<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
_____________________
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 26, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ___ to ___
Commission File Number 0-19640
_____________________
VERTEL CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-3948704
(State or other jurisdiction of ( I.R.S. Employer
incorporation or organization) Identification Number)
21300 VICTORY BOULEVARD, SUITE 1200
WOODLAND HILLS, CA 91367
(Address of principal executive offices)
Registrant's telephone number, including area code: (818) 227-1400
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
YES X NO_____
-----
As of November 4, 1998 there were 26,520,930 shares of common stock outstanding.
================================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VERTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 26, DECEMBER 27,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and short-term investments (Note 2).................................. $ 7,306 $ 6,252
Trade accounts receivable (net of allowances of $503 as of
September 26, 1998 and $452 as of December 27, 1997).................. 4,987 4,941
Trade accounts receivable, related party.................................. 99 --
Prepaid expenses and other current assets................................. 969 925
-------- --------
Total current assets........................................................ 13,361 12,118
Property and equipment, net................................................. 987 766
Investments (Note 3)........................................................ 3,819 --
Other assets................................................................ 372 566
-------- --------
$ 18,539 $ 13,450
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 140 $ 733
Accrued wages and related liabilities..................................... 700 660
Accrued restructuring expenses............................................ 224 1,487
Other accrued liabilities................................................. 3,456 2,100
Deferred revenue.......................................................... 973 531
Net liabilities of discontinued operations................................ -- 196
-------- --------
Total current liabilities................................................... 5,493 5,707
Deferred rent............................................................... -- 10
-------- --------
Total liabilities..................................................... 5,493 5,717
-------- --------
Shareholders' equity:
Preferred stock, par value $.01, 2,000,000 shares authorized;
none issued and outstanding
Common stock, par value $.01, 50,000,000 shares authorized;
shares issued and outstanding 1998, 24,517,255;
1997, 24,146,518...................................................... 245 227
Additional paid-in capital (Note 3)....................................... 80,934 78,661
Accumulated deficit....................................................... (63,619) (64,760)
Accumulated comprehensive deficit......................................... (147) (2,003)
-------- --------
Total................................................................. 17,413 12,125
Less notes receivable from issuance of common stock....................... (4,367) (4,392)
-------- --------
Total shareholders' equity............................................ 13,046 7,733
-------- --------
$ 18,539 $ 13,450
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
VERTEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED
------------------------ -----------------------
SEPT. 26, SEPT. 27, SEPT. 26, SEPT. 27,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
License........................................................ $3,551 $ 2,040 $10,199 $ 9,052
License - related party........................................ -- -- 737 --
Service and other.............................................. 1,357 1,654 3,893 4,286
------ ------- ------- -------
Net revenues................................................ 4,908 3,694 14,829 13,338
Cost of revenues:
License........................................................ 165 113 695 637
Service and other.............................................. 895 987 2,789 2,551
------ ------- ------- -------
Total cost of revenues...................................... 1,060 1,100 3,484 3,188
------ ------- ------- -------
Gross profit..................................................... 3,848 2,594 11,345 10,150
Operating expenses:
Research and development....................................... 1,677 1,094 4,724 4,290
Sales and marketing............................................ 1,900 1,590 5,315 6,066
General and administrative..................................... 724 776 2,058 2,964
------ ------- ------- -------
Total....................................................... 4,301 3,460 12,097 13,320
------ ------- ------- -------
Operating loss from continuing operations........................ (453) (866) (752) (3,170)
Other income, net................................................ 1,526 40 2,189 76
------ ------- ------- -------
Income (loss) from continuing operations before
provision for income taxes.................................. 1,073 (826) 1,437 (3,094)
Provision for income taxes....................................... 100 -- 296 --
------ ------- ------- -------
Income (loss) from continuing operations......................... 973 (826) 1,141 (3,094)
Loss from discontinued operations................................ -- (1,878) -- (4,938)
------ ------- ------- -------
Net income (loss)................................................ 973 (2,704) 1,141 (8,032)
Other comprehensive income, net (Note 4)......................... 446 15 425 25
------ ------- ------- -------
Comprehensive income (loss)...................................... $1,419 $(2,689) $ 1,566 $(8,007)
------ ------- ------- -------
Basic net income (loss) per common share: (Note 5)
Income (loss) from continuing operations....................... $ 0.04 $ (0.04) $ 0.05 $ (0.15)
Loss from discontinued operations.............................. -- (0.09) -- (0.23)
Net income (loss).............................................. 0.04 (0.13) 0.05 (0.38)
Fully diluted net income (loss) per common share: (Note 5)
Income (loss) from continuing operations....................... $ 0.04 $ (0.04) $ 0.05 $ (0.15)
Loss from discontinued operations.............................. -- (0.09) -- (0.23)
Net income (loss).............................................. 0.04 (0.13) 0.05 (0.38)
Weighted average shares outstanding used in net
income (loss) per common share calculations:
Basic.......................................................... 22,898 20,995 22,790 20,887
Fully diluted.................................................. 23,783 22,995 24,329 20,887
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
VERTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED
-----------------------
SEPTEMBER 26, SEPTEMBER 27,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations................................ $ 1,141 $(3,094)
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization...................................... 763 767
Reserve for returns and bad debts.................................. 49 (18)
Changes in operating assets and liabilities (Note 4).............. (265) (214)
------- -------
Net cash provided by (used for) operating activities................. 1,688 (2,559)
------- -------
Cash flows from investing activities:
Net sales (purchases) of short-term investments......................... (978) 3,748
Additions to property and equipment..................................... (763) (361)
Change in other assets.................................................. (28) 258
------- -------
Net cash provided by (used for) investing activities................. (1,769) 3,645
------- -------
Cash flows from financing activities:
Proceeds from repayment of notes receivable............................ 25 360
Proceeds from issuance of common stock................................. 322 194
------- -------
Net cash provided by financing activities............................ 347 554
------- -------
Net cash used for discontinued operations............................ (178) (4,137)
------- -------
Effect of exchange rate changes on cash.................................... (12) (25)
------- -------
Net increase (decrease) in cash and cash equivalents....................... 76 (2,522)
Cash and cash equivalents, beginning of period............................. 6,252 8,219
------- -------
Cash and cash equivalents, end of period................................... $ 6,328 $ 5,697
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
VERTEL COROPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The consolidated financial statements include the accounts of Vertel
Corporation (formerly Retix) and its majority-owned subsidiaries (the
"Company"). All significant inter-company balances and transactions have been
eliminated in consolidation. The interim consolidated financial statements are
unaudited. As discussed more thoroughly in Note 3, the Company's former
broadband access equipment subsidiary, Sonoma Systems, Inc. ("Sonoma"), is
presented as a discontinued operation for 1997. In the opinion of management,
the interim financial statements include all adjustments, consisting of only
normal, recurring adjustments, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows. The Company
reports its interim financial information on a 13 week basis ending the last
Saturday of each calendar quarter, and reports its annual financial information
on a 52 - 53 week fiscal year which ends on the Saturday nearest to December 31.
It is suggested that these consolidated financial statements and the
accompanying notes be read in conjunction with the audited consolidated
financial statements and the accompanying notes for the year ended December 27,
1997 included in the Company's Annual Report. The results of operations for the
three and nine month periods ended September 26, 1998 are not necessarily
indicative of results that may be expected for the full year.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
2. CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments consist of the following (in thousands):
<TABLE>
<CAPTION>
September 26, December 27,
1998 1997
---- ----
<S> <C> <C>
Cash and cash equivalents........................... $6,328 $6,252
Short-term investments.............................. 978 --
------ ------
$7,306 $6,252
====== ======
</TABLE>
Cash equivalents consist of short-term investments with original maturities
of three months or less.
3. INVESTMENT
In December 1997, in order to focus exclusively on the telecommunications
network management software business, the Company's Board of Directors adopted a
formal plan to reduce the Company's investment in Sonoma through direct
investment in that entity by independent venture capital firms. The plan, as
adopted by the Board of Directors, called for the Company to reduce its
ownership interest in Sonoma to that of a passive investor with no significant
influence over the former subsidiary's operations. Sonoma raised an aggregate
of approximately $9 million by issuing preferred stock at two closings, which
occurred in January and March of 1998, thereby reducing the Company's voting
ownership in Sonoma to 19.9%. In connection with this transaction, the Company
recorded a $3.4 million increase in its net investment in Sonoma to reflect the
Company's proportionate share of Sonoma's post transaction equity and a
corresponding credit to additional paid-in capital. In addition, the $1.4
million cumulative translation loss related to a foreign subsidiary of Sonoma
was charged to additional paid-in capital. Subsequent to the transaction the
Company is accounting for its investment in Sonoma using the cost method.
As a result of the foregoing, the Company's consolidated financial
statements and related notes to financial statements for 1997 reflect the
results of operations and net liabilities of Sonoma as a discontinued operation.
5
<PAGE>
VERTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. STATEMENTS OF CASH FLOWS
Increases (decreases) in operating cash flows arising from changes in
operating assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
Nine Month Period Ended
------------------------------
September 26, September 27,
1998 1997
---- ----
<S> <C> <C>
Trade accounts receivable..................................................... $ (196) $ 722
Prepaid expenses and other current assets..................................... (44) 260
Accounts payable.............................................................. (590) (78)
Accrued wages and related liabilities......................................... 40 (107)
Cash payments for restructuring expenses...................................... (1,263) (316)
Other accrued liabilities..................................................... 1,356 (357)
Deferred rent................................................................. (10) (75)
Deferred revenue.............................................................. 442 (263)
------- -----
Decrease in operating assets and liabilities............................... $ (265) $(214)
======= =====
</TABLE>
In June 1998, the Company entered into a semi-exclusive royalty bearing
licensing contract with Symbol Software Limited ("Symbol"), a subsidiary of
Airtel ATN plc ("Airtel"), for Vertel's Aeronautical Telecommunications Network
("ATN") Router software as well as nonexclusive royalty bearing licenses of
various other TMN software products, for $1,000,000 (the "ATN Licensing").
During July 1998, the Company assigned substantially all of the assets (except
cash) and liabilities of its Irish operations, and sold the copyright and all
other intellectual property rights in a software library to Symbol in exchange
for 10% of Airtel's common stock (the "Irish Transaction"). The Irish
Transaction substantially liquidated the Company's investment in its Irish
operation. The Company's 10% ownership interest in Airtel, valued at
approximately $437,000, reflects certain restrictions including a requirement
prohibiting the Company from disposing of the Airtel shares for a period of one
year. The book value of the software library, and the net assets and liabilities
assigned to Symbol approximated zero and, as a result, the Company recognized a
gain of approximately $437,000 related to the Irish Transaction during the
quarter ended September 26, 1998. The gain of approximately $437,000 is included
in other income in the accompanying statement of operations and the value of
Company's ownership in Airtel is included in investments in the accompanying
balance sheet at September 26, 1998. As a result of the substantial liquidation
of its Irish operation, the Company recorded a $436,000 charge to other income
representing the realization of foreign currency exchange losses previously
included as cumulative translation losses in a separate component of
shareholders' equity reported on the accompanying consolidated balance sheets.
Since cumulative foreign currency translation adjustments represent the
Company's sole source of other comprehensive income, a $436,000 reclassification
adjustment, as required by the provisions of SFAS No. 130 (see Note 6), was
reflected as an increase in other comprehensive income on the accompanying
consolidated statement of operations and comprehensive income (loss) and a
reduction in the accumulated comprehensive deficit on the accompanying
consolidated balance sheets.
In January 1998, the Company recorded an increase in its net investment in
Sonoma of $3.4 million as result of the financing transaction completed
(described in Note 3). In addition, $1,431,000 in related cumulative
translation loss was charged to additional paid-in capital. Other financing and
investing activities during the nine months ended September 26, 1998 which
affected recognized assets or liabilities but that did not result in cash
receipts or cash payments were not significant.
5. PER SHARE INFORMATION
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. The
Company has reflected the provisions of SFAS 128 in the accompanying financial
statements for all periods presented. SFAS 128 replaces the presentation of
primary Earnings Per Share ("EPS") with a presentation of basic EPS, which
excludes dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. The Statement also requires the dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures.
6
<PAGE>
VERTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Diluted EPS is computed similarly to fully diluted EPS pursuant to
Accounting Principles Board Opinion No. 15. Due to the losses from continuing
operations reported by the Company in the three and the nine month periods ended
September 27, 1997, any potential common shares to be included in diluted
earnings per share as a result of common stock options and warrants are anti-
dilutive and thus diluted earnings per share and basic earnings per share are
equal. Potentially dilutive securities included in the computation of fully
diluted earnings per share, for the three and nine months ended September 26,
1998, consisted of stock options outstanding and shares represented by notes
receivable as of September 26, 1998.
6. NEWLY ADOPTED ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income,
which is effective for fiscal years beginning after December 15, 1997. SFAS 130
defines comprehensive income as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. SFAS 130 requires that
an enterprise (i) classify items of other comprehensive income by their nature
in a financial statement and (ii) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. The Company has reflected
the provisions of SFAS 130 in the accompanying financial statements for all
periods presented. The accumulated comprehensive deficit and other
comprehensive income as reflected on the accompanying consolidated balance
sheets and statements of operations and comprehensive income (loss),
respectively, consist of foreign currency translation adjustments.
7. TERMINATION OF NON-U.S. PENSION PLAN
During the nine months ended September 26, 1998 the Company finalized the
termination of a non-U.S. pension plan, which previously covered the Company's
Irish employees. This action resulted in a return of excess plan assets to the
Company. The Company recorded $400,000 as other income in the first quarter of
1998 and an additional $263,000 in the second quarter of 1998 upon final
determination of the amount of excess plan assets. The Company recorded income
taxes related to the return of the pension assets of $132,000 and $64,000 in the
first and second quarters, respectively.
