c) any Liability of Seller or Subsidiary arising under
Environmental, Health and Safety Requirements (i) with respect to the Business
based on any transaction, status, event, condition, occurrence or situation
existing, arising, or occurring at any time on or prior to the Closing,
including, without limitation, any Liability relating in any way (A) to the
presence of Hazardous Materials at, on, in or under any real property owned,
operated or used by Seller or Subsidiary at any time prior to the Closing, or
the migration of Hazardous Materials under or from the any real property owned,
operated or used by Seller at any time prior to the Closing and (B) the offsite
treatment, storage, disposal or other disposition of Hazardous Materials
generated by Seller or Subsidiary in connection with the Business or (ii)
whenever arising with respect to (A) any assets, property or operations of
Seller or Subsidiary other than the Business and the Assets; or (B) any assets
or property formerly owned, operated or used by Seller or Subsidiary; and
(d) any Liability arising from the conduct of the Business prior to
the Closing with respect to the misappropriation or infringement by the Seller
or Subsidiary of any patent or other Intellectual Property of any third party.
2.5 Sale of Undertaking. The parties acknowledge that the transfer
-------------------
of the Assets pursuant to this Agreement constitutes a relevant transfer of the
undertaking of the Business for the purposes of the UK Transfer of Undertakings
(Protection of Employment) Regulations 1981, as amended, and accordingly, the
Seller and the Stockholder agree to use all reasonable efforts to assist in the
transfer of the employment of the employees under the Business to the employment
of the Buyer or such other UK Affiliate to which the Assets may be transferred
at or following Closing.
ARTICLE III
PURCHASE PRICE
3.1 Delivery of Purchase Price. In consideration for the Assets, at
--------------------------
the Closing, Buyer shall pay and deliver to Buyer's attorney, prior to Closing
and for the benefit of Seller at Closing, good funds in the amount of one
million two hundred ninety thousand British pounds ((Pounds)1,290,000), subject
to adjustment as set forth in Sections 3.2 and 3.3 below and Buyer shall deliver
to the Escrow Agent for deposit into an escrow account on behalf of Seller a
certificate representing 100,000 shares of the Common Stock of Parent (the
"Shares") issued in the Seller's name. The Shares shall be placed in the Escrow
Account as partial security for the indemnity obligations set forth in Section
10.2 below, and will be governed by an Escrow Agreement substantially in the
form of Exhibit B attached hereto. The amount to be paid for the Assets
---------
pursuant to this Section 3.1 is referred to herein as the "Purchase Price".
--------------
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3.2 Adjustment of Purchase Price. Not less than 48 hours prior to
----------------------------
the Closing, Seller shall deliver to Buyer Seller's good faith estimate of the
amount of the Seller's cash and cash equivalents, Intercompany Payables,
Retained Payables and Retained Receivables (the "Closing Estimate"). The cash
----------------
portion of the Purchase Price payable by Seller pursuant to Section 3.1 shall be
adjusted by the following (collectively referred to as the Purchase Price
Adjustment Items):
(a) decreased by the aggregate amount of cash and cash equivalents
owned by the Seller at the time of the Closing;
(b) increased by the aggregate amount of Retained Payables existing
at the Closing; and
(c) decreased by the aggregate amount of Retained Receivables
existing at the Closing;
(d) decreased by the amount for both Seller and Subsidiary of all
accrued but unpaid vacation owed to employees, the warranty reserve expense for
previously-delivered goods (as agreed by the parties in the Closing Balance
Sheet and thereafter to not be the subject of any further adjustment based on
actual experience), and unearned revenue from service contracts.
(e) increased by the duties and shipping costs associated with
goods in stock of Seller and Subsidiary at the Closing and actually paid by
Seller and Subsidiary.
3.3 Additional Adjustment of Purchase Price. After adjusting the
---------------------------------------
Purchase Price as set forth in Section 3.2, the Purchase Price shall be further
increased or decreased by the amount by which the Tangible Net Worth of Seller
at the Closing is greater than or less than (Pounds)731,500.
3.4 Post-Closing Adjustments. Within 45 days after the Closing Date,
------------------------
Buyer shall deliver to Seller a report (the "Adjustment Report") setting forth
-----------------
any adjustments in the Closing Estimate and a balance sheet setting forth any
adjustment in the Tangible Net Worth of Seller (the "Closing Date Balance
--------------------
Sheet"). The Closing Date Balance Sheet shall be prepared in accordance with
GAAP, but shall be unaudited. During the period from the Closing Date until the
date of agreement or determination of the Adjustment Report and the Closing Date
Balance Sheet and during the period of any dispute within the contemplation of
Section 3.4(a), Buyer shall provide Seller and its advisors reasonable access,
during normal business hours, to the assets, books, records, facilities and
employees of Buyer and shall cooperate with Seller in order to enable Seller to
review the preparation of the Adjustment Report and the Closing Date Balance
Sheet or to investigate the basis for any such dispute.
(a)(i) Seller shall have a period of fifteen business days after
its receipt of the Adjustment Report and the Closing Date Balance Sheet to
dispute any amounts reflected thereon if such disputed amounts would in the
aggregate affect the Purchase Price by more than (Pounds)5,000; provided, that
Seller shall notify Buyer in writing of each disputed item in reasonable detail
and shall specify the amount thereof in dispute within such fifteen business-
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day period. If no objections are raised within such fifteen business-day period,
the Adjustment Report and the Closing Date Balance Sheet shall be final, binding
and conclusive upon all of the parties hereto.
(ii) In the event of any such dispute, Buyer and Seller
shall attempt to resolve the matter or matters in dispute and, if resolved as to
any disputed amounts, such resolution shall be final, binding and conclusive on
all of the parties hereto. If any such resolution by Buyer and Seller leaves in
dispute amounts, not in excess of (Pounds)5,000 in the aggregate, all such
amounts remaining in dispute shall then be deemed to have been resolved in favor
of the Adjustment Report and the Closing Date Balance Sheet as delivered by
Buyer to Seller.
(iii) If such dispute cannot be resolved by Buyer and
Seller within fifteen business days of the written notice of dispute delivered
under Section 3.4(a)(i), then the specific matters in dispute shall be promptly
submitted by Buyer to a firm of independent public accountants of national
reputation in the United Kingdom selected by Buyer and reasonably acceptable to
Seller (the "Independent Accounting Firm" ), which firm shall make a final
determination as to such matter or matters. The Independent Accounting Firm
shall send its written determination to both Buyer and Seller within fifteen
days of such submission. The fees and disbursements of the Independent
Accounting Firm shall be allocated between Buyer, on the one hand, and Seller,
on the other, in the same proportion that the aggregate amount of such remaining
disputed items so submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each (as finally determined by the Independent
Accounting Firm) bears to the total amount of such remaining disputed items so
submitted.
(iv) Buyer and Seller agree to cooperate with each other
and each other's representatives and with the Independent Accounting Firm
pursuant to Section 3.4(a)(iii) in order that any and all matters in dispute
shall be resolved as soon as is practicable.
(b) Within three (3) business days after the Adjustment Report and
the Closing Date Balance Sheets become final, Buyer shall pay Seller the
aggregate amount by which the Purchase Price is increased thereby or Seller
shall pay Buyer the aggregate amount by which the Purchase Price is decreased
thereby.
ARTICLE IV
CLOSING; CLOSING DELIVERIES
4.1 Closing. The closing of the transactions contemplated by this
-------
Agreement (the "Closing") shall take place at the offices of Wilson, Sonsini,
-------
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California at 7:00 a.m. on
March 29, 1996 or at such other time and date as shall be agreed to by the
parties hereto (the "Closing Date").
------------
4.2 Seller's Closing Deliveries. At the Closing, Seller covenants and
---------------------------
agrees to deliver to Buyer the following:
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(a) duly executed instruments of assignment of all Intellectual
Property of Seller included in the Assets, in form and substance satisfactory to
Buyer; and
(b) duly executed instruments of assignment of all of the shares of
Subsidiary, in form and substance satisfactory to Buyer;
(c) such other documents and instruments as may be reasonably
necessary to transfer the Assets to Buyer and otherwise to carry out the
transactions contemplated by this Agreement and to comply with the terms hereof,
in form and substance reasonably satisfactory to Buyer.
In the case of Assets, title to which is capable of transfer by delivery,
title to all of such Assets shall pass to Buyer at Closing and delivery shall be
deemed to take place at the properties where the Assets shall be used or stored,
where applicable.
4.3 Buyer's Closing Deliveries. At the Closing, Buyer covenants and
--------------------------
agrees to deliver to the Escrow Agent the certificate referred to in Section 3.1
and to the Seller or its solicitors or attorneys:
(a) the Purchase Price in accordance with Section 3.1;
(b) such other documents and instruments as may be reasonably
necessary to carry out the transactions contemplated by this Agreement and to
comply with the terms hereof, in form and substance reasonably satisfactory to
Seller.
4.4 Prorations at Closing. Prepayments made by Seller in relation to
---------------------
the Business, and charges for rent, license and lease payments for real and
personal property included in the Assets, water, sewer, disposal and garbage,
gas, electricity, telephone, license and permit fees, remuneration of employees
and other operating expenses of the Business shall be prorated as of the Closing
Date so that Seller will bear the portion of all such charges attributable to
any period through the Closing Date, and Buyer shall bear all such charges
attributable to the period after the Closing Date. Seller and Buyer shall each
cooperate with each other diligently and promptly to correct any errors in
proration computations or estimates after the Closing Date and shall promptly
pay to the party entitled thereto any refund, credit or other payment necessary
to comply with the requirements of this Section 4.4.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SELLER AND STOCKHOLDER
Subject to the exceptions set forth in the disclosure schedule
attached to this Agreement (the "Disclosure Schedule"), Seller and Stockholder
hereby jointly and severally represent and warrant to Buyer as at the Closing
Date as hereinafter provided in this Article V. Matters disclosed in the
Disclosure Schedule shall be deemed to qualify only the specific representation
and warranty referred to by section therein and herein, but matters disclosed in
subsections of the Disclosure Schedule shall be deemed responsive to all matters
referred to within that section. All representations and warranties in
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this Article V with reference to Seller shall be deemed to refer, in addition,
to the Subsidiary, except for the references to Seller appearing in Sections
5.1(a), 5.1(b), 5.2, 5.3 and 5.7.
5.1 Organization; Qualification.
---------------------------
(a) Seller is a private company limited by shares duly incorporated
and validly existing under and by virtue of the laws of England and Wales. The
Seller has the corporate power and authority to own or lease the assets owned or
leased by it and to carry on its business as currently conducted. Stockholder is
the sole stockholder of Seller.
(b) Seller is duly qualified to do business as a foreign
corporation in each jurisdiction where the nature of its activities or where the
character of its properties makes such qualification or licensing necessary.
(c) Seller has no subsidiaries or affiliates (other than
Stockholder) and does not own, directly or indirectly, any capital stock or
other equity interest in any corporation, partnership, joint venture or other
entity except for the Subsidiary, which is wholly-owned. Subsidiary is a
corporation duly organized and validly existing under the laws of France and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Subsidiary
is qualified or licensed to conduct its business in each jurisdiction where it
conducts its business.