8. SALE OF CDPD AND PACT TECHNOLOGIES
On July 27, 1998, the Company entered into agreements with AMP Incorporated
("AMP") whereby AMP agreed to purchase Vertel's CDPD and pACT ("Wireless")
products and technologies as well as other telecom management software. The
agreements consisted of a License and Purchase Agreement (the "Sale Agreement")
valued at $2.5 million for the sale Vertel's Wireless technology and a non-
exclusive license to certain other related technology sold in the ordinary
course of business (the "Background Technology"), and an agreement (the
"Assignment Agreement) valued at $1.0 million for the assignment of certain
contracts related to Vertel's Wireless technology. Under the terms of the Sale
Agreement, AMP was required to pay the Company $750,000 upon the execution of
the Sale Agreement, $750,000 upon the delivery of code to AMP and $1.0 million
upon the later of January 27, 1999 or the Company's completion of certain
deliverables consisting primarily of the transfer of certain reseller agreements
and the Company's support of the Background Technology for a period of six
months. As of September 26, 1998, the Company had received payments totaling
$1.5 million under the Sale Agreement. Approximately $800,000 of the Sale
Agreement, representing the value of the Background Technology licensed to AMP,
was accounted for as license revenue and approximately $1.5 million (net of
approximately $200,000 of certain deferrals) was included in other income in the
accompanying statement of operations for the quarter ended September 26, 1998.
The balance owed by AMP under the Sale Agreement at September 26, 1998 ($1.0
million) is included in trade accounts receivable in the accompanying balance
sheet. Under the terms of the Assignment Agreement, AMP is required to pay the
Company $1.0 million within five days of the Company obtaining the written
consent of a certain customer to the assignment of its license and maintenance
agreement with the Company to AMP. In October 1998, the Assignment Agreement
was amended whereby the Company agreed to provide certain deliverables including
minor product modifications, maintenance, and training (to be delivered by the
Company during the quarters ending December 31, 1998 and March 31, 1999) in
exchange for a payment of $500,000 during October 1998 and the balance, less
approximately $169,000 related to deferrals, payable during the quarter ended
March 31, 1999. Additionally, the Company anticipates the recognition of the
value of the Assignment Agreement ($1.0 million) as other income during the
quarter ending December 31, 1998.
7
<PAGE>
VERTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. SUBSEQUENT EVENT
On September 29, 1998, the Company sold 2,000,000 shares of Common Stock
for $1.50 per share ($3,000,000 in gross proceeds). The price per share was
determined as the greater of (a) the average closing price of the Common Stock
for the five days preceding the closing date and (b) $1.50. In connection with
the transaction, the Company has agreed to file a registration statement within
90 days of the closing date covering the shares issued and has agreed to bear
all expenses in connection therewith.
Of the total shares issued, 1,000,000 shares were purchased by Sierra
Ventures, a venture capital firm. Jeffrey M. Drazan, a General Partner of
Sierra Ventures, is a member of the Company's Board of Directors.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Safe Harbor" Statements under the Private Securities Litigation Reform Act
of 1995: Except for the historical information presented, the matters discussed
in this Quarterly Report on Form 10-Q are forward looking statements that
involve risks and uncertainties, including the risks of timely development,
deployment and success of new and enhanced TMN products, loss of key customer
relationships, the impact of competitive products and the dependence on key
partners and alliances, the length of the Company's sales cycle, size and timing
of license fees closed during the quarter, the likely continued significant
percentage of quarterly revenues recorded in the last month of the quarter which
makes forecasting difficult and subject to a financial risk of variance with
actual results, economic uncertainties associated with conducting business on a
worldwide basis, the Company's ability to control expenditures at a level
consistent with revenues, a likely decline in the Company's ownership position
in Sonoma Systems, Inc. and Airtel ATN plc if additional funding is required and
or obtained and the Company is unable or unwilling to participate. The risks
related to the year 2000, as the dates on which the Company believes the Year
2000 readiness program will be completed are based on Management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the implementation of the Year 2000 readiness
program. Specific factors that might cause differences between the estimates and
actual results include, but are not limited to, the availability and cost of
personnel trained in these areas, the ability to locate and correct all relevant
computer code, timely responses to and corrections by third-parties and
suppliers, the ability to implement interfaces between the new systems and the
systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-parties and the interconnection
of global businesses, the Company cannot ensure its ability to timely and cost-
effectively resolve problems associated with the Year 2000 issue that may affect
its operations and business, or expose it to third-party liability, and the
other risks detailed from time to time in the Company's public disclosure
filings with the U.S. Securities and Exchange Commission (SEC). Copies of the
most recent Forms 10-K and 10-Q are available upon request from Vertel's
Investor Relations Department.
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and accompanying notes, included in Part I -
Item 1 of this Quarterly Report, and the audited consolidated financial
statements and accompanying notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended December 27,
1997 contained in the Company's Annual Report.
RESULTS OF OPERATIONS
Net revenues. Net revenues increased $1,214,000, or 33%, to $4,908,000 for
------------
the quarter ended September 26, 1998 (the "third quarter of 1998") as compared
to $3,694,000 for the quarter ended September 27, 1997 (the "third quarter of
1997"), and increased $1,491,000, or 11%, to $14,829,000 for the three quarters
ended September 26, 1998 (the "first three quarters of 1998") as compared to
$13,338,000 for the three quarters ended September 27, 1997 (the "first three
quarters of 1997").
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
License revenues for the third quarter of 1998 ($3,551,000) increased
$1,511,000, or 74%, over the third quarter of 1997 ($2,040,000) and was due
primarily to increased license fees and royalties of telecore and access
products (including joint HP/Vertel products which were introduced in 1998) as
well as the licensing of certain Background Technology (approximately $800,000)
in connection with the Company's sale of its CDPD and pACT technologies to AMP
during the third quarter of 1998. These increases were partially offset by the
discontinuation of revenues associated with the Company's CDPD / pACT
technologies which were sold during the third quarter of 1998. License revenues
for the first three quarters of 1998 ($10,936,000) increased $1,884,000 or 21%,
compared to the first three quarters of 1997 ($9,052,000). The increase was due
primarily to a $1,000,000 semi-exclusive licensing contract during the second
quarter of 1998 of the Company's Aeronautical Telecommunications Network (ATN)
Router software; the licensing of certain Background Technology (approximately
$800,000) in connection with the Company's sale of its CDPD and pACT
technologies to AMP during the third quarter of 1998; and increases in licensing
telecore and access products (including joint HP/Vertel telecore products
which were introduced in 1998). These increases were partially offset by the one
time final billing of $1.9 million related to the discontinuance of the pACT-
based two-way paging messaging products in the corresponding period in 1997.
License revenues consist primarily of license fees and royalties derived from
the Company's TMN-based software solutions and development platforms.
Service and other revenues, which consist primarily of fees from
professional service projects, software maintenance, and custom software
engineering, decreased $297,000, or 18%, during the third quarter of 1998
compared to the third quarter of 1997. The decrease during the third quarter of
1998 was primarily the result of lower custom software engineering services
compared to the corresponding period in 1997. Service and other revenues for the
first three quarters of 1998 decreased $393,000, or 9%, compared to the first
three quarters of 1997 and was due primarily to lower revenues from professional
service contracts.
Sales to customers outside of North America comprised approximately 36% and
40%, respectively, of net revenues for the third quarter of 1998 and the first
three quarters of 1998 as compared to 39% and 36%, respectively, for the same
periods in 1997. The Company has historically reported a high percentage of
sales to customers outside of the United States which the Company believes is
suggestive of a high degree of investment by non-U.S. companies in new
infrastructure, compared to their U.S. counterparts. Continued economic turmoil
in Asia and other parts of the world could impact future sales in those regions.
Gross margin. Cost of revenues consists primarily of professional
------------
engineering services, warranty and maintenance costs, and royalties paid under
software licensing agreements. Gross margin increased to 78% and 77% of net
revenues for the third quarter of 1998 and the first three quarters of 1998
respectively, as compared to 70% and 76% for the same periods in 1997. The
increase in gross margin for the third quarter of 1998 and the first three
quarters of 1998 compared to the corresponding periods for 1997 was due
primarily to the increase in license revenues in 1998, which yield significantly
higher margins than service revenues.
Research and development. The Company has invested heavily in research and
------------------------
development ("R&D") to expand its expertise in TMN-based software solutions and
applications technologies and to continue sustaining support of its product
offerings. The major components of R&D expenses are engineering salaries,
employee benefits and associated overhead, fees to outside contractors, and the
cost of facilities and depreciation of capital equipment. Costs related to R&D
in certain cases are offset by customer reimbursement of non-recurring
engineering services.
Total R&D expenses during the third quarter of 1998 increased by $583,000,
or 53%, compared to the third quarter of 1997. As a percentage of revenue, R&D
expenses increased to 34% for the third quarter of 1998, as compared to 30% for
the same period in 1997. The increase in R&D expenses during the third quarter
of 1998 was primarily the result of additional salaries and related expenses due
to additional personnel and an increase in the average level of compensation, as
well as a reduction in the amount of expenses being reimbursed by customers as a
result of lower non-recurring engineering services during the third quarter of
1998 compared to the third quarter of 1997. R&D expenses for the first three
quarters of 1998 increased $434,000, or 10%, over the first three quarters of
1997 primarily as a result of increased personnel and an increase in the average
level of compensation.
The Company expects to continue to make significant investments in the
development of new products and feature enhancements to existing product lines,
although such expenses may fluctuate from quarter to quarter both in absolute
dollars and as a percentage of revenue, depending on the status of various
development projects and the level of non-recurring engineering services.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Sales and marketing. Sales and marketing expenses consist primarily of
-------------------
personnel and associated costs related to selling, support and marketing
activities, including marketing programs such as trade shows and other
promotional costs. The Company expects these expenses will continue to comprise
a significant percentage of the Company's total expenses because of costs
associated with supporting the worldwide sales and service functions necessary
to meet the needs of the Company's customer base and respond to the
opportunities in the TMN marketplace.
Sales and marketing expenses during the third quarter of 1998 increased
$310,000, or 20%, as compared to the third quarter of 1997. The increase in
sales and marketing expenses was due primarily to increased third party
commission payments ($104,000) as a result of greater sales occurring outside of
the U.S. and Europe during the third quarter of 1998 (as compared to the third
quarter of 1997) where the Company distributes its products primarily through
distributors, as well as increased expenses related to trade shows and
additional marketing personnel. Sales and marketing expenses during the first
three quarters of 1998 decreased $751,000, or 12%, compared to the first three
quarters of 1997. The decrease in sales and marketing expenses for the first
three quarters of 1998 was due primarily to higher promotional expenses during
the 1997 period primarily associated with the first annual TMN Summit in January
1997, lower sales salaries, commissions, and related expenses in the 1998 period
as a result of certain staff reductions which occurred during 1997, and
decreased technical support expenses as a result of the Company's disposition of
its Irish operations in July 1998 (the Company's Irish operations had previously
been devoted primarily to the development and support of the Company's ATN
software products).
The Company has developed a strategy to capitalize on the emerging TMN
market through the establishment and growth of offices and sales personnel
around the world. In conjunction with this strategy, the Company intends to
expand its sales and marketing functions further during 1999 to support
anticipated broader market adoption of TMN and anticipates those dollar
expenditures on sales and marketing will be higher in 1999 as a result thereof.
General and administrative. General and administrative (G&A) expenses
--------------------------
consist primarily of salaries, rent and other related expenses of
administrative, executive and financial personnel as well as professional fees,
investor relations costs and insurance premiums. G&A expenses during the third
quarter of 1998 decreased $52,000, or 7%, compared to the third quarter of 1997
and decreased $906,000, or 31%, during the first three quarters of 1998 compared
to the first three quarters of 1997. The decrease in 1998 was due primarily to
the elimination of certain corporate overhead expenses previously allocated to
Vertel when its operations were co-mingled with Sonoma Systems during 1997.
Operating income (loss) from continuing operations. The Company generated a
--------------------------------------------------
loss from continuing operations of $453,000, or 9%, of net revenues in the third
quarter of 1998, as compared to a loss from continuing operations of $866,000,
or 23%, of net revenues in the third quarter of 1997. The decrease in the
percentage of operating loss to net revenues in the 1998 period was due
primarily to increased gross margins (as a result of increased license revenue)
and the decrease in sales and marketing and G&A expenses as a percentage of
sales, as described above. Loss from continuing operations for the first three
quarters of 1998 was $752,000, or 5%, of net revenues as compared to a loss of
$3,170,000, or 24%, of net revenues for the corresponding period in 1997. The
decrease in the percentage of operating loss to net revenues in the 1998 period
was due primarily to the decrease in sales and marketing and G&A expenses (both
in total dollars and as a percentage of sales), as described above.
Other income, net. Other income, net for the third quarter of 1998
-----------------
($1,526,000), consisted primarily of the sale of the Company's CDPD and pACT
technologies to AMP (valued at $1,500,000, net of certain adjustments) and a
$437,000 gain on the sale of a software library and the assignment of certain
assets and liabilities of the Company's ATN operations in Ireland to a
subsidiary of Airtel ATN plc. These amounts were partially offset by the
realization of a cumulative exchange loss of approximately $436,000 related to
the disposition of the Company's Irish operations. Other income for the first
three quarters of 1998 ($2,189,000) consisted primarily of the sale of
the CDPD and pACT technologies to AMP ($1,500,000); a gain on the sale of a
software library and the assignment of certain assets and liabilities of the
Company's ATN operations ($437,000); and a gain of $663,000 from the curtailment
of a non-U.S. pension plan that previously covered the Company's Irish
employees. These amounts were partially offset by the realization of the
$436,000 cumulative exchange loss previously described.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Provision for income taxes. The Company recorded a provision for income
--------------------------
taxes in the amount of $100,000 for the third quarter of 1998 for certain U.S.
and foreign income taxes. For the first three quarters of 1998, the
Company recorded a provision for income taxes of $296,000, which included U.S.
and foreign income taxes as well as an estimate for non-U.S. taxes associated
with the surplus assets refunded upon curtailment of a non-U.S. pension plan. No
income tax provisions were made for the comparable periods in 1997. The Company
anticipates utilizing net operating losses to offset the balance of pre-tax
income in the first three quarters of 1998.
The Company has a net deferred tax asset approximating $25 million,
primarily as a result of cumulative losses, which has been substantially offset
by a valuation allowance. Benefit from the net deferred tax assets will be
realized to the extent that the Company operates profitably in the future.
LIQUIDITY AND CAPITAL RESOURCES
Net cash generated from operating activities during the first three
quarters of 1998 was $1,688,000. The positive cash flow from operations was
comprised primarily of net income ($1,141,000), non-cash depreciation and
amortization ($763,000), and an increase in other accrued liabilities
($1,356,000). These amounts were, partially offset by decreases in accrued
restructuring expenses ($1,263,000) and accounts payable ($590,000).
Net cash used for investing activities during the first three quarters of
1998 was $1,769,000 and was primarily the result of purchases of short-term
investments ($978,000) and purchases of property and equipment ($763,000).
Net cash from financing activities during the first three quarters was
$347,000, primarily the result of the exercise of stock options ($322,000).
On September 29, 1998, the Company sold 2,000,000 shares of Common Stock
for $1.50 per share ($3,000,000 in gross proceeds) through a private placement.
The Company believes that cash generated from operations and the Company's
ability to generate cash from other sources which, when combined with the
Company's cash and short-term investment balances ($7,306,000 at September 26,
1998) and the proceeds from the private placement on September 29, 1998
($3,000,000 in gross proceeds), will be sufficient to meet the Company's
liquidity requirements for the next twelve months. From time to time, the
Company may also consider the acquisitions of, or evaluate investments in,
certain products and businesses complementary to the Company's business. Any
such acquisitions or investments may require additional capital resources.
YEAR 2000 ISSUES
General. The Company is currently conducting a company-wide Year 2000
--------
readiness program ("Y2K Program"). The Y2K Program is addressing the issue of
computer programs and embedded computer chips being unable to distinguish
between the year 1900 and the year 2000. Therefore, some computer hardware and
software will need to be modified prior to the Year 2000 in order to remain
functional. The Company anticipates that Year 2000 compliance will be
substantially complete by March 1999.
Y2000 Program. The Company's Y2K Program is divided into four major
-------------
sections: (1) Company developed products, (2) internal information ("IP")
system, (3) non-IP system, and (4) third-party suppliers and customers. The
general phases common to all sections are: (1) inventorying Year 2000 items; (2)
assessing the Year 2000 compliance of items determined to be material to the
Company; and (3) repairing or replacing material items that are determined not
to be Year 2000 compliant.
The Company has completed the review of all Company developed products for
Year 2000 compliance purposes. The Company believes that most (75%) of the
Company's products are Year 2000 compliant and that those that are not Year 2000
compliant will be upgraded to be Year 2000 compliant by March 1999. However,
to the extent that others, such as system integrators, make use of the Company's
software in developing solutions for third parties, the Company may have no
knowledge as to the Year 2000 readiness of those third party products. In
addition it is possible that third parties could assert claims against the
Company or its customers concerning Year 2000 issues and regardless of their
merits or lack thereof, such claims could be material.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 ISSUES (CONTINUED)
The Company has completed an evaluation of Year 2000 issues associated with
its internal IP computer systems. Most of the Company's computer systems are
already Year 2000 compliant. Other internal computer systems that have been
identified as non-compliant will be upgraded to be Year 2000 compliant by March
1999.
The Company has completed an evaluation of Year 2000 issues associated with
its non-IP systems. Most of them are Year 2000 compliant. Those non-IP systems
that are not Year 2000 compliant will be repaired or replaced by June 1999.
The Company has completed an evaluation of the possible effects on the
Company's operations of the Year 2000 readiness of its key suppliers. The
Company relies on third party manufacturers for the proper functioning of its
information systems, software and products. The failure of those manufacturers
to address Year 2000 issues could have a material impact on the Company's
operations and financial results; however, the potential impact and related
costs are not known at this time.
Costs. The total cost associated with required modifications to become Year
-----
2000 compliant is not expected to be material to the Company's financial
position. Through September 26, 1998, the Company has spent less than $50,000 to
implement the Year 2000 compliance program. That amount has been expensed. The
Company estimates that it may spend up to an additional $250,000 for other
replacements or upgrades and for communicating with key suppliers and customers.
Approximately $100,000 of that amount will relate to new computer equipment and
software and will be capitalized, and the remainder will be expensed as
incurred.
Risks. The failure to correct a material Year 2000 problem could result in
-----
an interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Y2K Program is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem. The Company believes that, with the implementation of new business
systems and completion of the Y2K Program as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
The Company does not yet have a contingency plan to address the Y2000
problem, but it is expected to create one by June, 1999 if it appears that the
Company or its key suppliers and customers will not be Year 2000 compliant and
that such non-compliance is expected to have a material adverse impact on the
Company's operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to, nor is
their property the subject of, any material pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
12
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On September 29, 1998, the Company sold 2,000,000 shares of Common Stock
for $1.50 per share ($3,000,000 in gross proceeds). The price per share was
determined as the greater of (a) the average closing price of the Common Stock
for the five days preceding the closing date and (b) $1.50. In connection with
the transaction, the Company has agreed to file a registration statement within
90 days of the closing date covering the shares issued and has agreed to bear
all expenses in connection therewith.
Of the total shares issued, 1,000,000 shares were purchased by Sierra
Ventures, a venture capital firm. Jeffrey M. Drazan, a General Partner of Sierra
Ventures, is a member of the Company's Board of Directors.
Proposals of stockholders intended to be presented at the Company's 1999
annual meeting of shareholders must be received at the Company's principal
executive offices not later than October 30, 1998 in order to be included in the
Company's proxy statement and form of proxy relating to the 1999 annual meeting.
Pursuant to new amendments to Rule 14a-4(c) of the Securities Exchange Act of
1934, as amended, if a shareholder who intends to present a proposal at the 1999
annual meeting of stockholders does not notify the Company of such proposal on
or prior to March 15, 1999, then management proxies would be allowed to use
their discretionary voting authority to vote on the proposal when the proposal
is raised at the annual meeting, even though there is no discussion of the
proposal in the 1999 proxy statement. The Company currently believes that the
1999 annual meeting of stockholders will be held during the fourth week of May
1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.57+ Sale and License Agreement between the Company and AMP
Incorporated, dated July 27, 1998, and an Amendment dated
October 9, 1998
10.58 Common Stock Purchase Agreement between the Company and
Pequot Private Equity Fund, L.P. and Pequot Offshore Private
Equity Fund, Inc. and Sierra Ventures V, L.P., dated
September 29, 1998.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
- -----------
+ Portions of the exhibit have been omitted pursuant to a request for
confidential treatment and the omitted portions have been separately filed
with the Commission.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERTEL CORPORATION
(Registrant)
Date: November 4, 1998 /S/ Gordon Almquist
----------------------------------------
Gordon Almquist
Vice President of Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
<PAGE>
EXHIBIT 10.57
LICENSE AND PURCHASE AGREEMENT
------------------------------
This Agreement made and entered into this 27th day of July, 1998
by and between The Whitaker Corporation, a Delaware corporation and a wholly
owned subsidiary of AMP Incorporated ("Licensee") and Vertel Corporation, a
California corporation ("Licensor").
WITNESSETH:
----------
WHEREAS, Licensor has designed and developed and is the owner of
various CDPD technology together with certain trade secrets, copyrights,
know-how and other information related thereto; and
WHEREAS, Licensee desires to purchase certain assets related to such
CDPD technology described as Purchased Technology hereinafter and to obtain a
non-exclusive license in and to other assets of such technology and related
information (described as Background Technology hereinafter) and to obtain a
non-exclusive sublicense in and to the _________ as described hereinafter), and
Licensor is willing to sell the Purchased Technology and to grant such licenses,
subject to the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties hereto hereby agree as follows:
1.0 Definitions
-----------
When used herein, the following terms shall have the following
meanings:
1.1 "AMP" shall mean AMP Incorporated.
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
1.2 "Background Technology" shall mean the software programs
listed below and all related documentation and any and all proprietary data,
trade secrets, patents or patent rights, copyrights, whether registered or
unregistered, trademarks or service marks, whether registered or unregistered,
information, inventions, know-how, designs, products, processes, methods,
discoveries and other intellectual property relating thereto, as they exist as
of the date of this Agreement, which were designed and developed and are owned
by Licensor or designed and developed by third parties working under contract
for Licensor and legally or contractually obligated to assign all rights therein
to Licensor, in source code or binary format as follows:
Part Number Description Version Code Type
- ----------- ----------- ------- ---------
S-3800085-00-D TMN C 2.1.2 Binary
Object Compiler
3800276-00-G TMN Agent 3.0, includes Source
ToolKit (Source) NMG 20
S-3800193-00-B UTS Netlink 3.1 Source
for Solaris
1.3 ______ shall mean the software known as _____ which is
owned by _________
1.4 "Derivative Works" shall have the meaning ascribed to such
term in the U.S. Copyright Act, 17 U.S.C..
1.5 "Licensed Technology" shall mean the Background Technology
and the __________
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
2
<PAGE>
1.6 "Purchased Technology" shall mean the software programs
listed below and all related documentation and any and all proprietary data,
trade secrets, patents or patent rights, copyrights, whether registered or
unregistered, trademarks or service marks, whether registered or unregistered,
information, inventions, know-how, designs, products, processes, methods,
discoveries and any other intellectual property relating thereto , as they exist
as of the date of this Agreement, which were designed and developed and are
owned by Licensor or designed and developed by third parties working under
contract for Licensor and which third parties were legally or contractually
obligated to assign all rights therein to Licensor, all in source code format as
further defined in documents identified as PIA-96:112 dated March 11, 1996, as
follows, but excluding any Background Technology embedded therein:
1.6.1 CDPD MD-IS Product.
1.6.2 CDPD Network Management System product.
1.6.3 CDPD Customer Activation System product.
1.6.4 CDPD Accounting Server product.
1.6.5 pACT PD-IS Intermediate System product.
1.6.6 pACT Customer Activation System product.
1.6.7 Configuration Management Tool.
1.7 The "Products" shall mean all products which utilize or are
based upon the Purchased Technology.
1.8 "Reseller Agreements" shall mean the following third party
reseller software agreements:
3
<PAGE>
1.8.1 Agreement between Licensor and ____________________ dated
August 22, 1995, as amended.
1.8.2 Agreement between Licensor and ____________________ dated
June 8, 1994.
1.8.3 Agreement between Licensor and ____________________ dated
June 30, 1995.
1.9 __________ Agreements shall mean reseller software agreements
between Licensor and third parties who themselves are resellers of the following
products of ___________________ Corporation.
___________________________
___________________________
___________________________
___________________________
___________________________
___________________________
2.0 Purchase and Grant of License
-----------------------------
2.1 Licensor hereby grants to Licensee, subject to the terms and
conditions of this Agreement, an unrestricted, non-exclusive, irrevocable, fully
paid up, perpetual, royalty free worldwide license (a) under the Background
Technology to make, have made, market, use, reproduce, and sell the Products
either standalone or as part of other products, (b) to use, reproduce, and
sublicense the Background Technology in the areas of CDPD or pACT technology,
and (c) to improve, make Derivative Works of, enhance, modify or otherwise
revise the Background Technology in the areas of CDPD or pACT technology
(collectively "Enchancements") and to use, reproduce, sublicense
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
4
<PAGE>
such Enhancements and to make, have made, market, use, reproduce, and sell
products which use or incorporate such Enhancements. Neither party hereto shall
be obligated to share with the other any Enhancements which it makes to the
Background Technology, unless the parties so agree in a separate written
agreement; provided, however, that if Licensor makes or releases any
Enhancements within six (6) months after the date hereof, Licensor shall provide
such Enhancements to Licensee at no additional charge in the format of code
specified in Section 1.2 hereof. Licensor shall provide support for the
Background Technology to Licensee pursuant to a certain support agreement
between the parties of even date herewith (the "Support Agreement").
2.2 Licensor shall, simultaneously with the execution hereof and
pursuant to a mutually agreeable assignment agreement, assign to Licensee the
Reseller Agreements. Licensee shall assume no liability of Licensor under the
Reseller Agreements.
2.3 Licensor hereby grants to Licensee, subject to the terms and
conditions of this Agreement, an unrestricted (except for the fact that all
copyright legends included on the _______________ are to be maintained thereon),
non-exclusive, irrevocable, fully paid up, perpetual, royalty free worldwide
sublicense (a) under the ________ ______________ to make, have made, market,
use, reproduce and sell the Products either standalone or as part of other
products, (b) to use, reproduce, further sublicense and sell the
__________________ in the areas of CDPD or pACT technology, and (c) to improve,
make Derivative Works of, enhance, modify or otherwise revise the
_______________________ the areas of CDPD or pACT technology (collectively
_________________ and to use, reproduce,
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
5
<PAGE>
sublicense such __________________________ and to make, have made, market, use,
reproduce and sell products which use or incorporate such _______________
Neither party hereto shall be obligated to share with the other, or with
__________________________ any __________________________ which it makes to the
_____________________ unless the parties so agree in a separate written
agreement.