(d) Except as set forth in the Disclosure Schedule, Subsidiary is
treated as a resident for Taxation purposes in the United Kingdom and not in any
other jurisdiction and carries on its part of the Business in the United Kingdom
and not in any other jurisdiction.
5.2 Authorization. Each of Seller and Stockholder has the power and
-------------
authority to enter into this Agreement and the other agreements, documents and
instruments to be executed and delivered by each of them pursuant hereto and to
carry out the transactions contemplated hereby and thereby. The board of
directors and stockholders of Seller have duly authorized the execution and
delivery of this Agreement and the other agreements, documents and instruments
to be executed and delivered by it pursuant hereto and the consummation by it of
the transactions contemplated hereby and thereby. No further corporate or other
proceedings on the part of Seller or Stockholder is necessary to authorize this
Agreement or the other agreements, documents and instruments to be executed and
delivered by Seller and Stockholder pursuant hereto or the transactions
contemplated hereby or thereby.
5.3 Valid and Binding Agreement. When executed and delivered, this
---------------------------
Agreement and each of the other agreements, documents and instruments to be
executed and delivered by Seller or Stockholder pursuant hereto will constitute
valid and binding agreements of Seller or Stockholder, enforceable against them
in accordance with their terms, subject, as to enforcement, (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights and (ii) to general
principles of equity, whether such enforceability is considered in a proceeding
in equity or at law.
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5.4 No Violation. Except as set forth on the Disclosure Schedule or,
------------
in the case of clauses (b) and (c) which would not, individually or in the
aggregate, have a Material Adverse Effect, neither the execution and delivery of
this Agreement or the other agreements, documents and instruments to be executed
and delivered by Seller or Stockholder pursuant hereto nor the consummation by
Seller and Stockholder of the transactions contemplated hereby or thereby will
(a) violate any provision of the Seller's Memorandum of Association and Articles
of Association (or similar governing instruments), (b) violate or conflict with
any applicable statute, law, ordinance, rule, regulation, order, judgment or
decree or (c) violate, conflict with, constitute a default (or an event which,
with notice or lapse of time, would constitute a default) under, result in the
termination of, accelerate the performance required by or result in the creation
of any Lien upon any of the Assets under, any contract, commitment,
understanding, arrangement, agreement or restriction of any kind to which
Seller, Stockholder or any of the Assets is subject or by which Seller or
Stockholder are bound.
5.5 Consents, Filings. Except as set forth on the Disclosure Schedule,
-----------------
no registration or filing with, or consent, approval, permit, authorization or
action of, any third party (including any Governmental Agency or other Person)
is required in connection with the execution and delivery by Seller and
Stockholder, or each of them, of this Agreement or the other agreements,
documents and instruments to be executed and delivered by Seller or Stockholder
pursuant hereto or the consummation by Seller and Stockholder, or each of them,
of the transactions contemplated hereby or thereby.
5.6 Good Title. Except as set forth on the Disclosure Schedule,
----------
Seller has the unrestricted and unqualified power and right to sell, convey,
transfer, assign and deliver to Buyer the Assets, (excluding for the purpose of
this Section 5.6 the leasehold interest in real property which is being assigned
pursuant to the agreement set out in Exhibit F which agreement governs matters
---------
of title as is expressly incorporated in this Section 5) free and clear of any
and all Liens other than Permitted Liens. The instruments of assignment and
transfer provided for in Section 4.2, when executed and delivered by Seller at
the Closing, will constitute valid and binding obligations of Seller and will
vest in Buyer (a) good, valid and marketable title to the Assets (other than
rights to Assumed Contracts) and (b) subject to Section 7.3, all rights of
Seller under such Assumed Contracts. Upon consummation of the transactions
contemplated by this Agreement, Buyer shall, subject to Section 5.16, hold or
have appropriate right to use all assets (including contracts), property, real
and personal, used or held for use by the Business immediately prior to the
transactions contemplated herein or otherwise necessary for the conduct of the
Business as was conducted by Seller immediately prior to the execution of this
Agreement, including the assets which are reflected on the December 31 Balance
Sheets other than those disposed of in the Ordinary Course of Business since
that date and other than the Excluded Assets or as contemplated in Section 7.3.
5.7 Financial Statements. Except as set forth on the Disclosure
--------------------
Schedule, the Financial Statements present a true and fair view of the assets,
liabilities, financial condition and results of operations of Seller and
Subsidiary relating to the Business for the periods ended and as of the dates
indicated and have been prepared in accordance with GAAP as applicable to Seller
and Subsidiary.
5.8 No Undisclosed Liabilities. Seller has no Liabilities relating
--------------------------
to the Business required to be disclosed in financial statements prepared in
accordance with GAAP consistently applied except (a) as
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and to the extent of the amounts reflected or reserved against on the December
31 Balance Sheets or as set forth on the Disclosure Schedule and (b) Liabilities
incurred in the Ordinary Course of Business since the date thereof and, except
as set forth on the Disclosure Schedule, Seller has no other Liabilities
relating to the Business.
5.9 Events Subsequent to December 31, 1995. Except as set forth on
--------------------------------------
the Disclosure Schedule or except to the extent not material to the Business,
since December 31, 1995, Seller has not, in relation to the Business:
(a) suffered any Material Adverse Change;
(b) incurred any Liabilities other than current Liabilities
incurred, or obligations under contracts entered into, in the Ordinary Course of
Business;
(c) paid, discharged or satisfied any claim, Lien or Liability,
other than any claim, Lien or Liability (i) reflected or reserved against on the
December 31 Balance Sheets and paid, discharged or satisfied in the Ordinary
Course of Business since December 31, 1995 or (ii) incurred and paid, discharged
or satisfied since December 31, 1995, in each case in the Ordinary Course of
Business;
(d) sold, leased, licensed, assigned or otherwise transferred any
of its assets, tangible or intangible, or allowed any contract right to lapse
other than in the Ordinary Course of Business;
(e) permitted any of its assets, tangible or intangible, to become
subject to any Lien (other than any Permitted Lien);
(f) written off as uncollectible any accounts receivable other than
in the Ordinary Course of Business and for amounts not greater than
(Pounds)20,000;
(g) terminated or amended, suffered the termination or amendment
of, failed to perform all of its obligations or suffered or permitted any
default to exist under, any agreement, license or permit;
(h) suffered any damage, destruction or loss of tangible property,
whether or not covered by insurance, which in the aggregate exceeds
(Pounds)20,000;
(i) made any loan, including any intercompany advance, to any other
Person other than advances to employees in the Ordinary Course of Business which
do not exceed (Pounds)1,000 individually or (Pounds)5,000 in the aggregate;
(j) canceled, waived or released any debt, claim or right in an
amount exceeding (Pounds)5,000 or otherwise of substantial value;
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<PAGE>
(k) paid any amount to or entered into any agreement, arrangement
or transaction with any Affiliate in excess of (Pounds)5,000 (other than the
Subsidiary in the ordinary and proper course of business);
(l) entered into any transaction with any of its officers or
employees of the Business outside the Ordinary Course of Business;
(m) granted any increase in the compensation of any officer or
employee of the Business or made any other change in employment terms of any
officer or employee of the Business;
(n) suffered any labor difficulty;
(o) made any change in any method of accounting or accounting
practice;
(p) suffered or caused any other occurrence, event or transaction
outside the Ordinary Course of Business which could have a Material Adverse
Effect; or
(q) agreed, in writing or otherwise, to any of the foregoing.
5.10 Tangible Assets. Seller owns or leases all tangible assets used
---------------
or necessary in connection with the conduct of the Business. The tangible assets
are free from any Liens (other than Permitted Liens) and have been maintained in
accordance with industry practice and any regulatory standard or procedure to
which they are subject, are in good operating condition and repair (subject to
normal wear and tear) and are suitable for the purposes for which they are used.
5.11 Supplies. All supplies of Seller relating to the Business,
--------
whether reflected on the December 31 Balance Sheets or otherwise, consist of a
quality and quantity usable in the Ordinary Course of Business. The quantities
of all supplies of Seller are reasonable in the present circumstances of the
Business.
5.12 Owned Real Property. Except as set forth on the Disclosure
-------------------
Schedule, Seller does not own any real property relating to the Business.
5.13 Real Property Leases. Set forth on Schedule 5.13 is a list of
--------------------
all agreements pursuant to which real property relating to the Business (the
"Properties") is leased to Seller (a copy of each of which has been delivered to
- -----------
Buyer).
(a) All covenants, obligations, restrictions and conditions
affecting the Properties have been observed and performed by the Seller in all
material respects and all outgoings have been duly paid.
(b) No notice, action or proceedings affecting the Properties
adversely has been served or commenced by any person and there are no
circumstances which are likely to result in any such notice, action or
proceedings being served or commenced.
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<PAGE>
(c) The Properties comply (as to buildings and use) in all material
respects with the applicable provisions of the Town and Country Planning Acts,
and with all statutory and by-law requirements as to fire precautions, public
health and the health and safety of those who work in or about them.
(d) Neither the Properties nor Seller (i) are subject to any
covenants, obligations, restrictions or conditions which are of an unusual or
onerous nature or which would affect the use or continued use of the Properties
for the purposes for and the extent to or the manner in which it is now used;
(ii) enjoy any right, easement or privilege the continued existence of which is
doubtful or uncertain and the withdrawal or cessation of which would affect the
use or continued use of the Properties for the purposes for or the extent to or
the manner in which it is now used; (iii) is affected by any of the following
matters: (a) any closing order, demolition order or clearance order, (b) any
planning application submitted prior to or after the date of this Agreement, (c)
any enforcement notice which has not been complied with, (d) any compensation
received upon a refusal of any planning consent or the imposition of
restrictions on or the modification or withdrawal of any such consent, (e) any
order or proposal publicly advertised or of which written notice has been
received for the compulsory acquisition or requisition of the whole or any part
thereof or the modification of any planning permission or the discontinuance of
any use or the removal of any building, or (f) any agreement with any planning
authority, statutory undertaker or other public body or authority regulating the
use or development thereof; or (iv) requires a right, easement or privilege to
operate the Business efficiently which Seller does not have in full and
unencumbered.
(e) Seller is entitled to rights of way and rights for the supply
of services sufficient for the present use of the Properties.
(f) Seller is not under any immediate or prospective liability
certain or contingent as a result of notices under Section 25 or 26(6) of the
Landlord and Tenant Act 1954 in respect of any past or continuing tenancy of the
Properties or as a result of improvements made to the Properties by any tenant
or undertenant thereof to pay any compensation under Section 1 of the Landlord
and Tenant Act 1927 and Seller has not received any notice under Section 3(d) of
that Act.
(g) None of the Properties are affected by or subject to and Seller
is not liable for any surcharge imposed under the Local Government Act 1974
which has been (or could be) entered in the Local Land Charges Register.
(h) The particulars of the Properties specified in Schedule 5.13
are true, complete and accurate in all respects.
(i) Seller occupies and uses the Properties set forth in Schedule
5.13 for the purpose of conducting the Business only and has quiet enjoyment
thereof.