2.4 Licensor shall use its best efforts to assist Licensee in
entering into reseller agreements with third party resellers which are
counterparts of the _____ ____________________ Agreements.
2.5 Licensor hereby sells, assigns, and conveys to Licensee all
right, title and interest in and to the Purchased Technology, and agrees to
execute simultaneously with the execution of this Agreement a mutually
acceptable assignment document evidencing the assignment, transfer, grant and
conveyance to Licensee of the Purchased Technology.
3.0 Consideration
-------------
As the sole consideration for the purchases, licenses,
assignments and other transactions described in Section 2.0 hereof, Licensee
shall pay to Licensor the sum of $2,500,000 as follows, all by wire transfer
within five (5) business days after the designated dates:
3.1 $750,000 simultaneously with the execution hereof.
3.2 $750,000 on the delivery of the code under Section 6.0
hereof and the delivery of notice to such effect by Licensor to Licensee.
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
6
<PAGE>
3.3 $1,000,000 upon the later to occur of (a) six (6) months
after the date hereof, or (b) the consummation of all transactions described
herein, including, without limitation, the obtaining by Licensee of the reseller
agreements described in Section 2.4 hereof (it being understood that Licensee
shall provide reasonable cooperation in connection therewith); and the delivery
of notice to such effect by Licensor to Licensee.
4.0 AMP
---
Licensee is entering into this Agreement on behalf of AMP.
AMP, together with its divisions, subsidiaries, joint ventures, affiliates and
other related entities, shall at all times have the full right, power and
authority to exercise on its and their own behalf all license, sublicense and
other rights granted to Licensee hereunder. Each use of the word "Licensee" in
this Agreement shall be deemed to include AMP and its divisions, subsidiaries,
joint ventures, affiliates and other related entities.
5.0 Other Agreement
---------------
M/A-COM, a Division of AMP and Licensor have on even date
herewith entered into a certain Agreement (the "Other Agreement"). Even if the
Other Agreement by its terms or otherwise at any time becomes null and void,
there shall be no effect upon this Agreement and this Agreement shall remain in
full force and effect.
6.0 Delivery
--------
No later than thirty (30) days after the date hereof,
Licensor shall deliver to Licensee two (2) full copies of the source code,
including all relevant documentation,
7
<PAGE>
for the Purchased Technology, the source code for the _________ and the format
of code specified in Section 1.2 hereof for the Background Technology.
7.0 Technical Assistance
--------------------
Licensor shall provide Licensee with one hundred sixty (160)
of technical assistance regarding use of the Licensed Technology at no
additional charge. Licensee shall have the right to purchase additional
technical assistance from Licensor at the rate of ____________ for a period of
six (6) months after the date hereof. Licensee shall have the right to make
employment offers to and hire employees of Licensor who were previously involved
in the development and/or maintenance of the Purchased Technology.
8.0 Ownership
---------
8.1 Licensee shall at all times own the entire right, title
and interest in and to any Derivative Works made by Licensee and has the right
under Article 2 above to make such Derivative Works without any claim by
Licensor of infringement of any underlying work from which the Derivative Works
are derived.
8.2 Licensor shall at all times own the entire right, title
and interest in and to the Background Technology. Licensee shall at all times as
of the date set forth in the first paragraph of this Agreement own the entire
right, title and interest in and to the Purchased Technology.
8.3 In the event the __________ Agreement (as defined in the
Other Agreement) is not assigned by Licensor to M/A-COM, a Division of AMP in
accordance with the Other Agreement, Licensor shall retain the limited right to
use the Purchased
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
8
<PAGE>
Technology and the Licensed Technology to meet obligations previously agreed to
by Licensor under the ___________ Agreement including the release of source code
thereunder specifically for the use described thereunder, and which limited
right shall last only for the period of time until such obligations to _________
are fulfilled.
8.4 Licensor shall have the right to use the Purchased
Technology to meet its obligations under the Support Agreement.
9.0 Technology
----------
9.1 Licensor represents and warrants that the Purchased
Technology and the Licensed Technology represent, include and constitute all of
the technology of any nature whatsoever now or previously utilized by Licensor
in the conduct and operation of Licensor's line of business being assigned to
M/A-COM, a Division of AMP pursuant to the Other Agreement.
9.2 In the event Licensor at any time becomes party to any
proceeding under the U.S. Bankruptcy Code, Licensee shall retain all its license
rights hereunder pursuant to (S)365 of the U.S. Bankruptcy Code.
10.0 Representations and Warranties
------------------------------
Licensor represents and warrants as follows:
10.1 The license and other rights granted to Licensee under
this Agreement do not require the consent of any person or entity other than
Licensor. The Purchased Technology and the Background Technology are owned
exclusively by the Licensor, are freely transferrable by Licensor and are free
and clear of any Liens (as defined in the Other Agreement).
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
9
<PAGE>
10.2 Except as set forth in Exhibit A attached hereto, no
third party or entity has an interest in or right or license to use, or the
right to license any other person or entity to use, any of the Purchased
Technology.
10.3 There are no claims or demands of any third party or
entity pertaining to the Purchased Technology or the Background Technology and
no proceedings have been instituted, or are pending or, to the knowledge of the
Licensor, are threatened, which challenge Licensor's rights in respect thereof
or with respect to the ___________, the Reseller Agreements or the ___________
Agreements.
10.4 To Licensor's knowledge, none of the Purchased
Technology or the Background Technology is being infringed by another person or
entity or is subject to any outstanding order, decree, ruling, charge,
injunction, judgment or stipulation.
10.5 No Claim (as defined in the Other Agreement) has been
made or has been threatened with respect to the Purchased Technology or the
Background Technology charging the Licensor with infringement of any third party
intellectual property.
10.6 Licensor has the full, complete and unrestricted right,
power and authority to sublicense the _____________ to Licensee as set forth in
Section 2.3 of this Agreement.
10.7 Licensor has good and marketable title to the Purchased
Technology, free and clear of all Liens (as defined in the Other Agreement) and
the sale and delivery of the Purchased Technology to Licensee pursuant hereto
shall vest in
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
10
<PAGE>
Licensee good and marketable title thereto, free and clear of any and all Liens
(as defined in the Other Agreement).
10.8 Neither the Licensor nor any other person or entity is
in default under the Reseller Agreements or the ____________ Agreements.
10.9 Licensor has the full, complete and unrestricted right,
power and authority to assign the Reseller Agreements to Licensee as set forth
in Section 2.2 of this Agreement.
11.0 Infringement
------------
11.1 Licensor shall defend, indemnify and hold harmless
Licensee from and against any Claim (as defined in the Other Agreement) that
Licensee's use of the Purchased Technology or the Background Technology
hereafter or hereunder infringes any patent of a country covered by the scope of
the _____________ Agreement (as defined in the Other Agreement) or the _________
Agreement. (as defined in the Other Agreement), copyright, trade secret or other
proprietary rights of any third party, provided that Licensor's liability under
this Section 11.1 shall not exceed an amount equal to two (2) times paid by
Licensee to Licensor under this Agreement.
11.2 Each party shall promptly notify the other party in
writing of any infringement of the Background Technology as it relates to the
Purchased Technology by a third party which it becomes aware of at any time.
Licensor shall have a period of ninety (90) days from its awareness of such
infringement or receipt of such notice to initiate legal proceedings against the
alleged infringer or to provide notice to Licensee
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
11
<PAGE>
that it will not initiate such proceedings. In the event Licensor does initiate
such proceedings, they shall be subject to the following:
11.2.1 Licensor shall be responsible for the control
of such proceedings and shall pay all expenses incurred in connection therewith.
11.2.2 Licensee shall provide to Licensor reasonable
cooperation in initiating or carrying on such proceedings.
11.2.3 Any monetary recovery obtained by Licensor as
a result of such proceeding shall be retained by Licensor.
11.3 In the event Licensor does not commence a proceeding
against, or otherwise stop, an alleged infringer in accordance with Section 11.2
hereof within the time period specified therein, Licensee shall have the option
to commence such a proceeding on its own behalf in Licensor's name. All such
proceedings brought by Licensee shall be subject to the following:
11.3.1 Licensee shall be responsible for the control
of such proceeding and shall pay all expenses incurred in connection therewith.
11.3.2 Licensor shall provide to Licensee reasonable
cooperation in initiating or carrying on such proceedings.
11.3.3 Any monetary recovery obtained by Licensee as
a result of such proceeding shall belong solely to Licensee.
12.0 Damages
-------
Except with respect to Section 11.1 hereof, neither party
shall have any liability to the other for consequential, indirect or special
damages.
12
<PAGE>
13.0 Miscellaneous Provisions
------------------------
13.1 The performance of each party hereunder shall be in
compliance with all applicable foreign, federal, state and local laws, rules and
regulations.
13.2 Each party shall perform as an independent contractor
hereunder and nothing contained herein shall be construed as giving rise to a
joint venture; partnership or other form of business relationship.
13.3 Neither party shall be liable to the other party for a
delay in performance arising out of causes beyond such party's control,
including, without limitation, strikes, riots, weather difficulties, fires and
acts of God or government.
13.4 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware.
13.5 All notices given hereunder shall be in writing and shall
be sent by certified mail, return receipt requested, addressed to the other
party as follows, provided that either party may change such address by
providing written notice thereof:
If to Licensee: The Whitaker Corporation
4550 New Linden Hill Road, Suite 450
Wilmington, Delaware 19808
Attn: Director of Licensing
with copies to: M/ACOM, a Division of AMP Incorporated
1011 Pawtucket Blvd.
P.O. Box 3295
Lowell, MA 018533295
Attn: Ms. Jean L. Ribeiro
Contracts Manager
13
<PAGE>
If to Licensor: Vertel Corporation
21300 Victory Blvd.
Suite 1200
Woodland Hills, CA 91367
Attn: Mr. David Brock
Director of Contracts
13.6 The headings of this Agreement have been inserted for
convenience of reference only and are to be of no force or effect in any
interpretation or construction of this Agreement.
13.7 In the event that any provision of this Agreement shall be
held to be illegal or null and void by any court of competent jurisdiction, such
determination shall not affect the remainder of this Agreement and it shall
remain in full force and effect.
13.8 Licensee shall have no responsibility for the payment of
any taxes arising out of or in connection with this Agreement.
13.9 The failure of either party at any time or times to require
performance of any provision hereof shall not affect its right at a later time
to enforce the same. No waiver by either party of the breach of any provision
hereof shall be deemed to be a continuing or further waiver of any such breach.
This Agreement may be assigned in whole or in part by Licensee.
13.10 This Agreement constitutes the entire agreement between the
parties concerning the subject matter hereof and supersedes, except for the
Other Agreement, any and all prior or contemporaneous agreements and
understandings in
14
<PAGE>
connection therewith. This Agreement may be amended, modified or revoked only by
a written instrument executed by both parties hereto.
13.11 This Agreement may be delivered by facsimile copies, and
such facsimile copies shall be deemed to be executed originals for all purposes.
This Agreement may be executed in a series of counterparts all of which, when
taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto under seal in duplicate originals as of the date first written above.
THE WHITAKER CORPORATION VERTEL CORPORATION
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ James Brill
------------------------------ ------------------------------
Title: PRESIDENT Title: V P
--------------------------- ---------------------------
15
<PAGE>
AGREEMENT
---------
Agreement dated as of July 27, 1998, by and between AMP Incorporated,
acting through its M/A-COM Division, a Pennsylvania corporation ("Buyer") and
Vertel Corporation, a California corporation ("Seller").
This Agreement sets forth the terms and conditions upon which the
Buyer will obtain from the Seller and the Seller will assign to the Buyer
certain agreements of the Seller, subject to those liabilities of the Seller
which are specifically hereinafter described, for the consideration provided
herein.
In consideration of the foregoing, the mutual representations,
warranties and covenants set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties to this Agreement hereby agree as follows:
1.0 DEFINITIONS
-----------
1.1 Definitions. For the purposes of this Agreement, all capitalized
-----------
words or expressions used in this Agreement shall have the meanings specified in
this Section 1.0 (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
______ means _________________________
_________ Agreement" means a certain Reseller Agreement between Seller
and ______ dated July 16, 1996, as amended September 16, 1997.
_________ Backlog" means the unfilled balance of obligations against
orders placed with Seller by ____ under the __________ Agreement
"Agreement" means this Agreement and all Exhibits hereto.
---------
"Assigned Agreements" means the ___________ Agreement, the _________
-------------------
Agreement and the __________ Agreement.
"Assigned Backlog" means the __________ Backlog, the _________ Backlog and
----------------
the ________ Backlog.
"Assigned Items" means the Assigned Agreements and the Assigned Backlog.
--------------
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
16
<PAGE>
"Charter" means the Certificate of Incorporation, Articles of Incorporation
-------
or Organization or other organizational document of a corporation, as amended
and restated through the date hereof.
"Claim" means an action, suit, proceeding, hearing, investigation,
-----
litigation, charge, complaint, claim or demand.
______________ means ______________________.
__________ Agreement" means a certain Agreement between __________ and
Seller dated March 15, 1996, as amended March 16, 1998.
__________ Backlog means the unfilled balance of obligations against orders
placed with Seller by __________________ under the __________ Agreement.
______________________ Agreement means ______________________
______________________ Agreement means a certain Software License Agreement
between ______________________ and Seller dated June 17, 1997.
___________ Backlog means the unfilled balance of obligations against
orders placed with Seller by ______________________ under the __________
Agreement.
"License Agreement" means a certain License and Purchase Agreement of
-----------------
even date herewith between Seller and The Whitaker Corporation.
"Lien" means, with respect to any asset, any mortgage, deed of trust,
----
pledge, hypothecation, assignment, security interest, lien, charge, restriction,
adverse claim by a third party, title defect or encumbrance of any kind.
"Person" means any individual, firm, partnership, association, trust,
------
corporation, limited liability company, governmental body or other entity.
"Reseller Agreement" means a certain Reseller Agreement between Buyer
------------------
and Seller dated December 26, 1997.
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
2
<PAGE>
2.0 ASSIGNED ITEMS
--------------
2.1 _______ Simultaneously with the execution hereof, Seller shall
request ____________ consent to the assignment of the _________ Agreement and
the ____________ Backlog together with the Software Maintenance Agreement dated
July 1996 between Seller and ______, from Seller to Buyer, and the parties shall
proceed as follows in connection therewith:
2.1.1 Immediately upon the receipt of such consent in form and
substance as set forth in Exhibit A attached hereto, (a) Seller shall execute in
favor of Buyer an assignment of the ____________ Agreement, ____________ Backlog
and such Software Maintenance Agreement in form and substance as set forth in
Exhibit B attached hereto, such assignment to include all right, title and
interest of Seller under the ____________ Agreement the ______________ Backlog
and such Software Maintenance Agreement, except for amounts due from _______ to
Seller for services performed or items delivered prior to the date of such
assignment, and (b) Buyer shall execute in favor of Seller an assumption of the
__________ Agreement, the _________ Backlog and such Software Maintenance
Agreement in form and substance as set forth in Exhibit B, such assumption to
include all obligations of Seller under the __________ Agreement the ________
Backlog and such Software Maintenance Agreement, except as set forth in Section
2.9 hereof.
2.1.3 In the event such consent for all such items from
____________ is not received within ninety (90) days after the date hereof, this
Section 2.1 shall automatically be rendered null and void and of no further
force or effect.
2.2 ____________ Simultaneously with the execution hereof, Seller shall
request consent to the assignment of the __________ Agreement, together with the
associated Escrow Agreement, and the ____________ Backlog from Seller to Buyer,
and the parties shall proceed as follows in connection therewith:
2.2.1 Immediately upon the receipt of such consent in form and
substance as set forth in Exhibit A, (a) Seller shall execute in favor of Buyer
an assignment of the ______________ _____________ Agreement the __________
Backlog and such Escrow Agreement in form and substance as set forth in Exhibit
B, such assignment to include all right, title and interest of Seller under the
____________ Agreement the ___________ Backlog and such Escrow Agreement, except
for amounts due from ____________ to Seller for services performed or items
delivered prior to the date of such assignment, and (b) Buyer shall execute in
favor of Seller an assumption of the __________ Agreement the __________ Backlog
and such Escrow Agreement in form and substance as set forth in Exhibit B, such
assumption to include all obligations of Seller under the ___________ Agreement
the _________ Backlog and such Escrow Agreement, except as set forth in Section
2.9 hereof.
2.2.2 In the event such consent from ____________ is not received
within ninety (90) days after the date hereof, this Section 2.2 shall
automatically be rendered null and void and of no further force or effect.
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
3
<PAGE>
2.2.3 In the event ____________ fails to provide such consent and
instead invokes its right to receive source code under the __________ Agreement
and such Escrow Agreement, (a) this Section 2.2 shall be null and void as
described in Section 2.2.3 hereof, and (b) Seller shall have the entire right,
title and interest in and to any amounts payable by ____________ under the
__________ Agreement as a result of ____________ receipt of such source code,
including, without limitation, any residual royalties.
2.3 ____________ Prior to the execution hereof, Seller and Buyer have
obtained ____________ consent to the assignment of the __________ Agreement and
the __________ Backlog from Seller to Buyer in form and substance as set forth
in Exhibit A-1 attached hereto. Immediately upon the execution of this
Agreement, (a) Seller shall execute in favor of Buyer an assignment of the
__________ Agreement and the __________ Backlog in form and substance as set
forth in Exhibit B, such assignment to include all right, title and interest of
Seller under the __________ Agreement and the ___________ Backlog except for
amounts due from ____________ to Seller for services performed or items
delivered prior to the date of such assignment, and (b) Buyer shall execute in
favor of Seller an assumption of the __________ Agreement and the __________
Backlog in form and substance as set forth in Exhibit B, such assumption to
include all obligations of Seller under the __________ Agreement and the
__________ Backlog except as set forth in Section 2.9 hereof.
2.4 Independent Obligations. The failure to obtain one of, but not
-----------------------
both of, the desired consents from ____________ and ____________ shall not
affect this Agreement, except with respect to the items for which consent was
not obtained and with respect to the purchase price as described in Section 2.7
hereof.
2.5 License Agreement. The parties acknowledge that on even date
-----------------
herewith Seller has entered into the License Agreement. In the event this
Agreement is rendered null and void due to the failure to obtain all of the
required consents to the assignment to the Assigned Items, the License Agreement
shall not be affected thereby and shall remain in full force and effect.
2.6 Additional Conditions. In the event ____________ or ____________
---------------------
require Buyer to enter into additional agreements or to agree to additional
conditions with respect to the assignment of any of the Assigned Items, Buyer
shall in its sole discretion have the right to accept or reject such conditions
and shall have no liability to Seller if such rejection causes ____________ or
____________ to refuse to provide the desired consent.
2.7 Purchase Price. The purchase price for the Assigned Items shall be as
--------------
follows:
2.7.1 Within five (5) working days after the execution of the
assignment of the __________ Agreement and the __________ Backlog from Seller to
Buyer, Buyer shall pay Seller the sum of $1,000,000 by wire transfer; provided,
however, that Buyer shall withhold ____________ of such amount until the earlier
to occur of (a) Seller provides notice to Buyer from ____________ that all
credits in favor of ____________ under Section 4.2 of the ____________ Agreement
have been liquidated, or (b) February 28, 1999. In the event the assignment of
the __________ Agreement and the __________
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
4
<PAGE>
Backlog does not occur and ____________ seeks to recover such credits from
Buyer, Seller shall pay Buyer an amount not to exceed ____________ to cover such
credits.
2.7.2 The only consideration for the assignment of the ____________
Agreement said Software Maintenance Agreement, the ____________ Backlog the
____________ Agreement and the ____________ Backlog shall be the Buyer's
assumption of Seller's obligations thereunder.
2.8 Reseller Agreement. The parties hereby terminate and cancel in its
------------------
entirety and render null and void the Reseller Agreement.
2.9 Existing Indemnities. Notwithstanding any provision of this
--------------------
Agreement or of any assignment of the Assigned Agreements to Buyer, Seller shall
remain fully responsible for, and shall indemnify Buyer against, any warranties
or indemnifications regarding intellectual property rights or related matters
contained in the Assigned Agreements. Such indemnification by Seller shall not
be subject to the time limitations set forth in Section 6.1 hereof, and such
indemnification shall be in an amount no greater than the larger of (a) the
amount of the indemnification provided for in the applicable Assigned Agreement,
or (b) (i) ____________ if the _____________________ Agreement and the
____________ Backlog are not assigned to Buyer, or (ii) ____________ if the
_________________ Agreement and the ____________ Backlog are assigned to Buyer.
3.0 REPRESENTATIONS AND WARRANTIES OF THE SELLER
--------------------------------------------
The Seller hereby represents and warrants to Buyer as follows:
3.1 Organization and Qualification. Seller is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
California. Seller has full power and authority to own, use and lease its
properties and to conduct its business relating to or affecting the Assigned
Items as currently conducted and as proposed to be conducted. The copies of the
Seller's Charter and By-Laws, as amended to date, certified by its Secretary and
delivered to Buyer's counsel prior to the date hereof, are true, complete and
correct. The Seller is qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which it owns or leases property
relating to or affecting the Assigned Items or maintains inventories or where
the conduct of its business relating to or affecting the Assigned Items would
require such qualification.
3.2 Authority: No Violation. Seller has all requisite corporate power
-----------------------
and authority to enter into this Agreement and to carry out the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the License Agreement by the Seller has been duly and validly authorized and
approved by all necessary corporate action. This Agreement and the License
Agreement constitute the legal and binding obligation of the Seller, enforceable
against it in accordance with its terms. To the best knowledge of Seller, the
entering into of this Agreement and the License Agreement by the Seller does
not, and the consummation by the Seller of the transactions contemplated hereby
and thereby will not, violate the provisions of
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
5
<PAGE>
(a) any applicable federal, state, local or foreign laws, (b) the Seller's
Charter or By-Laws, or (c) any provision of, or result in a default or
acceleration of any obligation under, or result in any change in the rights or
obligations of the Seller under, any Lien, contract, agreement, license, lease,
instrument, indenture, order, arbitration award, judgment, or decree to which
the Seller is a party or by which it is bound, or to which any property of the
Seller is subject.
3.3 Title, Sufficiency and Condition of Assets. The Seller has good
------------------------------------------
and marketable title to the Assigned Items, free and clear of all Liens, and
free of any non-performance or Claims thereof, and the sale and delivery of the
Assigned Items to Buyer pursuant hereto shall vest in Buyer good and marketable
title thereto, free and clear of any and all Liens.
3.4 Default. Neither the Seller nor any other Person is in default
-------
under any Assigned Item.
3.5 Compliance with Laws. Seller has conducted and is conducting its
--------------------
business in compliance with applicable federal, state, local or foreign laws,
statutes, ordinances, regulations, rules or orders or other requirements of any
governmental, regulatory or administrative agency or authority or court or other
tribunal relating to it as it relates to or affects the Assigned Items.
3.6 Litigation. There is no Claim pending or, to the knowledge of the
----------
Seller, threatened (or, to the knowledge of the Seller, any facts which could
reasonably be expected to lead to such a Claim) by, against, affecting or
regarding the Assigned Item before any federal, state, local or foreign court or
any other governmental or administrative agency or tribunal or any arbitrator or
arbitration panel, and there are no judgments, orders, rulings, charges,
decrees, injunctions, notices of violation or other mandates against or
affecting the Assigned Items.
3.7 Assigned Backlog. The Assigned Backlog constitutes, represents and
----------------
includes, together with the Reseller Agreement, all of the backlog of Seller
with respect to the Products (as defined in the License Agreement).
3.8 Disclosure of Material Information. Neither this Agreement nor any
----------------------------------
document, certificate or instrument furnished in connection therewith contains,
with respect to the Seller, any untrue statement of a material fact or omits to
state a material fact necessary to make the statements therein not misleading.
3.9 ____________ Agreement The amount of credits in favor of ____________
under Section 4.2 of the _________________ Agreement does not exceed
____________
4.0 REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to the Seller as follows:
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
6
<PAGE>
4.1 Organization and Qualification. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, with full power and authority to own, use or lease
its properties and to conduct its business as such properties are owned, used or
leased and as such business is conducted.
4.2 Authority. Buyer has the requisite corporate power and authority
---------
to enter into this Agreement and to carry out the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by Buyer have
been duly and validly authorized and approved by all necessary corporate action
on the part of Buyer, and this Agreement constitutes the legal and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Assuming the accuracy of the representations and warranties of the Seller
hereunder, the entering into of this Agreement by Buyer does not, and the
consummation by Buyer of the transactions contemplated hereby will not, violate
the provisions of (a) any applicable federal, state, local or foreign laws or
any other state or jurisdiction in which Buyer does business, (b) the Charter or
By-Laws of Buyer, or (c) any provision of, or result in a default or
acceleration of any obligation under, or result in any change in the rights or
obligations of Buyer under, any mortgage, Lien, lease, agreement, contract,
instrument, order, arbitration award, judgment, or decree to which Buyer is a
party or by which Buyer is bound, or to which any property of Buyer is subject.
4.3 Disclosure of Material Information. Neither this Agreement nor any
----------------------------------
document, certificate or instrument furnished in connection therewith contains,
with respect to Buyer, any untrue statement of a material fact or omits to state
a material fact necessary to make the statements therein not misleading.
5.0 OTHER CONDITIONS
----------------
The Seller shall on the date hereof deliver to Buyer a certificate of
the Secretary of Seller certifying the truth and correctness of resolutions of
the Seller authorizing the entry by the Seller into this Agreement, the License
Agreement and the transactions contemplated hereby and thereby.
6.0 INDEMNIFICATION
---------------
6.1 Survival of Representations and Warranties. Each and every such
------------------------------------------
representation and warranty set forth in this Agreement, and the right to bring
legal action with respect to its breach, shall survive until the third
anniversary of the date hereof.
6.2 Indemnification by the Seller. Seller shall defend and hold Buyer,
-----------------------------
its officers, directors, employees, owners, agents and affiliates, harmless from
and in respect of any and all losses, damages, costs and expenses (including,
without limitation, interest and penalties, reasonable expenses of investigation
and court costs, reasonable attorneys' fees and disbursements and the reasonable
fees and disbursements of other professionals) which may be sustained or
suffered by any of them (collectively "Losses"), arising out of, resulting from
or
7
<PAGE>
pertaining to any breach or inaccuracy of any representation or warranty or the
breach of or failure to perform any warranty, covenant, undertaking or other
agreement of the Seller contained in this Agreement or any other document
executed in connection herewith. Seller's indemnification under this Section 6.2
shall not exceed (a) __________ if the ___________ Agreement and the ________
Backlog are not assigned to Buyer, or (b) ____________ if the _____________
Agreement and the ___________ Backlog are assigned to Buyer.