5.14 Customers and Suppliers. Set forth on Schedule 5.14 is a list of
-----------------------
the names and addresses of all of the customers of Seller relating to the
Business since January 1, 1996 and all of the suppliers to Seller relating to
the Business of supplies and equipment since January 1, 1996. Except as set
forth on
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<PAGE>
the Disclosure Schedule, there has not been any termination, cancellation, or
material adverse limitation, modification or change in the business relationship
of Seller with any such customer or supplier, and the Stockholder and Seller are
unaware of any threatened loss of any such customer or supplier.
5.15 Agreements.
----------
(a) Set forth on Schedule 5.15(a) is a list of certain Assumed
Contracts other than purchase orders (a copy of each listed Assumed Contract or,
if oral, a full description of the terms of which has been delivered in writing
to Buyer), specifically those:
(i) for the lease of personal property from or to third
parties providing for annual lease payments to any single lessor or
from any single lessee in excess of (Pounds)5,000;
(ii) for the purchase or sale of supplies, products or other
personal property or for the furnishing or receipt of information or
services, in each case calling for performance over a period of more
than one year or involving more than (Pounds)5,000;
(iii) under which it has created, incurred, assumed or
guaranteed (or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) involving more than
(Pounds)5,000 or pursuant to which a Lien is or may be imposed on any
of its assets, tangible or intangible;
(iv) otherwise involving turnover of more than (Pounds)5,000
and not entered into in the Ordinary Course of Business;
(v) which are material to the Business and either concern
any partnership or joint venture, confidentiality or noncompetition;
(vi) with any officer or employee which involve employment or
severance;
(vii) otherwise material to the Business.
(b) Except as set forth on the Disclosure Schedule, Seller is not
in default, and there is no basis for any valid claim of default, and no event
has occurred which, with notice or lapse of time, would constitute a default
under any agreement, arrangement or understanding relating to the Business set
forth on Schedule 5.15(a) and, except as set forth on the Disclosure Schedule in
respect of any default which could have a Material Adverse Effect, no other
Person is in default under any such agreement relating to the Business. No
defaults set forth on Schedule 5.15(b), either individually or in the aggregate,
could have a Material Adverse Effect.
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5.16 Intellectual Property.
---------------------
(a) Set forth on Schedule 5.16(a) is a list of all (i) patented and
registered Intellectual Property and pending patent applications and
applications for the registration of Intellectual Property, in each case owned
by Seller relating to the Business; (ii) trade or corporate names used by Seller
relating to the Business; (iii) material computer software and material third
party databases created or used by Seller relating to the Business; (iv)
material unregistered trademarks and copyrights owned or used by Seller relating
to the Business; and (v) licenses and other rights granted by Seller to any
third party or material licenses granted by any third party to Seller, in each
case with respect to Intellectual Property relating to the Business.
(b) Except as set forth on the Disclosure Schedule, (i) Seller owns
all right, title and interest in or has a valid license from a third party to
use all Intellectual Property necessary for the operation of the Business as
currently conducted, free and clear of any Liens or adverse claims; (iii) no
claim by any third party contesting the validity, enforceability, ownership or
use of any of the Intellectual Property owned or used by Seller relating to the
Business has been made, is currently outstanding or is threatened, and there are
no grounds for the same; (iii) no loss or expiration of any individual
Intellectual Property right or related group of Intellectual Property rights
owed or used by Seller relating to the Business is threatened, pending or
foreseeable; (iv) Seller has not received any notice of, and is not aware of any
facts which indicate a likelihood of, any infringement or misappropriation by,
or conflict with, any third party with respect to the Intellectual Property
owned or used by Seller relating to the Business; (v) Seller has not infringed,
misappropriated or otherwise conflicted with any Intellectual Property of any
third party nor received any claims of such infringement, misappropriation or
conflict from a third party, and Seller is not aware of any infringement,
misappropriation or conflict which will occur as a result of the continued
operation of the Business as currently conducted; (vi) subject only to the
filing, if appropriate, by Buyer, of the documents set forth in Section 4.2(b),
all Intellectual Property owned or used by Seller relating to the Business
immediately prior to the Closing will be owned or available for use by Buyer
immediately following the Closing; and (vii) Seller has taken all reasonably
necessary action to maintain and protect the Intellectual Property relating to
the Business owned or used by it and will continue to maintain and protect such
Intellectual Property prior to the Closing so as not to affect adversely the
validity or enforceability of such Intellectual Property.
5.17 Labor Matters.
-------------
(a) The employees set forth on Schedule 5.17 (the "Employees") are
all the employees of the Seller as of the Closing and the names, current weekly
wage and other emoluments, date of birth, the date of commencement of the
respective periods deemed to be their period of continuous employment with the
Seller and job descriptions of the Employees are as set out in the Schedule
5.17.
(b) Schedule 5.17 also includes full details of all employee share
schemes, employee share option schemes, profit-related pay schemes or other
employee benefit schemes of any kind of the Seller now in force or capable of
being in force, and there are no other such schemes.
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(c) There is no liability whatsoever (whether legally binding or
not) to make any payment to or for the benefit of any of the Employees or the
husband, wife, widower or widow or any other relative of any of the Employees in
respect of past service or the termination of the employment of that or any
other person by way of pension, contribution, pension retirement benefit or
otherwise, and the Seller has no superannuation fund, retirement benefit or
other pension schemes or arrangements to provide benefits to past or present
employees or directors (or their dependants) by reason of retirement, death,
disability or sickness or otherwise.
(d) No assurances or undertakings (whether legally binding or not)
have been given to any of the Employees as to the continuance or introduction or
increase or improvement of any retirement, death, sickness or disability scheme.
(e) There is no outstanding commitment (whether legally binding or
not) to increase the remuneration of any Employee.
(f) All contracts of service or consultancy or for services with
directors or employees or consultants or independent contractors providing the
services of individual personnel of the Seller can be terminated by three
months' notice or less without giving rise to any claim for damages or
compensation (other than a statutory redundancy payment or statutory
compensation for unfair dismissal, if applicable).
(g) Except where any provision or allowance is made in the
December 31 Balance Sheets:
(i) no liability (actual or contingent) has been incurred by
the Seller in the twelve (12) months prior to the Closing
for breach of any contract of service or consultancy, for
redundancy payments (including protective awards), for
compensation for wrongful dismissal or unfair dismissal
or loss of office or for failure to comply with any order
for the reinstatement or re-engagement of any officer or
employee; and
(ii) no payment has been made or promised by the Seller in
connection with the termination, suspension or variation
of any contract of service or consultancy or for services
of any present or former officer or employee.
(h) The Seller has in relation to each of the Employees and its
former employees complied in all material respects with all material obligations
imposed on it by all contracts, statutes, orders, regulations, collective
agreements, awards and codes of conduct and practice relevant to conditions of
service and to the relations between it and the Employees and former employees
and has in all material respects maintained adequate and suitable records
regarding the service of the Employees and former employees.
(i) The Seller has not entered into any recognition agreement with
any trades union nor has it done any act which could be construed as an act of
recognition and the Seller is not involved
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in and there are no present circumstances which are likely to give rise to any
industrial or trade dispute or any dispute or negotiation regarding a claim of
material importance with any trade union or association of trade unions or
organization or body of employees.
(j) In the twelve (12) months prior to the Closing Date, the Seller
has not given notice of any redundancies to the Secretary of State for
Employment or started consultations with any trade union or unions under the
provisions of Part IV of the Employment Protection Act 1975 and the Seller has
not failed to comply with any such obligations under Part IV.
5.18 Employee Benefit Plans. The Seller has no agreement, arrangement or
----------------------
understanding (whether contractual, under trust or otherwise) which exists for
the provision of relevant benefits (as defined in Section 612 Income and
Corporation Taxes Act 1988) for any past or present officer or employee of the
Seller (or a predecessor in business of the Seller) or for any relative or
dependent of such a person in connection with which the Seller is or may become
legally or morally liable to make any payment.
5.19 Environment, Health and Safety.
------------------------------
(a) Except as set forth on the Disclosure Schedule, Seller has
complied and is in compliance with all French and English laws, statutes,
regulations, ordinances and similar provisions having the force or effect of
law, all judicial and administrative orders and determinations, all contractual
obligations and all common law relating to public health and safety, worker
health and safety and pollution or protection of the environment, including,
without limitation, laws relating to the emission, discharge, release or
threatened release of Hazardous Materials into ambient air, surface water,
ground water or lands or otherwise relating to the presence, manufacture,
processing, distribution, use, treatment, testing, labeling, control, cleanup,
generation, storage, disposal, transport or handling of Hazardous Materials
("Environmental, Health and Safety Requirements").
- -----------------------------------------------
(b) Except as set forth on the Disclosure Schedule, Seller has
obtained and has materially complied with, and is in material compliance with
all permits, licenses and authorizations relating to the Business in its
ordinary course and required pursuant to any Environmental, Health and Safety
Requirements.
(c) Except as set forth on the Disclosure Schedule, Seller has not
received any claim, complaint, citation, report or other written or oral notice
regarding any Liabilities or potential Liabilities including any investigatory,
remedial or corrective obligations, arising under any Environmental, Health and
Safety Requirements relating to the Business.
(d) Except as set forth on the Disclosure Schedule, none of the
following exists at any property owned or occupied now or at any time prior to
Closing by Seller relating to the Business:
(i) Underground storage tanks or surface impoundments;
(ii) Asbestos-containing material in any form or condition;
or
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<PAGE>
(iii) Materials or equipment containing polychlorinated
biphenyls.
(e) No facts, events or conditions relating to the past or present
facilities, properties or operations of the Seller relating to the Business will
prevent, hinder or limit continued compliance with existing Environmental,
Health and Safety Requirements, give rise to any investigatory, remedial or
corrective obligations pursuant to existing Environmental, Health and Safety
Requirements or give rise to any other Liabilities pursuant to existing
Environmental, Health and Safety Requirements, including without limitation, any
relating to on site or off site releases or threatened releases of hazardous or
otherwise regulated materials, substances or wastes, personal injury, property
damage or natural resources damage.
(f) With respect to the Business, Seller has not, either expressly
or by operation of law, assumed or undertaken any liability or corrective or
remedial obligation of any other person relating to Environmental, Health and
Safety Requirements.
(g) Except as set forth on the Disclosure Schedule, neither this
Agreement nor the transaction that is the subject of this Agreement imposes any
obligations for site investigation or cleanup, or notification to or consent of
government agencies or third parties, pursuant to any so-called "transaction-
triggered" or "responsible property transfer" Environmental, Health and Safety
Requirements.
(h) Without limiting the foregoing, Seller has not disposed of any
chemical, toxic or hazardous waste relating to the Business in any manner which
could form the basis for any present or future claim, demand or action seeking
clean-up of any site, location, or body of water, surface or subsurface.