6.3 Indemnification by Buyer. Buyer shall indemnify, defend and hold
------------------------
Seller and its officers, directors, employees, consultants, owners, agents and
affiliates, harmless from and in respect of any and all Losses which may be
sustained or suffered by any of them arising out of or resulting from any breach
or inaccuracy of any representation or warranty or the breach of or failure to
perform any warranty, covenant, undertaking or other agreement of Buyer
contained in this Agreement or any other document executed in connection
herewith. Buyer's indemnification under this Section 6.3 shall not exceed (a)
_________ if the __________ Agreement and the ________ Backlog are not assigned
to Buyer, or (b) _________ if the _________ Agreement and the ____________
Backlog are assigned to Buyer.
6.4 Notice and Opportunity to Defend. If there occurs an event which a
--------------------------------
party asserts is an indemnifiable event pursuant to Section 6.2 or 6.3, the
party seeking indemnification shall promptly notify the other parties obligated
to provide indemnification (collectively, the "Indemnifying Party"). If such
event involves (a) any Claim, or (b) the commencement of any action, suit or
proceeding by a third person, the party seeking indemnification will give such
Indemnifying Party prompt written notice of such Claim or the commencement of
such action, suit or proceeding; provided, however, that the failure to provide
-------- -------
prompt notice as provided herein will relieve the Indemnifying Party of its
obligations hereunder only to the extent that such failure prejudices the
Indemnifying Party hereunder. In case any such action, suit or proceeding shall
be brought against any party seeking indemnification and it shall notify the
Indemnifying Party of the commencement thereof, the Indemnifying Party shall be
entitled to participate therein and, to the extent that it desires to do so, to
assume and control the defense thereof, with counsel reasonably satisfactory to
such party seeking indemnification and, after notice from the Indemnifying Party
to such party seeking indemnification of such election so to assume the defense
thereof, the Indemnifying Party shall not be liable to the party seeking
indemnification hereunder for any attorneys' fees or any other expenses, in each
case subsequently incurred by such party, in connection with the defense of such
action, suit or proceeding. The party seeking indemnification will cooperate
fully with the Indemnifying Party and its counsel in the defense against any
such action, suit or proceeding. In any event, the party seeking indemnification
shall have the right to participate at its own expense in the defense of such
action, suit or proceeding, provided the indemnifying party shall control such
defense. In no event shall an Indemnifying Party be liable for any settlement
or compromise effected without its prior consent.
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
8
<PAGE>
7.0 MISCELLANEOUS
-------------
7.1 Fees and Expenses. Each of the parties hereto will pay and
-----------------
discharge its own expenses and fees in connection of with the negotiation of and
entry into this Agreement and the consummation of the transactions contemplated
hereby. Buyer shall have no responsibility for the payment of any taxes arising
out of or in connection with this Agreement.
7.2 Notices. All notices, requests, demands, consents and
-------
communications necessary or required under this Agreement or any other document
executed in connection herewith shall be made in the manner specified, or, if
not specified, shall be sent by registered or certified mail, return receipt
requested to:
if to Buyer:
AMP, Incorporated, acting through its M/A-COM Division
1011 Pawtucket Boulevard
P.O. Box 3295
Lowell, MA 01853-3295
Attention: Ms. Jean L. Ribeiro
Contracts Manager
Facsimile Transmission Number: 978-442-4988
if to the Seller:
Vertel Corporation
21300 Victory Blvd.
Suite 1200
Woodland Hills, California 91367
Attention: David Brock, Director of Contracts
Facsimile Transmission Number: 818-598-0047
All such notices, requests, demands, consents and other communications
shall be deemed to have been duly given or sent three (3) business days
following the date on which mailed addressed as aforesaid.
7.3 Successors and Assigns. All covenants and agreements set forth in
----------------------
this Agreement and made by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the successors and assigns of such party, whether or
not so expressed.
9
<PAGE>
7.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
together shall constitute one and the same instrument, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart. This Agreement may be delivered by facsimile copies, and
such facsimile copies shall be deemed to be executed originals for all purposes.
The headings of the sections and paragraphs of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be part of this
Agreement. If any one or more of the provisions contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason in any jurisdiction, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected, it
being intended that each of parties' rights and privileges shall be enforceable
to the fullest extent permitted by law, and any such invalidity, illegality and
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
7.5 Governing Law. This Agreement, including the validity hereof and
-------------
the rights and obligations of the parties hereunder, shall be construed in
accordance with and governed by the laws of the Commonwealth of Pennsylvania
applicable to contracts made and to be performed entirely in such state (without
giving effect to the conflicts of laws provisions thereof).
7.6 Entire Agreement. This Agreement is complete, and all promises,
----------------
representations, understandings, warranties and agreements with reference to the
subject matter hereof, and all inducements to the making of this Agreement
relied upon by all the parties hereto, have been expressed herein. This
Agreement may not be amended except by an instrument in writing signed on behalf
of the Seller and the Buyer.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
AMP INCORPORATED, Acting
through its MIA-COM Division VERTEL CORPORATION
By: /s/ Richard R. Clark By: /s/ James Brill
---------------------- --------------------------
Title: President and CEO Title: V.P
------------------- -----------------------
10
<PAGE>
EXHIBIT A
FORM OF CONSENT
________________ 1998
_____________________
_____________________
_____________________
_____________________
Gentlemen:
We are writing to inform you that we have sold to AMP Incorporated,
acting through its M/A-COM Division ("M/A-COM") our CDPD software, as we intend
to exit such business and transfer all backlog from such business to M/A-COM. As
a result, we are hereby notifying you of this situation and requesting your
consent to our transfer to M/A-COM of our Agreement with you dated ______, all
orders placed by you with us thereunder and __________ .
In addition, M/A-COM, by its countersignature of this letter, has
agreed to assume all of our obligations under all such Agreements.
If the foregoing is acceptable to you, kindly execute three copies of
this letter in the space set forth below. Please retain one for your files,
please send one to us to the attention of __________ and please send one to
M/A-COM at 1011 Pawtucket Boulevard, P.O. Box 3295, Lowell, MA 01853-3295 to the
attention of Ms. Jean L. Ribeiro, Contracts Manager.
Thank you very much for your consideration of this matter.
Very truly yours,
VERTEL CORPORATION
________________________
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
AMP Incorporated, acting through
its M/A-COM Division hereby agrees
to the foregoing assumption:
AMP Incorporated, acting through
its M/A-COM Division
By:__________________________
Title:_______________________
The foregoing is hereby accepted
and agreed to in its entirety:
By:__________________________
Title:_______________________
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
2
<PAGE>
EXHIBIT A-1
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FORM OF __________ CONSENT
_______, 1998
_____________________
_____________________
_____________________
_____________________
Gentlemen:
____________________ consent is requested to the assignment of a certain
Software License Agreement between ____________ and Vertel Corporation
("Vertel") dated June 17, 1997 (the "Agreement") to M/A-COM, a Division of AMP
Incorporated ("M/A-COM") together with all unfilled balances of obligations
against orders placed with Vertel by _________ under the Agreement (the
"Backlog"). M/A-COM is willing to assume all remaining obligations under the
Agreement and all existing Backlog subject to ___________ consent and in
accordance with the conditions as outlined below.
1. _________________ consent shall automatically become effective only
when Vertel and M/A-COM execute certain agreements between them with regard to
the purchase of CDPA and mACT technology (the "Technology") as well as certain
other assets including the Agreement and the Backlog by M/A-COM from Vertel (the
"Transaction"). M/A-COM and Vertel shall notify ________________ on the date
the Transaction is consummated by immediately returning a signed copy of this
consent agreement. However, nothing contained herein shall be construed as
requiring M/A-COM and Vertel to consummate that Transaction.
2. Promptly upon the receipt of such notice to ___________ by M/A-COM as
evidenced by a signed copy of this consent agreement, M/A-COM and ___________
shall undertake all good faith efforts to enter into an escrow agreement with
_______________ with regard to the Technology in form and substance as required
by the Agreement (the "Escrow").
3. Commencing upon the date of the Transaction, ______________ shall pay
any further royalties under the Agreement and remaining Backlog to M/A-COM
separately and apart from the price of the radios M/A-COM sells to _______ under
existing and future agreements and orders between ______________ and M/A-COM.
__________ and M/A-COM shall also discuss the possibility of terminating the
Agreement, but not the Escrow, at no cost or liability to either party and
adding the existing royalty payments to the price of the radios upon the
execution of such termination. ______________ shall owe no further payments to
Vertel after the Transaction, other than with respect to those royalties accrued
prior to the date of the Transaction.
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
4. M/A-COM, by its countersignature of this consent agreement, agrees
to all of the foregoing.
If the foregoing is acceptable to you, please execute three copies of
this Agreement in the space set forth below and return them to M/A-COM, a
Division of AMP Incorporated, at 1011 Pawtucket Boulevard, P.O. Box 3295,
Lowell, Massachusetts 01853, Attention of Jean L. Ribeiro, Contracts Manager.
The foregoing is hereby accepted and agreed to in its entirety:
__________________________________
By:_______________________________
Title:____________________________
Date:_____________________________
VERTEL CORPORATION
By:_______________________________
Title:____________________________
Date:_____________________________
M/A-COM, A DIVISION OF AMP INCORPORATED
By:_______________________________
Title:____________________________
Date:_____________________________
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
2
<PAGE>
EXHIBIT B
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ASSIGNMENT AND ASSUMPTION
Vertel Corporation, a California corporation, having its principal place of
business in Woodland Hills, California ("Assignor") in consideration of the
payment of One Dollar ($1.00) and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, by AMP, Incorporated,
acting through its M/A-COM Division with a place of business in Lowell,
Massachusetts ("Assignee"), does hereby assign, grant, sell, transfer, bargain,
convey and deliver unto Assignee its entire right, title and interest and all of
its rights, liabilities and obligations in and to the contracts listed in
Attachment I attached hereto (collectively the "Contracts").
Assignor hereby covenants to and with Assignee that said right, title and
interest in the Contracts has not previously been sold, assigned or transferred
and that Assignor is the lawful owner of said right, title and interest in the
Contracts free from all liens, mortgages, security interests or encumbrances of
any nature whatsoever, contingent or otherwise. Assignor hereby further
covenants to and with Assignee that Assignor has obtained all necessary consents
of third parties to the assignments granted herein.
Assignee, in consideration of the payment of One Dollar ($1.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, by Assignor, hereby assumes all liabilities and obligations of
Assignor under the Contracts.
<PAGE>
EXECUTED as an instrument under seal this _____ day of __________, 1998.
AMP INCORPORATED, Acting
through its M/A-COM Division VERTEL CORPORATION
By:________________________ By:________________________
Title:_____________________ Title:_____________________
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
2
<PAGE>
ATTACHMENT I
------------
CONTRACTS
1. A certain Reseller Agreement between Assignor and
________________ dated July 16, 1996, as amended September 16, 1997, together
with the unfilled balance of obligation against orders placed with Assignor
thereunder.
2. A certain Agreement between ______________________ and Assignor
dated March 15, 1996, as amended March 16, 1998, together with the unfilled
balance of obligations against orders placed with Assignor thereunder.
3. A certain Software License Agreement between Assignor and
_______________________ dated June 17, 1997, together with the unfilled balance
of obligations against orders placed with Assignor thereunder.
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
AMENDMENT
---------
Amendment dated October 9th, 1998 by and between AMP Incorporated,
acting through its M/A-COM Division, a Pennsylvania corporation ("Buyer") and
Vertel Corporation, a California corporation ("Seller").
Buyer and Seller entered into a certain Agreement dated as of July 27,
1998 (the "Agreement"). Buyer and Seller desire to amend the Agreement in
certain respects.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby amend the Agreement and agree as follows:
1. Delete the first sentence of Section 2.7.1 of the Agreement in
its entirety and substitute therefor the following:
Upon the execution of an agreement among Buyer, Seller and
________________________ dealing with when the assignment of the
__________________ Agreement and the __________________ Backlog
is to occur (the "Transfer Agreement"), or the completion and
mutual agreement of the Attachment 1 list as described in the
Transfer Agreement, whichever occurs later, Buyer shall pay
Seller the sum of $500,000. Buyer shall pay Seller an additional
$500,000 less $169,000 (representing advance payments made by
__________ to Seller) for a net amount of $331,000 when Seller
fulfills all of its remaining obligations under the Transfer
Agreement or December 31, 1998 whichever occurs later. Buyer
shall also withhold __________________ from the $331,000 until
the earlier to occur of (a) Seller provides notice to Buyer from
____________ that all credits in favor of _____________________
under Section 4.2 of the ___________________ Agreement have been
liquidated, or (b) February 28,1999.
2. In the event of any conflict, inconsistency or ambiguity between
the provisions of this Amendment and the Agreement, the
provisions of this Amendment shall control and take precedence.
________ = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.
<PAGE>
3. Each individual executing this Amendment on behalf of a party
hereto has the full right, power and authority to bind the party
on whose behalf such individual is signing, as such individual is
an authorized representative of such party acting within the full
scope of such individual's authority.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment in
duplicate originals as of the date first written above.
AMP INCORPORATION, Acting
through its M/A-COM Division VERTEL CORPORATION
By: /s/ Richard P. Clark By: /s/ Jeff Curtis
----------------------------- -------------------------
Richard P. Clark
Title: President and CEO Title: Vice President
-----------------------
<PAGE>
EXHIBIT 10.58
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (this "Agreement") is made as of
---------
September 29, 1998 and between Vertel Corporation, a California corporation (the
"Company") and Pequot Private Equity Fund, L.P. and Pequot Offshore Private
-------
Equity Fund, Inc. (together "Pequot") and Sierra Ventures V, L.P. ("Sierra," and
------ ------
together with Pequot, the "Purchaser(s)").
------------
RECITALS
--------
This Agreement provides for the purchase and sale of an aggregate of
2,000,000 shares of the Company's Common Stock (the "Shares").
------
AGREEMENT
---------
The Company and the Purchasers agree (severally and not jointly) as
follows:
1. AUTHORIZATION AND SALE OF THE SHARES. The Company has, or before the
------------------------------------
Closing (as defined below) will have, authorized the sale of the Shares to the
Purchasers. Subject to the terms and conditions of this Agreement, at the
Closing, (a) the Company will issue and sell to each Purchaser and each
Purchaser will purchase from the Company the number of Shares specified with
respect to such Purchaser on Exhibit A hereto at a purchase price of $1.50 per
---------
Share.
2. CLOSING OF PURCHASE AND SALE. The closing of the purchase and sale of
----------------------------
the Shares (the "Closing") shall take place at 10:00 a.m. at the offices of
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Venture Law Group, A Professional Corporation, 2800 Sand Hill Road, Menlo Park,
California 94025 on September 29, 1998, or at such time and place as the Company
and the Purchasers' counsel may agree (such time and date being referred to in
this Agreement as the "Closing Date"). At the Closing, the Company will deliver
------------
to each Purchaser a letter executed by the Company instructing the Company's
transfer agent to deliver a certificate representing the Shares to each
Purchaser immediately after the Closing, against payment of the purchase price
therefor by wire transfer to the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in
---------------------------------------------
the SEC Documents (as defined below) or on Exhibit B to this Agreement (the
---------
"Schedule of Exceptions"), the Company hereby makes the following
----------------------
representations and warranties to the Purchasers:
3.1 EXISTENCE; GOOD STANDING; COMPLIANCE WITH LAW. The Company and
---------------------------------------------
each of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of its state of incorporation. The Company and
each of its subsidiaries is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of each other
jurisdiction in which the character of the respective properties owned or leased
by it therein or in which the transaction of its respective business makes such
qualification necessary, except for jurisdictions in which the failure to be so
qualified or to be in good standing would not have a Material Adverse Effect (as
defined below). As used in this Agreement, the term "Material Adverse Effect"
-----------------------
shall mean any change or effect that is or is likely to be
<PAGE>
materially adverse to (a) the business, assets (including intangible assets),
financial condition, results of operations or prospects of the Company and its
subsidiaries taken as a whole, (b) the ability of the Company to pay or perform
its obligations under the Transaction Documents (as hereinafter defined), or (c)
the rights and remedies of the Purchasers under the Transaction Documents. The
Company and each of its subsidiaries has all requisite corporate power and
authority to own its respective properties and carry on its respective business
as now conducted and as proposed to be conducted in the SEC Documents (as
defined below). As used in this Agreement, the term "Transaction Documents"
---------------------
shall mean and include this Agreement, the Shares, and all other documents,
instruments and agreements delivered to the Purchasers in connection with this
Agreement or such specified Transaction Documents.
3.2 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS. The
-----------------------------------------------------
Company has all requisite corporate power and authority to enter into this
Agreement and the other Transaction Documents and to consummate the transactions
contemplated hereby including the issuance of the Shares. The execution and
delivery of this Agreement and the other Transaction Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and constitutes,
and the other Transaction Documents when executed and delivered will constitute,
valid and binding obligations of the Company, legally enforceable in accordance
with their respective terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws of general application
relating to or affecting enforcement of creditors' rights or as limited by the
effect of general principles of equity upon the availability of equitable
remedies. The Shares, when issued, sold and delivered in accordance with the
terms of this Agreement, will be duly authorized and validly issued, fully paid
and nonassessable and free of restrictions on transfer, other than restrictions
on transfer under this Agreement and under applicable state and federal
securities laws. The execution and delivery of this Agreement and the other
Transaction Documents does not, and the consummation of the transactions
contemplated hereby and thereby, including the issuance of the Shares will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any material obligation or to loss of a material benefit
under (i) any provision of the Articles of Incorporation or Bylaws of the
Company, or (ii) any mortgage, indenture, lease, or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or any of
its subsidiaries or their respective properties or assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any governmental entity, shareholder or other third party is required by
or with respect to the Company or any of its subsidiaries in connection with the
execution and delivery of this Agreement and the other Transaction Documents by
the Company or the consummation by the Company of the transactions contemplated
hereby and thereby, including the issuance of the Shares, except (i) such
consents, approvals, orders, authorizations, registration, declarations and
filings as may be required under applicable state securities laws and the laws
of any foreign country, and (ii) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not have a
Material Adverse Effect.
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<PAGE>
3.3 SEC DOCUMENTS. The Company has furnished, or made available to
-------------
counsel for Purchasers, a true and complete copy of each statement, report,
registration statement and definitive proxy statement filed by the Company with
the Securities and Exchange Commission ("SEC") since January 1, 1997 (the "SEC
--- ---
Documents"), which are all the documents (other than preliminary material) that
- ---------
the Company was required to file with the SEC since such date. As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the Securities Act of 1933, as amended (the "Securities
------------ ----------
Act"), and none of the SEC Documents contained any untrue statement of a
- ---
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements made therein not misleading in
light of the circumstances under which they were made, except to the extent
corrected by a subsequently filed SEC Document. The financial statements of the
Company included in the SEC Documents (the "Company Financial Statements")
----------------------------
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present the
consolidated financial position of the Company and its consolidated subsidiaries
as at the dates thereof and the consolidated results of operations,
shareholders' equity and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal, recurring audit adjustments). Except
as disclosed in the SEC Documents or in the Schedule of Exceptions, or except as
contemplated by this Agreement or on account of the transactions contemplated
hereby, since September 30, 1998 there has not been any material adverse change
in the results of operations, financial condition, assets, business or prospects
of the Company and its subsidiaries taken as a whole.
3.4 UNDISCLOSED LIABILITIES. The Company does not have any
-----------------------
liabilities, either accrued, absolute, contingent or otherwise, which are not
reflected or provided for in the Company Financial Statements except those
arising after June 27, 1998 which are in the ordinary course of business and
which, in the aggregate, would not have a Material Adverse Effect.
3.5 COMPLETE COPIES OF MATERIALS. The Company has delivered or made
----------------------------
available true and complete copies of each document that has been requested by
the Purchasers or representatives of the Purchasers.
3.6 CAPITALIZATION. The Company has authorized capital stock of
--------------
50,000,000 shares of Common Stock, $0.01 par value and 2,000,000 shares of
Preferred Stock, $0.01 par value. As of the close of business on September 15,
1998, 24,487,557 shares of Common Stock and no shares of Preferred Stock were
issued and outstanding. There are no outstanding rights, warrants, options,
subscriptions, agreements or commitments giving anyone any right to require the
Company to sell or issue any capital stock or other securities, except that as
of the close of business on September 15, 1998, the Company had issued and
outstanding options under present or former option plans which may be exercised
to purchase an aggregate of 3,548,654 shares of the Company's Common Stock and
the Company had reserved shares for issuance pursuant to stock option and
purchase plans described in its SEC Documents. All outstanding securities of
the Company were issued in compliance with applicable federal and state
securities laws.
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<PAGE>
3.7 LITIGATION. There is no action, suit, proceeding, claim,
----------
arbitration or investigation (each, an "Action") pending or, to the Company's
------
best knowledge, currently threatened against the Company that questions the
validity of the Transaction Documents or the right of the Company to enter into
them, or to consummate the transactions contemplated hereby or thereby, or that
might result, either individually or in the aggregate, in a Material Adverse
Effect, or any change in the current equity ownership of the company, nor is the
Company aware of any Action against any officer or director of the Company, and
the Company is not aware of any basis for any of the foregoing. The Company is
not a party to or named in or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no Action by the Company currently pending or which
the Company intends to initiate.
3.8 INTELLECTUAL PROPERTY. To its best knowledge, the Company owns,
---------------------
leases, licenses or otherwise possesses the legal rights to use all Intellectual
Property (as defined below) necessary for its business as now conducted without
any conflict with, or infringement of, the rights of others. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as now conducted, would interfere with, infringe upon or
misappropriate any Intellectual Property of any other person or entity, nor is
the Company aware of any such violation. The Company is not aware that any of
its employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such employee's best efforts to promote the interest of the Company
or that would conflict with the Company's business as now conducted. Neither
the execution or delivery of this Agreement, nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed, will, to the best of the Company's knowledge,
conflict with or result in a breach of the terms, conditions, or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any such employee is now obligated. The Company does not believe it is or will
be necessary to use any inventions of any of its employees (or persons it
currently intends to hire) made prior to their employment by the Company. To the
best knowledge of the Company, no third party has interfered with, infringed
upon or misappropriated any Intellectual Property rights of the Company, except
for interferences, infringements and misappropriations which would not
individually or in the aggregate have a Material Adverse Effect.
As used in this Agreement, "Intellectual Property" means (i) all
worldwide inventions and discoveries (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions and reexaminations
thereof, (ii) all trademarks, service marks, trade dress, logos, trade names and
corporate names, together with all translations, adaptations, derivations and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, renewals and derivatives in connection therewith,
(iii) all copyrightable works, all copyrights and all applications,
registrations and renewals in connection therewith, (iv) all mask works and all
applications, registrations and renewals in connection therewith, (v) all know-
how, trade secrets and confidential business information, whether patentable or
unpatentable and whether or not
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<PAGE>
reduced to practice (including know-how, formulas, compositions, technical data,
designs, drawings and specifications), (vi) all copies and tangible embodiments
thereof (in whatever form or medium) and (vii) all licenses and agreements in
connection with the foregoing.
3.9 COMPLIANCE WITH OTHER INSTRUMENTS; LAWS.
---------------------------------------
(a) The Company is not in violation or default of (i) any
provisions of its Articles of Incorporation or Bylaws, (ii) any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound or to which its assets are subject, or (iii) any provision of any
domestic (foreign, state or local) or foreign law, statute, rule, regulation
applicable to it or any of its assets or properties (including Environmental
Laws (as defined below)) except to the extent that each such violation or
default does not, individually or in the aggregate, result in a Material Adverse
Effect.
For purposes of this Agreement, "Environmental Laws" means,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. (S)(S) 9601, et seq.; the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. (S)(S) 11001, et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901, et seq.; the
Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601, et seq.; the Federal
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S)(S) 136, et seq.; the
Clean Air Act, 42 U.S.C. (S)(S) 7401, et seq.; the Clean Water Act (Federal
Water Pollution Control Act), 33 U.S.C. (S)(S) 1251, et seq.; the Safe Drinking
Water Act, 42 U.S.C. (S)(S) 300f, et seq.; the Occupational Safety and Health
Act, 29 U.S.C. (S)(S) 641, et seq.; the Hazardous Materials Transportation Act,
49 U.S.C. (S)(S) 1801, et seq.; as any of the above statutes have been or may be
amended from time to time, all rules and regulations promulgated pursuant to any
of the above statutes, and any other foreign, federal, state or local law,
statute, ordinance, rule or regulation governing environmental matters, as the
same have been or may be amended from time to time, including any common law
cause of action providing any right or remedy with respect to environmental
matters, and all applicable judicial and administrative decisions, orders, and
decrees relating to environmental matters.
(b) The execution, delivery and performance of the Agreements
and the consummation of the transactions contemplated hereby or thereby will not
result in any such violation or be in conflict with or constitute, with or
without the passage of time and giving of notice, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event which results in the creation of any lien or encumbrance upon any assets
of the Company or the suspension, revocation, impairment, forfeiture or non
renewal of any permit, license, authorization or approval applicable to the
Company, its business or operation or any of its assets or property, except to
the extent that each such violation, conflict or default does not, individually
or in the aggregate, result in a Material Adverse Effect.
3.10 CHANGES. Since June 27, 1998, there has not been:
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(a) any damage, destruction or loss, whether or not covered by
insurance, resulting in a Material Adverse Effect;
-5-
<PAGE>
(b) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;
(c) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets, except in the ordinary
course of business;
(d) any transfer of a security interest in any of its material
properties or assets, except liens for taxes not yet due or payable;
(e) any loans or guarantees made by the Company to or for the
benefit of its employees, officers, directors or shareholders or any members of
their immediate families, other than travel advances and other advances made in
the ordinary course of its business;
(f) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;
(g) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;
(h) any satisfaction, discharge or payment of any obligation by
the Company, except in the ordinary course of business and that does not,
individually or in the aggregate, result in a Material Adverse Effect;
(i) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company;
(j) to the Company's best knowledge, any other event or
condition of any character that, as of the Closing Date, has a Material Adverse
Effect; or
(k) any agreement, arrangement or commitment by the Company to
do any of the things described in this Section 3.10.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASERS. Each Purchaser,
--------------------------------------------
severally and not jointly, represents and warrants to the Company as follows:
4.1 AUTHORITY. The Purchaser has all requisite corporate or
---------
partnership power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby has been
duly authorized by all necessary corporate or partnership action on the part of
the Purchaser. The Purchaser hereby represents and warrants to the Company that
this Agreement, when executed and delivered by the Purchaser, will be valid and
legally enforceable as to the Purchaser in accordance with the terms of this
Agreement, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other laws of general application relating to or
affecting enforcement of creditors' rights or as limited by the effect of
general principles of equity upon the availability of equitable remedies.