5.20 Inventories and Accounts Receivable. All of the Seller's
-----------------------------------
inventories, whether finished goods, work in process or raw materials, shown on
the December 31 Balance Sheets or thereafter acquired prior to the Closing, are
and will be items of a quality usable or salable in the ordinary and usual
course of the Seller's business, except for inventory items that have been
written down to an amount not in excess of realizable market value or for which
adequate reserves or allowances have been provided. The values at which
inventories are carried reflect an inventory valuation policy that is consistent
with the Seller's past practice and that is in accordance with GAAP applied on a
consistent basis. All of the Subsidiary's accounts receivable shown on the
December 31 Balance Sheets or thereafter acquired prior to the Closing, arose
and will, prior to the Closing, arise from valid and enforceable transactions
and are and will be collectible in the ordinary and usual course of business and
consistent with the Subsidiary's past practices, except to the extent of the
reserve for doubtful accounts, and are not subject to and will not be subject to
any defense, set-off or counterclaim. Subsidiary's reserve for doubtful accounts
is adequate and consistent with Subsidiary's past practices, and the values at
which accounts receivable are carried reflect the policies of Subsidiary
consistent with Subsidiary's past practice and are in accordance with GAAP
applied on a consistent basis. There are no Liens on any of Seller's or
Subsidiary's inventories or accounts receivable.
-20-
<PAGE>
5.21 Powers of Attorney. Except as set forth on the Disclosure Schedule,
------------------
there are no outstanding powers of attorney executed on behalf of Seller
relating to the Business.
5.22 Guaranties. Except as set forth on the Disclosure Schedule, Seller
----------
is not a guarantor and is not otherwise liable for any Liability (including
indebtedness) of any other Person relating to the Business.
5.23 Compliance with Law. Set forth on the Disclosure Schedule is a list
-------------------
of, and, except as set forth on the Disclosure Schedule, Seller has, all
licenses, permits, approvals and other authorizations reasonably necessary to
enable it to own and conduct the Business as currently conducted and to occupy
its facilities. Except as set forth on the Disclosure Schedule, the Business has
been conducted in compliance with all applicable United Kingdom laws.
5.24 Taxation.
--------
(a) Subsidiary has accurately prepared and duly and punctually
filed all returns, and given or delivered all information, accounts, notices,
computations, statements and reports required under any applicable legislation
or regulations relating to Taxation (whether of the United Kingdom, France or
elsewhere in the world) ("Returns") and relating to any and all Taxes
attributable to Subsidiary or its operations or for which Subsidiary is liable
or has become liable, and such Returns are true and correct in all material
respects and have been completed in accordance with applicable law in all
material respects. For the purposes of this Agreement, "Tax", "Taxation" or
"Taxes" means any and all United Kingdom, French and foreign taxes, whether
governmental, local or municipal, assessments and other governmental or local or
municipal charges, duties, impositions and liabilities in the nature of taxes,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise duties and rates, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts. Subsidiary has duly and punctually paid all Taxes
required to be paid and has withheld with respect to its employees all income
tax and national insurance contributions and other Taxes Subsidiary is required
to withhold. The provisions or reserves for Subsidiary's Taxes in the Financial
Statements of Subsidiary (not including any provision for deferred taxation) are
full and sufficient to discharge the Taxes due and payable for all periods (or
the portion of any period) ending on or prior to the Closing. Subsidiary has not
neglected to pay any Tax nor is there any Tax deficiency outstanding, proposed
or assessed or assessable against Subsidiary, nor has Subsidiary executed any
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax. No dispute, audit or other examination or
investigation of the Taxation affairs of Subsidiary is presently in progress.
Except to the extent reflected on the Financial Statements, Subsidiary does not
have any liabilities for unpaid United Kingdom, French, or other local or
foreign Taxes, whether asserted or unasserted, known or unknown, contingent or
otherwise and Stockholder has no knowledge of any basis for the assertion of any
such liability attributable to Subsidiary, its assets or operations that are
required to be included by GAAP. Subsidiary is not (and has never been) a member
of a group for the purpose of any Taxation, except in conjunction with Seller.
Subsidiary is not a party to or bound by any tax indemnity, tax sharing or tax
allocation
-21-
<PAGE>
agreement. Subsidiary has provided to Buyer or its legal counsel copies of its
Tax Returns that are required to have been prepared for all periods since the
date of Subsidiary's incorporation. There are no Liens or charges on the assets
of Subsidiary or its shares relating to or attributable to Taxes. Neither
Seller nor Stockholder has any knowledge of any basis for the assertion of any
claim which, if adversely determined, would result in Liens or charges on the
assets of Subsidiary.
(b) Subsidiary has not claimed any relief or exemption, or taken
into account such relief or exemption in determining the provision or reserve
for Taxation in Subsidiary's financial statements which could be withdrawn,
postponed or restricted as a result of any act, omission, or circumstance
arising or occurring at or at any time after Closing.
(c) The tax computations of Subsidiary for the year ends 31
December 1994 are true, complete and accurate in respect of all capital
expenditure in excess of $15,000 incurred or to be incurred by Subsidiary prior
to 31 December, 1994 which has qualified and continues to qualify for capital
allowances (as defined in the Capital Allowances Act 1990 ("CAA")) and no
capital expenditure has been incurred on or after January 1, 1995 which does not
qualify for capital allowances.
(d) The expenditure allowable as a deduction for the purposes of
the computation of any chargeable gain or allowable loss attributable to any
asset (which has a capital gains tax base of greater than (Pounds)15,000) of
Subsidiary for the purposes of corporation tax on chargeable gains is not less
than the value of that asset as shown in Subsidiary's December 31 Balance
Sheets.
(e) Subsidiary has not acquired an asset which could be deemed to
be disposed of if Section 179 Taxation of Chargeable Gains Act 1992 ("TCGA")
were to apply, and the entry into this Agreement and/or Closing will not give
rise to any deemed disposal under Section 179 of the TCGA.
(f) There is no liability to Taxation for which Subsidiary is
liable to be assessed or to account where such Taxation is primarily chargeable
against some other person.
(g) Subsidiary has not entered into or been a party to any schemes
or arrangements designed wholly or partly for the purpose of it or any other
person avoiding Taxation.
(h) Subsidiary has not agreed any special method of accounting for
Value Added Tax with HM Customs & Excise.
(i) Subsidiary does not own any capital items which are subject to
Part XV of the Value Added Tax (General) Regulations 1995.
(j) Subsidiary does not own any land or buildings (including any
interest in or right over any land or buildings) in respect of which it or a
relevant associate of it has made an election to waive exemption pursuant to
paragraph 2, Schedule 10 Value Added Tax Act 1994.
(k) Subsidiary is not subject to any penalty by reasons of a
violation of any order, rule or regulation of, or a default with respect to any
Return, report or declaration required to be filed with,
-22-
<PAGE>
any Governmental Entity, including any Taxation authority to which it is
subject, which violations or defaults, individually or in the aggregate, would
have a Material Adverse Effect.
5.25 Litigation. Set forth on Schedule 5.25 is a list and description of
----------
all claims, actions, suits, inquiries, proceedings and investigations by or
before any court or Governmental Agency pending, and, to the knowledge of
Seller, threatened by or against Seller or involving or affecting the Business
or the Assets. Except as set forth on the Disclosure Schedule, no such pending
or threatened claims, actions, suits, proceedings or investigations, if
adversely determined, could, individually or in the aggregate, have a Material
Adverse Effect or prevent, enjoin, alter or delay any transaction contemplated
hereby.
5.26 Brokers. Seller is not obligated to pay, nor has Seller retained
-------
any broker or finder or other person who is entitled to, any broker's or
finder's fee or any other commission or financial advisory fee based on any
agreement or understanding made by Seller or any of its Affiliates in connection
with the transactions contemplated hereby.
5.27 Product Warranty. Each product sold, leased or delivered by the
----------------
Seller has been sold, leased or delivered in conformity with all applicable
contractual commitments and all express and implied warranties, and the Seller
does not have any Liability for replacement or repair thereof or other damages
in connection therewith, subject only to the reserve for product warranty claims
set forth on the face of the December 31 Balance Sheets (rather than in any
notes thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Seller. Except as set forth
on the Disclosure Schedule, no product manufactured, sold, leased or delivered
by the Seller is subject to any guaranty, warranty or other indemnity beyond
Seller's applicable standard terms and conditions of sale or lease.
5.28 Product Liability. Seller does not have any Liability (and there is
-----------------
no basis for any present action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand against any of them giving rise to any
Liability) arising out of any injury to individuals or property as a result of
the ownership, possession or use of any product sold, leased or delivered by the
Seller.
5.29 Disclosure. No representations, warranties, statements or
----------
information in this Agreement or in any document, certificate, annex, schedule
or exhibit delivered by Seller or on its behalf to Buyer contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements and information contained therein not misleading.
This Section shall not apply to representations, warranties, information or
other statements made or given by Buyer or Parent.
5.30 Investment. The Seller (i) understands that the Shares have not
----------
been, and will not be, registered under the Securities Act or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (ii) is
acquiring the Shares solely for its own account for investment purposes and not
with a view to the distribution thereof, (iii) is a sophisticated investor with
knowledge and experience in business and financial matters, (iv) has received
certain information concerning the Buyer and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the risks
inherent in holding the Shares, and (v) is able to bear the economic risk and
lack of liquidity inherent in holding the Shares.
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<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Parent and Buyer hereby jointly and severally represent and warrant to
Seller as follows:
6.1 Organization. Each of Parent and Buyer is a corporation duly
------------
organized, validly existing and in good standing under the laws of the State of
California and the State of Nevada, respectively, and each has the corporate
power and authority to carry on its business as currently conducted.
6.2 Authorization. Each of Parent and Buyer has the corporate power and
-------------
authority to enter into this Agreement and the other agreements, documents and
instruments to be executed and delivered by it pursuant hereto and to carry out
the transactions contemplated hereby and thereby. The board of directors of
each of Parent and Buyer has duly authorized the execution and delivery of this
Agreement and other agreements, documents and instruments to be executed and
delivered by it pursuant hereto and the consummation by it of the transactions
contemplated hereby and thereby. No further corporate or other proceedings on
the part of Parent or Buyer are necessary to authorize this Agreement or the
other agreements, documents and instruments to be executed and delivered by it
pursuant hereto or the transactions contemplated hereby and thereby.
6.3 Valid and Binding Agreement. When executed and delivered, this
---------------------------
Agreement and each of the other agreements, documents and instruments to be
executed and delivered by Parent and Buyer pursuant hereto will constitute valid
and binding agreements of each of Parent and Buyer, enforceable against them in
accordance with their terms, subject, as to enforcement, (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights and (ii) to general
principles of equity, whether such enforceability is considered in a proceeding
in equity or at law.
6.4 No Violation. Neither the execution and delivery of this Agreement
------------
or the other agreements, documents and instruments to be executed and delivered
by Parent and Buyer pursuant hereto nor the consummation by Parent and Buyer of
the transactions contemplated hereby or thereby will (a) violate any provision
of the Articles of Incorporation or Bylaws of each of Parent and Buyer or (b)
violate or conflict with any applicable statute, law, ordinance, rule,
regulation, order, judgment or decree.
6.5 Consents: Filings. No consent, approval, order or authorization of,
-----------------
or registration, declaration or filing with any or action by any third party
(including any Governmental Agency or other Person) is required in connection
with the execution and delivery by Parent and Buyer of this Agreement and the
other agreements, documents and instruments-to be executed and delivered by
Parent and Buyer pursuant hereto or the consummation by Parent and Buyer of the
transactions contemplated hereby or thereby, except for such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state, federal or foreign securities laws, each
of which Buyer shall make.
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<PAGE>
ARTICLE VII
CERTAIN COVENANTS OF THE PARTIES
7.1 Conduct of Business.
-------------------
(a) From the date hereof through the Closing Date, Seller shall (i)
not cause, suffer or permit any changes described in Section 5.9; (ii) operate
the Business diligently and in the Ordinary Course of Business; (iii) not incur
any material financial obligation outside the Ordinary Course of Business; (iv)
use its best efforts to preserve intact the business organization and the
goodwill associated therewith and maintain its existing relations with its
customers, suppliers, regulatory bodies and others with whom it has business
dealings; and (v) maintain in force and pay for all of its existing policies of
insurance.
(b) Except as consented to in advance by Buyer in writing, prior to
the Closing Date, Seller shall not enter into any agreement or arrangement or
take any action that would make any representation and warranty of Seller
contained in this Agreement incorrect or incomplete as of the date made or as of
the Closing Date.
7.2 Access. From the date hereof through the Closing Date, Seller shall
------
provide to Buyer and its representatives:
(a) promptly upon request, such additional financial and operating
data and other information with respect to Seller, the Business or the Assets as
Buyer reasonably may request; and
(b) upon reasonable prior notice, full access at all reasonable
times, including during normal business hours, to all premises, properties,
personnel, books, records, contracts and documents and other information of or
pertaining to each of Seller and the Business.
Prior to the Closing Date, Buyer shall endeavor to notify Seller of any breach
or potential breach of any representation and warranty of which it then has
knowledge as a result of any investigation pursuant to this Section 7.2;
provided that neither any notice to Seller pursuant to the preceding sentence
nor any investigation by Buyer pursuant to this Section 7.2 shall affect any
representation and warranty or covenant of Seller in this Agreement or any
rights of Buyer's Indemnified Persons to indemnification pursuant hereto.
7.3 Consents to Assignment. To the extent any Assumed Contract is not
----------------------
assignable to Buyer without the consent of a third party, (a) this Agreement
shall not constitute an assignment thereof and (b) Seller and Buyer shall each
use its reasonable efforts to obtain such third party consent. If such consent
is not obtained (x) such failure shall not constitute a breach of any
representation and warranty or covenant hereunder and (y) Seller and Buyer shall
cooperate in any reasonable arrangement designed to provide to Buyer the
benefits of such agreement, including enforcement for the benefit of Buyer of
any rights of Seller against the third party arising out of the cancellation by
the third party of the agreement.
-25-
<PAGE>
7.4 Advice of Changes. From the date hereof through the Closing date,
-----------------
Seller shall advise Buyer in writing of any fact or event (promptly after the
existence or occurrence thereof) which, if existing or occurring at the date of
this Agreement, would have been required to be set forth in, or disclosed
pursuant to, this Agreement. Unless otherwise agreed by Buyer in writing, no
such written advice shall be deemed to cure any breach of any representation and
warranty made in this Agreement or shall affect any rights of Buyer's
Indemnified Persons to indemnification pursuant hereto.
7.5 Books and Records. Following the Closing, the Buyer shall retain
-----------------
the records of the Business which are located at the headquarters of the
Business as of the Closing Date. For a period of ten years from the Closing
Date:
(a) Seller shall provide Buyer and its representatives, and Buyer
shall provide Seller and its representatives, such access during normal business
hours to, and the ability to make duplicate copies at such party's own expense,
of all books, records, documents and materials relating to the Business or the
Assets as reasonably is required by Seller or Buyer to comply with legal, tax,
accounting, regulatory or similar obligations.
(b) Neither Seller nor Buyer shall destroy or give up possession of
any original or final copy of any books and records relating to the Business or
the Assets without first offering the other party the opportunity to retrieve
such original or final copy.
(c) Upon reasonable prior notice, Buyer shall make available to
Seller for reasonable periods of time such of Buyer's employees as previously
shall have been employed by Seller to provide assistance relating to tax matters
and, subject to the prior consent of Buyer, any other matter, in each case
relating to any period prior to the Closing Date. Such assistance shall be at
Seller's expense.
7.6 Mail. After Closing, Seller and Stockholder shall advise Buyer at
----
the address specified in Section 12.2, promptly after receipt thereof, of all
mail addressed to Seller relating to the Business and the Assets (other than
mail containing Retained Receivables) and deal with such mail in accordance with
the directions of Buyer or Parent.
7.7 Confidentiality. Seller shall not, and shall use all reasonable
---------------
efforts to cause its employees, Affiliates and associates not to, without the
prior written consent of Buyer, disclose (other than to Buyer, its employees,
Affiliates and authorized representatives or to Seller's employees) or use any
Confidential Information relating to the Business, provided that for the
purposes of this Section 7.8, the definition of Confidential Information shall
exclude subparagraph (a) thereof.
7.8 Reasonable Efforts. Subject to the terms and conditions of this
------------------
Agreement, each of the parties hereto shall use all reasonable efforts to cause
the fulfillment at the earliest practicable date of all of the conditions to its
obligations to consummate the transactions contemplated hereby.
7.9 Collection of Retained Receivable. Buyer shall have no affirmative
---------------------------------
duty to collect the Retained Receivables. However, any payments made against the
Retained Receivables to Buyer shall be held in trust for, and immediately
remitted to Seller. In the event that a payment is erroneously made to
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<PAGE>
the Seller, Seller shall hold such payment in trust for, and immediately remit
such payment to, Buyer. All Retained Payables shall be timely paid, whether or
not the invoice or other evidence of liability relating to such obligations are
received or becomes due before, on or after the Closing Date. Seller shall
collect the Retained Receivables in the Ordinary Course of Business and in
accordance with their terms. Buyer shall perform all Assumed Contracts in
accordance with the terms thereof and shall not do or omit to do anything that
would prevent or restrict Seller from recovering the Retained Receivables.
7.10 Standoff Agreement. Seller and Stockholder agree that so long as
------------------
Seller and Stockholder hold any of the Buyer's outstanding voting equity
securities, in connection with the Buyer's initial public offering of the
Buyer's securities, upon request of the Buyer or the underwriters managing any
underwritten offering of the Buyer's securities, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
of the voting equity securities of Buyer (other than those included in the
registration) without the prior written consent of the Buyer or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180 ) days) from the effective date of such registration as may
be requested by the underwriters; provided that the officers and directors of
Buyer who own stock of the Buyer also agree to such restrictions.
7.11 Registration Rights.
-------------------
(a) Notice of Registration. If at any time or from time to
----------------------
time the Parent determines to register any of its securities for the account of
its Chief Executive Officer, other than (i) a registration relating solely to
employee benefit plans, (ii) a registration relating solely to a Commission Rule
145 transaction, or (iii) a registration relating to the initial underwritten
public offering of the Company's securities pursuant to a registration statement
filed under the Securities Act, the Company will:
(i) promptly give Seller written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Shares specified in a written request or requests,
made within 10 days after receipt of such written notice from the Company, by
Seller.
(b) Underwriting. If the registration of which the Parent
------------
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Seller as a part of the written notice given
pursuant to Section 7.11(a). In such event the right of Seller to have the
Shares registered shall be conditioned upon Seller's participation in such
underwriting and the inclusion of the Shares in the underwriting to the extent
provided herein. Seller shall (together with the Parent) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by Parent. Notwithstanding any other provision of this
Section 7.11, if the managing underwriter or Parent determines that marketing
factors require a limitation of the number of shares to be underwritten, the
managing underwriter may limit the Shares to be distributed through such
underwriting. The Company shall so advise Seller of such limitation. If Seller
disapproves of the terms of any such underwriting, Seller may elect to withdraw
therefrom by written notice to the Parent and the
-27-
<PAGE>
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 90 days after the effective date
of the registration statement relating thereto, or such other shorter period of
time as the underwriters may require.
(c) Right to Terminate Registration. Parent shall have the
-------------------------------
right to terminate or withdraw any registration initiated by it under this
Section 7.11 prior to the effectiveness of such registration whether or not
Seller has elected to include securities in such registration.
(d) Registration Expenses. Seller shall bear its pro rata
---------------------
portion (based on the number of shares registered) of all registration expenses,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Parent, blue sky fees and expenses, the expense of any special audits incident
to or required by any such registration (but excluding the compensation of
regular employees of Parent which shall be paid in any event by the Parent) and
all underwriting discounts, selling commissions and stock transfer taxes and
costs of special counsel to the Seller, if any, relating to securities
registered on behalf of the Seller and other holders of securities included in
such registration , incurred in connection with any registration pursuant to
this Section 7.11.
7.12 Repatriation of Agreement. Seller and Stockholder agree that they
-------------------------
will not bring or cause to be brought into the United Kingdom an original copy
of this Agreement or any other agreement referred to herein save where Seller
and Stockholder are required by law or a court order to do so, in which case
they will consult with Buyer or Parent first, insofar as possible.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement are subject to the satisfaction (or written waiver) at or prior
to the Closing of the following conditions:
8.1 Representations and Warranties. The representations and warranties
------------------------------
of Seller contained herein and in any writing delivered by Seller pursuant
hereto shall have been true in all material respects when made and shall be true
in all material respects on the Closing Date as though made on the Closing Date.
8.2 Performance of Covenants. Seller shall have performed in all
------------------------
material respects all of the agreements and complied with in all material
respects all of the covenants required to be performed or complied with by
Seller under this Agreement prior to the Closing Date.
8.3 No Pending Action. No action, suit, investigation or proceeding
-----------------
that could have a Material Adverse Effect or a material adverse effect on the
transactions contemplated hereby shall be pending or threatened before any court
or Governmental Agency by any Governmental Agency or other
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<PAGE>
Person to restrain, prohibit, collect damages as a result of or otherwise
challenge this Agreement or the transactions contemplated hereby.
8.4 Regulatory Approval. All governmental approvals necessary for the
-------------------
consummation of the transactions contemplated hereby shall have been received,
including all approvals necessary for the transfer to Buyer of the shares of
Subsidiary.
8.5 Material Adverse Change. No Material Adverse Change shall have
-----------------------
occurred between December 31, 1995 and the Closing Date, except as set forth in
the Disclosure Schedule.
8.6 Removal of Liens. Seller shall have delivered to Buyer evidence, in
----------------
form and substance reasonably satisfactory to Buyer, of the release of all Liens
other than Permitted Liens affecting the Assets.
8.7 Consents. Seller shall have made all filings and received all
--------
consents, approvals, permits and authorizations set forth on the Disclosure
Schedule all of which shall be in form and substance satisfactory to Buyer.
8.8 Opinion of Counsel. Seller shall have delivered to Buyer an
------------------
opinion, dated as of the Closing Date, of Titmuss Sainer & Dechert, counsel to
Seller, substantially in the form attached hereto as Exhibit C.
---------
8.9 Employment Agreement. All relevant parties shall have entered into
--------------------
the Employment Agreement, substantially in the form attached hereto as
Exhibit D.
- ---------
8.10 Non-Competition Agreement. All relevant parties shall have entered
-------------------------
into the Non-Competition Agreement, substantially in the form attached hereto as
Exhibit A.
- ---------
8.11 Financing. Buyer (or Parent on Buyer's behalf) shall have received
---------
a firm loan commitment from Comerica Bank or other similar financial institution
in the amount of the cash portion of the Purchase Price set forth in Section 3.1
plus working capital in an amount reasonably determined by Buyer or Parent.
Buyer shall provide Seller written confirmation of such commitment at least
three business days prior to Closing.
8.12 Diligence. Buyer shall have completed legal, environmental,
---------
business and financial due diligence investigations of the Business and the
Assets.
8.13 Leases. Such of the parties as applicable shall have entered into
------
an assignment of the existing leases with respect to all leased property
relating to the Business in accordance with and subject to the terms and
conditions of Exhibit F.
---------
8.14 Closing Certificates. Seller shall have delivered to Buyer
--------------------
certificates of a duly authorized officer of Seller dated as of the Closing
Date:
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(a) stating that the conditions set forth in Sections 8.1, 8.2 and
8.5 have been satisfied; and
(b) setting forth the resolutions of the board of directors of
Seller authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and certifying that such
resolutions were duly adopted and have not been rescinded or amended.
8.15 Value Added Tax. The parties shall comply with Exhibit G in
--------------- ---------
relation to VAT and in particular the Seller shall have written to HM Customs &
Excise in a form acceptable to Buyer in accordance with Clause 2 of Exhibit G
---------
and shall have delivered to Buyer a copy of that letter.
8.16 Employee Plan. The parties undertake that they will, on or as soon
-------------
as practicable after Closing, execute and use their best efforts to obtain the
execution by John Fits Tillisch and Anthony Fox of a Supplemental Deed in Agreed
Form relating to the Sensory Systems Limited Senior Employees Executive Pension
Plan (the "Plan") by which Buyer or its associated U.K. company is substituted
for the Seller as the Principal Employer of the Plan and the names of the Plan
is changed.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated by
this Agreement are subject to the satisfaction (or written waiver) at or prior
to the Closing of the following conditions:
9.1 Representations and Warranties. The representations and warranties
------------------------------
of Buyer contained herein and in any writing delivered by Buyer pursuant hereto
shall have been true in all material respects when made and shall be true in all
material respects on the Closing Date as though made on the Closing Date.
9.2 Performance of Covenants. Buyer shall have performed in all
------------------------
material respects all of the agreements and complied with in all material
respects all of the covenants required to be performed or complied with by it
under this Agreement prior to the Closing Date.
9.3 No Pending Action. No action, suit, investigation or proceeding
-----------------
that could have a Material Adverse Effect or a material adverse effect on the
transactions contemplated hereby shall be pending or threatened before any court
or Governmental Agency by any Governmental Agency or other Person to restrain,
prohibit, collect damages as a result of or otherwise challenge this Agreement
or the transactions contemplated hereby.
9.4 Regulatory Approval. All governmental approvals necessary for the
-------------------
consummation of the transactions contemplated hereby shall have been received.
9.5 Closing Certificates. Buyer shall have delivered to Seller
--------------------
certificates of a duly authorized officer of Buyer, dated as of the Closing
Date:
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(a) stating that the conditions set forth in Sections 9.1 and 9.2
have been satisfied; and
(b) setting forth the resolutions of board of directors of Buyer
and Parent authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including authorization
for the issuance and allotment of the Shares to the Seller, which may be
provided by assurance of Buyer's counsel, and certifying that such resolutions
were duly adopted and have not been rescinded or amended.
9.6 Opinion of Counsel. Buyer shall have delivered to Seller an
------------------
opinion, dated as of the Closing Date, of Wilson, Sonsini, Goodrich & Rosati,
counsel to Buyer, substantially in the form attached hereto as Exhibit E.
---------
9.7 Leases. Buyer shall have either entered into new leases or Seller
------
shall have assigned or underlet its existing leases with respect to all leased
property relating to the Business or shall have made adequate provision for
occupancy of the leased property in the form attached hereto as Exhibit F.
---------
ARTICLE X
SURVIVAL AND INDEMNIFICATION
10.1 Survival. Notwithstanding any examination made by or on behalf of
--------
any party hereto, the knowledge of any party or the acceptance by any party of
any certificate or opinion, each representation and warranty contained herein,
and in any writing delivered pursuant hereto, shall survive the Closing, shall
be fully effective and enforceable against the maker thereof until its
Expiration Date and thereafter shall be of no further force or effect except as
it relates to a claim for indemnification under this Article X made prior to the
relevant Expiration Date.
10.2 Indemnification of Buyer's Indemnified Persons. After the Closing,
----------------------------------------------
each of Seller and Stockholder, jointly and severally, agrees to indemnify and
defend Parent, Buyer, and their respective Affiliates, officers, directors,
employees, agents, successors and permitted assigns (collectively, "Buyer's
Indemnified Persons") against, and hold Buyer's Indemnified Persons harmless
from, any loss, liability, damage, cost and expense (including interest,
penalties and reasonable attorneys' fees and expenses for investigating,
defending or settling any actions or threatened actions) (collectively,
"Losses") imposed on or incurred by any of Buyer's Indemnified Persons, directly
or indirectly, which relate to or arise out of:
(a) any breach of any representation and warranty of Seller,
Subsidiary or Stockholder contained in this Agreement or in any certificate,
instrument, schedule, exhibit, annex or document delivered pursuant hereto;
(b) any breach of any covenant of Seller, Subsidiary or Stockholder
contained in this Agreement or in any certificate, instrument, schedule,
exhibit, annex or document delivered pursuant hereto;
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<PAGE>
(c) any Excluded Liability, whether or not the existence of such
Liability is disclosed to any of Buyer's Indemnified Persons;
(d) any Liability of Seller or Subsidiary for Taxes arising out of
the conduct of the Business prior to the Closing, including any secondary
liability of Subsidiary for Taxes of Seller;
(e) any Liability of Seller or Subsidiary (whether or not disclosed
on any schedule to this Agreement) arising under Environmental, Health and
Safety Requirements with respect to the ownership, operation or use of the
Business or any real property owned or leased by the Business prior to the
Closing or the past, current or future operations of facilities of Seller not
relating to the Business, including without limitation any arising from the
presence, handling, generation, release, threatened release, or onsite or
offsite treatment, storage, or disposal of Hazardous Materials.
(f) any Liability of Seller or Subsidiary other than the Assumed
Liabilities (whether or not disclosed on any schedule to this Agreement) arising
out of or with respect to the ownership, operation or use of the Business prior
to the Closing.
10.3 Indemnification of Seller's Indemnified Persons. After the
-----------------------------------------------
Closing, Buyer agrees to indemnify Seller and its officers, directors,
employees, agents, successors and permitted assigns (collectively, "Seller's
Indemnified Persons") against, and hold Seller's Indemnified Persons harmless
from, any Losses imposed on or incurred by any of Seller's Indemnified Persons,
directly or indirectly, which relate to or arise out of:
(a) any breach of any representation and warranty of Parent and
Buyer contained in this Agreement or in any writing delivered pursuant hereto;
(b) any breach of covenant of Parent and Buyer contained in this
Agreement or in any writing delivered pursuant hereto;
(c) the Assumed Liabilities and any post-Closing Liability of the
Business to the extent such Liability does not constitute an Excluded Liability;
(d) any liability arising under Environmental, Health and Safety
Requirements with respect to the operations of Buyer or any of its affiliates or
any real property owned or leased by Buyer to the extent that such Liability
arises as a result of the operation of Buyer or the ownership, operation or use
of real property by Buyer after the Closing Date.
10.4 Escrow Fund. As partial security for the indemnity provided for in
-----------
Section 10.1 hereof, the Shares shall be deposited with the Escrow Agent
identified in Exhibit B, such deposit to constitute an escrow fund (the "Escrow
Fund") to be governed by the terms set forth herein and in the Escrow Agreement
to be signed by all parties thereto, the form of which is attached as Exhibit B.
---------
Upon compliance with the terms hereof, Buyer's Indemnified Persons shall be
entitled to obtain indemnity from the Escrow Fund for all Losses covered by the
indemnity provided for in Section 10.1 hereof, under the terms of that Escrow
Agreement.
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<PAGE>
10.5 Offset of Payments under Noncompetition Agreement. In addition to
-------------------------------------------------
Buyer's rights as set forth in Section 10.4 and in the Escrow Agreement, Buyer
may, at its option, offset any Losses covered by the indemnity provided for in
Section 10.1 against any amounts payable under the Non-Competition Agreement.
10.6 Limitation of Liability of Seller and Stockholder.
-------------------------------------------------
(a) Any claim for indemnification by Buyer or Parent under this
Agreement (a "Claim") shall, if it has not been previously satisfied settled or
withdrawn, be deemed to have been withdrawn and shall become fully barred and
unenforceable (and no new Claim may be made in respect of the facts giving rise
to such withdrawn Claim) six months after notice of such Claim is given in
accordance with Section 12.2 unless by then proceedings in respect of that Claim
shall have been issued and served upon Parent, Buyer, Seller or Stockholder, as
the case may be.
(b) Neither Seller nor Stockholder shall be liable for any Claim if
and to the extent that any Claim is based upon a liability which is contingent
only unless and until such contingent liability becomes an actual liability and
is due and payable; but this subsection shall not operate to avoid any Claim
made in respect of a contingent liability of which notice is given before the
relevant Expiration Period.
(c) The aggregate liability of Seller and Stockholder for all
Claims shall not in any event exceed the Purchase Price.
(d) Indemnity shall be due under this Article X only for actual net
losses suffered by Buyer or Parent attributable to such Losses in excess of a
cumulative aggregate amount of Five Thousand Pounds ((Pounds)5,000). For
purposes of this Section 10.6, in determining Buyer's or Parent's actual net
losses, there shall be taken into account any tax benefit or any insurance
proceeds (other than proceeds from self-insurance) or similar recovery realized
by Buyer or Parent attributable to any Loss.
(e) Seller and Stockholder shall have no liability for any matter
for which allowance, provision or reserve was made in the December 31 Balance
Sheets or shall be made in or reflected in the Closing Date Balance Sheet in
respect of the matters to which the Claim relates, provided, and to the extent
that such allowance, provision or reserve subsequently proves to be adequate to
cover the actual liability.
(f) Except as provided in the Escrow Agreement or Section 10.5
herein, Buyer shall have no right of set-off or counter-claim with respect to
any Claim against any payments which Buyer may be obliged to make (or procure to
be made) to the Seller or Stockholder pursuant to this Agreement (including the
delivery of any Retained Receivables received by it) or any other documents
referred to herein.
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<PAGE>
(g) Buyer shall not be entitled to be indemnified more than once
with respect to any Loss arising from one or more breaches of any representation
and warranty and/or Claim under any other provision of this Agreement.
10.7 No Limitations. Except as specifically provided herein, nothing in
--------------
this Agreement shall be construed to limit in any way the liability of Seller or
Stockholder or the amounts recoverable by Buyer' Indemnified Persons under this
Agreement, the Escrow Agreement and the Non-Competition Agreement. The indemnity
rights provided to Buyer's Indemnified Persons in this Article X are in addition
to, and cumulative with, all other rights and remedies available to Buyer's
Indemnified Persons pursuant to this Agreement, the Escrow Agreement and the
Non-Competition Agreement, at law or in equity. Buyer's Indemnified Persons may
pursue any such right or remedy (or combination of rights and remedies) without
thereby being deemed to have made an election or otherwise waived its right to
pursue any other right or remedy they may have.
10.8 Assumption and Defense of Third-Party Claims.
--------------------------------------------
(a) If any claim for indemnification hereunder arises out of a
claim, action, suit or proceeding brought by a third party (a "Third-Party
-----------
Claim"), the indemnifying party may elect, subject to Section 10.8(b), to assume
- -----
the defense of and to compromise or settle such Third party Claim. The
indemnifying party may settle or compromise, or consent to the entry of judgment
with respect to, any Third-Party Claim only with the prior written consent of
each indemnified party, which consent shall not be unreasonably withheld;
provided, that no consent shall be required if such settlement, compromise or
judgment is solely for money damages and includes as an unconditional term
thereof the delivery to the indemnified party of a written release from all
liability in respect of such Third-Party Claim.
(b) Buyer's Indemnified Persons shall retain the right, at their
own cost and expense, to defend and to compromise or settle, or consent to the
entry of judgment with respect to, any Third-Party Claim that Buyer in its sole
discretion believes might materially adversely affect any of Buyer's Indemnified
Persons if such settlement, compromise or judgment is solely for money damages
paid by Buyer (and not by Seller) and includes as an unconditional term thereof
the delivery of a written release of Seller from all liability in respect of
such Third-Party Claim.
(c) If an indemnifying party elects not to assume the defense of
any Third-Party Claim pursuant to Section 10.8(a) or fails to provide timely
notice in accordance with Section 10.8 of its election to assume the defense of
any Third-Party Claim, the indemnified party may defend, compromise or settle,
or consent to the entry of judgment with respect to such Third-Party Claim at
the risk and expense of, and for the account of, the indemnifying party.
(d) Any party that does not undertake the defense of a Third-Party
Claim may retain, at its own expense, such attorneys and other advisors as it
deem necessary, which attorneys and advisors will be permitted by the party
undertaking such defense and its attorneys, to observe the defense of such
claim.
10.9 Notice.
------
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<PAGE>
(a) If any action or claim is brought or asserted against an
indemnified party in respect of which indemnity may be sought under this Article
X, the indemnified party promptly shall notify the indemnifying party in
accordance with Section 12.2 of such action or claim. Failure to give such
timely notice shall not relieve an indemnifying party of its indemnification
obligation under this Article X except to the extent that the indemnifying party
can demonstrate that it is materially prejudiced by reason of such failure.
(b) With respect to any claim for indemnification hereunder that
does not result from a Third-Party Claim, the indemnifying party shall have 30
days from receipt of notice from the indemnified party of such claim within
which to respond thereto in accordance with Section 10.9(a). If such
indemnifying party does not respond within such 30-day period, such indemnifying
party shall be deemed to have accepted responsibility to make payment, and shall
have no further right to contest the validity of such claim; provided that such
notice states that if a response is not made in 30 days the indemnifying party
is deemed to have accepted responsibility to make such payment pursuant to this
provision. If such indemnifying party notifies the indemnified party within such
30-day period that it rejects such claim in whole or in part, such indemnified
party shall be free to pursue such remedies as may be available to it under
applicable law.
10.10 Cooperation. The parties hereto agree to render to each other such
-----------
assistance as they may reasonably require of each other and to cooperate in good
faith with each other in order to ensure the proper and adequate defense of any
Third-Party Claim (including any such claim for Taxes); provided, however, that
the lack of such cooperation on the part of the indemnified party shall not
relieve the indemnifying party of its obligations hereunder unless it has been
materially adversely prejudiced by such lack of cooperation.
ARTICLE XI
TERMINATION
11.1 Termination of Agreement. This Agreement may be terminated at any
------------------------
time prior to the Closing:
(a) by written agreement of Seller and Buyer; or
(b) by Seller or Buyer by giving written notice to the other party
if the Closing shall not have occurred on or before April 30, 1996;
11.2 Effects of Termination. In the event of the termination of this
----------------------
Agreement pursuant to Section 11.1:
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<PAGE>
(a) each party hereto shall return all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof, to the party
furnishing the same;
(b) Buyer shall not, and shall use its best efforts to cause its
employees, Affiliates and associates not to, disclose or use any Confidential
Information; and
(c) this Agreement shall become void and of no force or effect,
without any liability or further obligation on the part of any party hereto,
except for (i) liabilities arising from a breach of this Agreement prior to its
termination in accordance with Section 11.1 and (ii) as set forth in this
Section 11.2.
ARTICLE XII
GENERAL PROVISIONS
12.1 Amendment and Waiver. No amendment of any provision of this
--------------------
Agreement shall be effective unless the same shall be in writing and signed by
the parties hereto. Any failure of any party to comply with any obligation,
agreement or condition hereunder may only be waived in writing by the parties
hereto, and any such waiver shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. No failure by any party to take any
action against any breach of this Agreement or default by any other party shall
constitute a waiver of such party's right to enforce any provision hereof or to
take any such action.
12.2 Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be sent by personal delivery or
registered or certified mail, postage prepaid, or by telecopier as follows:
(a) if to Seller:
Sensory Systems Limited
1 Watling Gate
297-303 Edgeware Road
London NW9 6NB
Attn: John Tillisch
with copies to:
Titmuss Sainer Dechert
2 Serjeants' Inn
London EC4Y 1LT
Telecopier: 011 44 171 353 3683
Attn: Jane Palmer
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<PAGE>
(b) if to Buyer:
VTEK, Inc. c/o Telesensory Corporation
455 North Bernardo Avenue
Mountain View, CA 94043
Telecopier: (415) 960-0487
Attn: Larry Israel
with copies to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Telephone: (415) 493-9300
Telecopier: (415) 496-4006
Attn: Alisande M. Rozynko
Any party may change its address for receiving notice by written notice to the
other parties as set forth above. All notices shall be effective upon the
earlier of actual delivery or 5 days after deposited in the mail addressed as
set forth above.
12.3 Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same Agreement.
12.4 Assignment and Succession. This Agreement shall bind and inure to
-------------------------
the benefit of the parties hereto and their respective successors and permitted
assigns.
12.5 Further Assurances. From time to time, at the request of any party
------------------
hereto and without further consideration, the other parties will execute and
deliver to such requesting party such documents and take such other action (but
without incurring any material financial obligation) as such requesting party
may reasonably request in order to consummate more effectively the transactions
contemplated hereby, including vesting in Buyer good, valid and marketable title
to the Assets.
12.6 Entire Transaction. This Agreement and the other agreements,
------------------
documents and instruments referred to herein contain the entire understanding
among the parties with respect to the transactions contemplated hereby and
supersede all other agreements and understandings among the parties with respect
thereto.
12.7 Remedies Cumulative. Except as otherwise provided herein, the
-------------------
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
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<PAGE>
12.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of California without regard to
conflict of law principles.
12.9 Arbitration. If the Stockholder and Seller on the one hand or
-----------
Buyer on the other hand delivers to such other party a notice, in accordance
with Section 12.2 hereof, of any dispute arising with respect to this Agreement,
then the parties shall use their best efforts to resolve such dispute. In the
event the parties are unable to resolve such dispute within twenty (20) calendar
days from receipt of such written notice, then any party may demand, by written
notice to the other parties, that such issue shall be settled by binding
arbitration to be held in New York, New York; provided, however, that the
arbitrators may call and conduct hearings and meetings at such other places as
the parties may agree (an "Arbitration Demand"). All such claims or disputes,
including disputes relating to the breach, interpretation, termination or
validity of this Agreement, shall be finally settled by arbitration under the
Rules of the American Arbitration Association, as in force on the date of this
Agreement, by one arbitrator appointed in accordance with said Rules. The
Stockholder and Seller on the one hand and the Buyer on the other hand shall
each designate one (1) individual within fifteen (15) calendar days after the
delivery of the Arbitration Demand. Such designated individuals shall mutually
agree upon and shall designate a third individual who shall who shall arbitrate
the dispute (the "Arbitrator"). The Arbitrator shall have no power to add to,
subtract from or modify any of the terms or conditions of this Agreement, nor to
award punitive damages. The parties waive any rights they may have under the
laws of any jurisdiction to apply to the courts of any such jurisdiction for
relief from the provisions of this Section or from any decision of the
Arbitrator absent fraud. The parties further waive any rights they may have
under the laws of any jurisdiction to contest the enforcement of any arbitral
award made under this Section. The final decision of the Arbitrator shall be
furnished to the parties in writing and shall con stitute a conclusive
determination of the issue in question, binding upon all parties and shall not
be contested by any of them absent fraud. Each party shall bear its own fees
(including its designated arbitrator's fees and attorney's fees) and other
expenses associated with the arbitration. The non-prevailing party shall bear
all other costs associated with such arbitration, except that the parties shall
each pay fifty percent of the fees of the Arbitrator. For purposes of
determining who is the prevailing party, Stockholder and Seller shall be deemed
to be one and the same party.
12.10 Attorneys' Fees. If any party to this Agreement brings an action
---------------
against another party to this Agreement to enforce its rights under this
Agreement, the prevailing party shall be entitled to recover its reasonable
costs and expenses, including reasonable attorneys' fees and costs, incurred in
connection with such action, including any appeal of such action.
12.11 Headings. The section and other headings contained in this
--------
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.12 Expenses. Except as otherwise expressly provided herein, each party
--------
to this Agreement shall pay its own costs and expenses in connection with the
transactions contemplated hereby.
12.13 No Third-Party Beneficiaries. Except as specifically set forth
----------------------------
or referred to herein, nothing herein is intended or shall be construed to
confer upon any person or entity other than the parties
-38-
<PAGE>
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement. Notwithstanding the foregoing, no employee shall
acquire any rights pursuant to Section 9.5(c).
12.14 Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SELLER:
SENSORY SYSTEMS LIMITED
By: /s/ John Tillisch
----------------------------------------------
Name: John Tillisch
Title: Managing Director
BUYER:
VTEK, INC.
By: /s/ Larry Israel
----------------------------------------------
Name: Larry Israel
Title: President and Chief Executive Officer
PARENT:
TELESENSORY CORPORATION
By: /s/ Larry Israel
----------------------------------------------
Name: Larry Israel
Title: President and Chief Executive Officer
STOCKHOLDER:
/s/ John Tillisch
-------------------------------------------------
John Tillisch
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<PAGE>
AMENDMENT #1 TO PURCHASE AGREEMENT OF MARCH 29,1996
This is Amendment #1 to the Asset Purchase Agreement of 29 March 1996 by and
among VTEK, Inc., Telesensory Corporation, Sensory Systems Ltd. and John
Tillisch.
1 The parties agree that the cash portion of the Purchase Price to be
delivered to Seller, after the Closing Estimate and all Purchase Price
Adjustment Items as required by Section 3.2, shall be seven hundred
forty-three thousand seven hundred pounds sterling ((Pounds)743,700).
2. The parties further agree that "retained Payables" shall be redefined
for purposes of Section 3.2(b) such that payables due from Seller to
Parent at 22 March 1996 in the amount of two hundred seven thousand
and seven hundred pound sterling ((Pounds)207,700) shall not be
excluded from Retained Payables, and hence said amount shall be an
increase under the Purchase Price Adjustment provisions of Section
3.2(b).
3. The parties further agree that said amount of (Pounds)207,700, being a
trade debt of Seller to Parent, shall be delivered at the Closing or
promptly thereafter by Buyer's agent in the UK directly to Parent,
pursuant to separate instructions of Parent, in satisfaction of said
trade debt, rather than being delivered to Seller.
4. Buyer's agent in the UK for purposes of said funds transfers (SJ
Berwin & Co) is herewith authorized by the parties to effect the above
funds transfers at Closing, or as soon thereafter as practicable,
subject only to Seller's lending bank releasing its debenture or other
liens against any assets of Seller which are being purchased by Buyer.
For Sensory Systems Ltd. and for himself as Stockholder:
/s/ John Tillisch
----------------------------------------------------------
John Tillisch, Managing Director
For VTEK, Inc. and Telesensory Corporation:
/s/ Larry Israel
----------------------------------------------------------
Larry Israel, President
<PAGE>
EXHIBIT 10.20
NONCOMPETITION AGREEMENT
------------------------
This NONCOMPETITION AGREEMENT ("Agreement") dated March 29, 1996 is by and
among VTEK, Inc., a Nevada corporation ("VTEK") and wholly-owned subsidiary of
Telesensory Corporation, a California corporation ("Telesensory"), Telesensory,
and John Tillisch ("Vendor").
RECITALS
--------
A. WHEREAS, pursuant to that certain Asset Purchase Agreement dated
March 29, 1996 (the "Purchase Agreement"), among VTEK, Telesensory, Sensory
Systems, Ltd., a corporation limited by shares under the laws of England and
Wales ("SSL") and John Tillisch, the sole stockholder of SSL, pursuant to which
Telesensory through its wholly owned subsidiary VTEK is acquiring substantially
all of the assets and business of SSL:
B. WHEREAS, the execution of this Agreement is a condition of the
consummation of the Purchase Agreement;
C. WHEREAS, Vendor possesses confidential and proprietary information
regarding the business and customers of SSL.
In consideration of the Agreement and the agreements contained herein, the
parties hereby agrees as follows:
AGREEMENT
---------
1. Commencing as of the Closing (as defined in the Purchase Agreement),
Vendor agrees that until the date that is six (6) years from the Closing Date,
he shall not engage (except in his capacity as an officer, director,
shareholder, and/or employee of or consultant to Telesensory or its affiliates)
directly or indirectly, whether on his own account or as a shareholder (other
than as a less than 2% shareholder of a publicly-held company), partner, joint
venturer, employee, consultant, advisor, and/or agent, of any person, firm,
corporation, or other entity, in any or all of the following activities;
(i) Enter into or engage in any line of business in which, now or
up to the time of Closing, SSL or Teletec Sarl, the wholly-owned subsidiary of
SSL ("Teletec") engaged or actively contemplated becoming engaged in, within any
geographical area in which SSL or Teletec engaged in such business or in which
SSL or Teletec contemplated becoming engaged in such business (each such line of
business referred to herein collectively as the "Protected Business");
(ii) Solicit customers or suppliers of the Protected Business,
Telesensory or its Affiliates;
(iii) Encourage or solicit any employees of or service providers of
the Protected Business, Telesensory or its Affiliates to leave the employment of
or terminate their service relationship with the Protected Business, Telesensory
or its Affiliates for any reason; or
<PAGE>
(iv) Promote or assist, financially or otherwise, any person, firm,
association, corporation, or other entity other than Telesensory or its
Affiliates engaged in any aspect of the Protected Business.
2. In consideration of the noncompetition covenant set forth in Section 1
of this Agreement, Telesensory or an affiliate of Telesensory (the "Affiliates")
shall pay Vendor the sum of One Hundred Ninety-Three Thousand Eight Hundred
Great British Pounds ((Pounds)193,800) payable in six annual installments of
(Pounds)32,300 payable on June 30 of each calendar year beginning June 30, 1996;
provided, however, that if Vendor voluntarily terminates his employment with
Telesensory or any of its Affiliates (other than a termination for the sole
purpose of becoming an employee of another Affiliate) or if Vendor's employment
is terminated with cause, each subsequent annual payment to Vendor under this
paragraph shall be reduced to (Pounds)16,150. Notwithstanding the foregoing, if
Vendor dies or becomes permanently disabled (as defined in the Service Agreement
between Vendor and Telesensory or its Affiliates) during Vendor's employment
with Telesensory or any of its Affiliates or if Vendor's employment with
Telesensory or any of its Affiliates is terminated without cause, within 90 days
thereafter all amounts owing Vendor under this Non-competition Agreement at the
time of such death, total and permanent disability or termination shall be due
and payable. All payments to Vendor under this Agreement are subject to offset
as set forth in the Purchase Agreement.
3. The parties intend to have the foregoing covenants enforceable to the
fullest extent of the law as to scope, time and geography. If, at the time of
enforcement of this Section 3, a court shall hold that the duration, scope or
area restrictions stated herein are unreasonable under circumstances then
existing, the parties hereto agree that the maximum duration, scope or area
reasonable under such circumstances shall be substituted for the stated
duration, scope or area.
4. The parties agree that due to the unique nature of the services and
capabilities of the Vendor, there can be no adequate remedy at law for any
breach of his obligations hereunder, that any such breach may allow the Vendor
and/or third parties to unfairly compete with Telesensory or its Affiliates,
resulting in irreparable harm to Telesensory or its Affiliates, and therefore,
that upon any such breach or any threat, Telesensory or its Affiliates shall be
entitled to appropriate equitable relief in addition to whatever remedies it
might have at law.
5. This Agreement and all rights under this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the parties hereto and
their respective personal or legal representatives, executors, administrators,
heirs, distributees, devisees, legatees, successors and assigns.
6. All notices, demands and requests required by this Agreement shall be
in writing and shall be deemed to have been given or made for all purposes (i)
upon personal delivery, (ii) one day after being sent, when sent by professional
overnight courier service, (iii) five days after posting when sent by registered
or certified mail, or (iv) on the date of transmission when sent by telegraph,
telegram, telex, or other form of "hard copy" transmission, to either party
hereto at the address set forth below or at such other address as either party
may designate by notice pursuant to this Section 6.
-2-
<PAGE>
If to VTEK or Telesensory:
455 North Bernardo Avenue
Mountain View, California 94039-7455
Attn: Larry Israel
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attn: Alisande M. Rozynko
If to Vendor, to the address set forth under Vendor's name on the
signature page hereto.
with a copy to:
Titmuss Sainer Dechert
2 Serjeants' Inn
London EC4Y 1LT
Attn: Jane Palmer
7. The laws of the State of California shall govern all questions
relative to the validity, interpretation and construction of this Agreement and
to the performance hereof.
8. No waiver by any party of any term or provision or default hereunder
by any other party shall be effective unless in writing and shall not in any way
prejudice the waiving party with respect to any subsequent default hereunder
(whether or not similar) by any other party.
9. This instrument contains the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior understandings,
whether oral or written. This Agreement may not be changed orally, but only by
an agreement in writing, signed by the parties against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
10. This Agreement may be executed in one or more counterparts, none of
which need contain the signature of more than one party hereto, each of which
shall be deemed to be an original, and all of which together shall constitute a
single agreement.
11. The parties acknowledge and agree that each provision herein shall be
treated as a separate and independent clause, and the unenforceability of any
one clause shall in no way impair the enforceability of any of the other clauses
herein. Moreover, if one or more of the provisions contained in this Agreement
shall for any reason be held to be excessively broad as to scope, activity or
subject so as to be unenforceable at law, such provision or provisions shall be
construed by the
-3-
<PAGE>
appropriate judicial body by limiting and reducing it or them, so as to be
enforceable to the maximum extent compatible with the applicable law as it shall
then appear.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written.
VENDOR
/s/ John Tillisch
--------------------------------------------
John Tillisch
Address: 6 Myddelton Park
London N20 0HX
TELESENSORY CORPORATION
By: /s/ Larry Israel
-----------------------------------------
Its: President and Chief Executive Officer
VTEK, INC.
By: /s/ Larry Israel
-----------------------------------------
Its: President and Chief Executive Officer
-4-
<PAGE>
Exhibit 11.1
TELESENSORY CORPORATION
AND SUBSIDIARIES
COMPUTATION OF WEIGHTED AVERAGE
COMMON AND COMMON EQUIVALENT SHARES
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended
----------------------
Year Ended June 30, June 30,
December 31, 1995 1995 1996
----------------- -------- --------
<S> <C> <C> <C>
PRIMARY
Net income.......................................................... $1,391 $ 619 $1,204
====== ====== ======
Weighted average common shares outstanding.......................... 3,243 3,567 2,766
Weighted average common equivalent shares:
Weighted average common stock warrants outstanding................ -- -- 19
Common stock option grants........................................ -- -- 175
Adjustments to reflect requirements of the Securities and Exchange
Commission's Staff Accounting Bulletin No. 83:
Common stock issuances.......................................... 4 -- 126
Common stock option grants...................................... 129 -- 214
------ ------ ------
Pro forma total weighted average common shares and equivalents...... 3,376 3,567 3,300
====== ====== ======
Pro forma net income per share...................................... $ 0.41 $ 0.17 $ 0.36
====== ====== ======
</TABLE>
The calculation of fully diluted weighted average common stock shares and
equivalents was not materially different from the primary calculation.
<PAGE>
Exhibit 21.1
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Name of Subsidiary Jurisdiction of Incorporation
- -------------------------------------------------------------------------------
Sensory Systems, Ltd. England, Wales
- -------------------------------------------------------------------------------
Teletec SARL France
- -------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 169 317
<SECURITIES> 0 0
<RECEIVABLES> 5,629 6,667
<ALLOWANCES> (102) (130)
<INVENTORY> 3,488 3,479
<CURRENT-ASSETS> 9,853 11,454
<PP&E> 3,367 3,857
<DEPRECIATION> (2,176) (2,387)
<TOTAL-ASSETS> 11,044 14,713
<CURRENT-LIABILITIES> 6,491 7,434
<BONDS> 0 0
0 0
0 0
<COMMON> 55 58
<OTHER-SE> 3,859 5,942
<TOTAL-LIABILITY-AND-EQUITY> 11,044 14,713
<SALES> 30,671 17,240
<TOTAL-REVENUES> 30,671 17,240
<CGS> 16,670 9,770
<TOTAL-COSTS> 6,130 3,157
<OTHER-EXPENSES> 5,491 2,793
<LOSS-PROVISION> 63 28
<INTEREST-EXPENSE> 123 71
<INCOME-PRETAX> 2,258 1,449
<INCOME-TAX> 867 245
<INCOME-CONTINUING> 1,391 1,204
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,391 1,204
<EPS-PRIMARY> 0.41 0.36
<EPS-DILUTED> 0 0
</TABLE>