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<PAGE>
4.2. INVESTMENT REPRESENTATIONS; LEGENDS.
-----------------------------------
(a) INVESTMENT REPRESENTATIONS. The Purchaser hereby
--------------------------
acknowledges its understanding that the Shares have not been registered under
the Securities Act, and that they are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
the Purchaser's representations contained herein. Purchaser hereby represents
and warrants to and agrees with the Company as follows:
(i) KNOWLEDGE OF OFFER. It has carefully reviewed this
------------------
Agreement. All matters relating to this Agreement have been discussed with it
and explained to its satisfaction by the management of Company or persons acting
on the Company's behalf. Nothing in the preceding sentence shall in any way
limit the Company's representations and warranties made herein or pursuant
hereto.
(ii) ABILITY TO BEAR ECONOMIC RISK. It is able to bear the
-----------------------------
economic risk of the investment represented by this Agreement.
(ii) KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
--------------------------------------------------
MATTERS. It has such knowledge and experience in financial and business matters
- -------
that it is capable of evaluating the merits and risk of the investment
represented by this Agreement.
(iv) DETERMINATION OF SUITABILITY OF INVESTMENT. It has had
------------------------------------------
the risk involved in the investment represented by this Agreement explained to
it, it recognizes this risk, and it has determined that such investment is
suitable for it in light of its financial circumstances and available investment
opportunities.
(v) LIMITATIONS ON DISPOSITION. It understands that it must
--------------------------
bear the economic risk of this investment indefinitely unless the Shares are
registered pursuant to the Securities Act, or an exemption from such
registration is available, and that the Company has no present intention of
registering the Shares except as described in Section 7.1. It further
understands that there is no assurance that any exemption from the Securities
Act will be available with respect to the Shares, or if available, that such
exemption will allow it to dispose of or otherwise transfer any or all of the
Shares under the circumstances, in the amounts or at the times it might propose.
(vi) INVESTMENT PURPOSE. It is acquiring the Shares for its
------------------
own account and not with a view toward the distribution thereof.
(b) LEGENDS.
-------
(i) Each certificate representing the Shares shall be
stamped or otherwise imprinted with a legend substantially in the following
form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM
-7-
<PAGE>
THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE
SECURITIES AND EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL TO
THE ISSUER OR SUCH OTHER COUNSEL REASONABLY SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH
REGISTRATION, OR IN ACCORDANCE WITH THE AGREEMENT COVERING THE
PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER."
Notwithstanding the foregoing, such legend shall not be required, or if
previously imposed shall be removed by the Company, from any stock certificate
at such time as a registration statement under the Securities Act is in effect
with respect to the legended security, or upon delivery to the Company of an
opinion by counsel reasonably satisfactory to the Company, in form and substance
reasonably satisfactory to the Company, to the effect that such security can be
freely transferred without such registration statement being in effect and that
such transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Shares were issued.
(ii) Any certificates representing the Shares shall also
bear any legend required by any applicable state securities law. Such legends
shall be removed upon delivery to the Company of an opinion by counsel
reasonably satisfactory to the Company, in form and substance reasonably
satisfactory to the Company, to the effect that such security can be freely
transferred without such legend.
5. CONDITIONS TO THE PURCHASERS' OBLIGATIONS AT THE CLOSING. The
--------------------------------------------------------
Purchasers' obligation to purchase the Shares shall be subject to each of the
following conditions having been fulfilled to the Purchasers' satisfaction on or
before the Closing Date:
5.1 REPRESENTATIONS AND WARRANTIES, PERFORMANCE OF OBLIGATIONS. The
----------------------------------------------------------
representations and warranties made by the Company in Section 3 shall be true
and correct on the Closing Date with the same effect as though made on and as of
such date; there shall have been no material adverse change in the results of
operation, financial condition, business, assets, or prospects of the Company
and its subsidiaries taken as a whole since June 27, 1998; and the Company shall
have performed all actions, met all conditions and satisfied all obligations
required to be performed or satisfied by it under this Agreement on or prior to
the Closing Date.
5.2 ISSUANCE OF SHARES. The Company shall have duly executed and
------------------
delivered instructions to the transfer agent for its Common Stock to issue
certificates representing the Shares registered to each Purchaser in the
applicable amounts.
5.3 CORPORATE DOCUMENTS. The Company shall have delivered to each
-------------------
Purchaser such evidence of the Company's good standing and its authorization of
this Agreement and the other Transaction Documents as the Purchasers or their
counsel shall reasonably request.
-8-
<PAGE>
5.4 PURCHASER BOARD APPROVAL. The Purchasers' respective Board of
------------------------
Directors shall have approved the execution, delivery and performance of this
Agreement by the Purchasers.
5.5 OPINION OF COUNSEL TO THE COMPANY. The Purchasers shall have
---------------------------------
received from Venture Law Group, a Professional Corporation, counsel for the
Company, an opinion letter addressed to it, dated the Closing Date,
substantially the same, in form and content, as that attached as Exhibit C.
---------
5.6 CONSENTS, PERMITS, AND WAIVERS. The Company shall have obtained
------------------------------
any and all consents, permits, and waivers necessary or appropriate for
consummation of the transactions pursuant to this Agreement.
5.7 PURCHASE PERMITTED BY APPLICABLE LAW. The purchase of the Shares
------------------------------------
on the Closing Date shall not be prohibited by any applicable law or
governmental regulation.
5.8 COMPLIANCE CERTIFICATE. The President of the Company shall
----------------------
deliver to the Purchasers at the Closing a certificate stating that the
conditions specified in Section 5.1 have been fulfilled and stating that there
shall have been no material adverse change in the results of operations,
financial condition, business, or prospects of the Company and its subsidiaries
taken as a whole since June 27, 1998.
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT THE CLOSING. The obligation
------------------------------------------------------
of the Company to issue and sell the Shares shall be subject to the following
conditions, any of which may be waived by the Company, having been fulfilled on
or before the Closing Date:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties made by the Purchasers in Section 4 hereof shall be true and correct
on the Closing Date with the same effect as though made on and as of such date.
6.2 CONSENTS, PERMITS AND WAIVERS. The Company shall have obtained
-----------------------------
any and all consents, permits, and waivers necessary or appropriate for
consummation of the transactions pursuant to this Agreement.
6.3 PURCHASE PERMITTED BY APPLICABLE LAW. The purchase of the Shares
------------------------------------
on the Closing Date shall not be prohibited by any applicable law or
governmental regulation.
6.4. PURCHASE OF SHARES. The Purchasers shall have paid the purchase
------------------
price for the Shares.
-9-
<PAGE>
7. REGISTRATION REQUIREMENTS.
-------------------------
7.1 REGISTRATION RIGHTS.
-------------------
(a) REGISTRATION STATEMENT.
----------------------
(i) Within ninety (90) days of the Closing Date, the
Company shall file a "shelf" registration statement under Rule 415 under the
Securities Act (the "Registration Statement") with the SEC, for the sale by the
----------------------
Purchasers of all of the Shares. The Company shall use its reasonable best
efforts to have the registration statement declared effective and to maintain
the effective of this registration statement until all underlying Shares either
(i) have been sold pursuant to the registration, or (ii) are salable in the
public markets without volume restrictions under Rule 144.
(ii) The Company represents and warrants that on the date
the Registration Statement becomes effective, the Registration Statement will
comply in all material respects with the applicable requirements of the
Securities Act and the rules thereunder; on the date of its effectiveness the
Registration Statement (including any documents incorporated by reference
therein) will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein not misleading, provided, however, that no
representation is made by the Company with respect to written information
furnished to the Company by or on behalf of the Purchasers specifically for
inclusion in the Registration Statement; and the final prospectus contained in
the Registration Statement, if not filed pursuant to Rule 424(b), will not, and
on the date of any filing pursuant to Rule 424(b), such final prospectus
(together with any supplement thereto) will not, include any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, provided, however, that no representation is made by the Company
with respect to written information furnished to the Company by or on behalf of
the Purchasers specifically for inclusion in such prospectus. The Company will
promptly: (A) notify Purchasers when the Registration Statement is declared
effective; and (B) notify Purchasers of any stop-order or similar proceeding by
the SEC or any state securities authority.
(iii) The Company hereby covenants and agrees that (A) no
other holder of the Company's securities (including convertible securities)
other than transferees of the Purchasers is entitled to or shall be hereafter
given the right to participate in any registration under this Section 7 whether
by the exercise of a demand or "piggyback" registration right and (B) no other
registration statement covering any other holder's securities shall be declared
effective or maintained in effect during such time as the Registration Statement
shall be effective.
(b) CONTINUING EFFECTIVENESS. The Company shall promptly prepare
------------------------
and file with the SEC such amendments and supplements to the Registration
Statement and the prospectus used in connection therewith as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such Registration Statement and keep the
Registration Statement effective until all the Shares have been sold
------
-10-
<PAGE>
pursuant thereto or until the Purchasers are able to dispose of their entire
remaining ownership interest in the Shares in the United States public markets
------
in a single transaction under Rule 144 without invoking clause (e)(1)(ii) of
Rule 144. The Company shall provide a transfer agent, registrar and CUSIP number
with respect to all securities registered by such Registration Statement.
(c) COPIES OF DOCUMENTS. The Company shall furnish to the
-------------------
Purchasers with respect to the Shares registered under the Registration
------
Statement such number of copies of prospectuses and preliminary prospectuses and
supplements in conformity with the requirements of the Securities Act and such
other documents as Purchasers may reasonably request, in order to facilitate the
public sale or other disposition of all or any of the Shares by Purchasers.
(d) BLUE SKY LAWS. The Company shall use its best efforts to
-------------
register or qualify the Shares covered by such Registration Statements under
------
such other securities or blue sky laws of such jurisdictions as the Purchasers
shall reasonably request and do any and all other acts or things which may be
necessary or desirable to enable the Purchasers to consummate the public sale or
other disposition in such jurisdictions, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or file a general consent to service of process in any such
jurisdictions.
(e) AVAILABILITY OF INFORMATION. With a view to making available
---------------------------
to Purchasers the benefits of Rule 144(d) promulgated under the Securities Act
and any other rule or regulation of the SEC that may at any time permit
Purchasers to sell Shares to the public without registration, the Company hereby
------
covenants and agrees, so long as either Purchasers owns any Shares to: (i) make
------
and keep public information available, as those terms are understood and defined
in Rule 144; (ii) file with the SEC in a timely manner all reports and other
documents required of The Company under the Securities Act and the Exchange Act;
and (iii) furnish to Purchasers (A) a written statement by the Company that it
has complied with the reporting requirements of the Securities Act and the
Exchange Act, (B) a copy of the most recent annual or quarterly report of the
Company, and (C) such other information as may be reasonably requested in order
to avail Purchasers of any rule or regulation of the SEC that permits the
selling of the Shares without registration.
------
(f) EXPENSES. The Company shall bear all expenses in connection
--------
with the procedures set forth in Sections 7.1(a) through (e) above and the
registration of the Shares pursuant to the Registration Statement, other than
------
broker's commissions or discounts, transfer taxes, and fees and expenses, if
any, of counsel or other advisors to the Purchasers.
(g) ASSIGNMENT. The right to sell Shares under the Registration
---------- ------
Statement will automatically be assigned to each permitted transferee of the
Shares, and the provisions of Sections 7.1 and 7.2 hereof shall apply to such
- ------
transferee as if such transferee were a Purchaser hereunder; provided, however,
that each such transferee acquires at least 250,000 Shares. In the event that
it is necessary, in order to permit a transferee of any Shares to sell Shares
------ ------
pursuant to the Registration Statement, to amend the Registration Statement to
name such
-11-
<PAGE>
transferee, the Company shall, upon receipt of written notice from such
transferee, make such amendment as soon as reasonably practicable.
7.2 SHARES INDEMNIFICATION.
----------------------
(a) DEFINITIONS. For the purposes of this Section 7.2 the term
-----------
"Registration Statement" shall include any final prospectus, exhibit, supplement
- -----------------------
or amendment included in or relating to and any document or information
incorporated by reference in the Registration Statement referred to in Section
7.1. As used in this Section 7.2, the term "untrue statement" shall include any
----------------
untrue statement or alleged untrue statement, or any omission or alleged
omission to state in the Registration Statement a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) THE COMPANY'S INDEMNITY. The Company agrees to indemnify and
-----------------------
hold harmless each Purchaser, each of its officers, directors, partners,
advisors, each person controlling such Purchaser within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents or employees of such controlling person, each underwriter, if
any, and each person controlling any such underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act and the
officers, directors, agents or employees of such controlling person, from and
against any and all expenses, losses, claims, damages or liabilities (or
actions, proceedings or settlements in respect thereof) to which such persons
may become subject (under the Securities Act or otherwise) insofar as such
losses, claims, damages or liabilities (or actions, proceedings or settlements
in respect thereof) arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or arise out of, or are based upon, any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, or arise out of any failure by the Company to
fulfill any undertaking included in the Registration Statement or arise out of
any violation by the Company of the Securities Act or the Exchange Act or any
rule or regulation thereunder applicable to the Company with respect to the
Registration Statement and relating to action or inaction required of the
Company, and will reimburse each such Purchaser, each of its officers,
directors, partners, advisors, each person controlling such Purchaser, each
underwriter, and each person controlling any such underwriter, for any legal and
other expenses reasonably incurred in connection with investigating and
defending or settling any such expense, claim, loss, damage or liability;
provided, however, that the Company shall not be liable in any such case to the
extent that such expense, loss, claim, damage or liability arises out of, or is
based upon, an untrue statement made in such Registration Statement in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of such Purchaser specifically for inclusion in the Registration
Statement, or any untrue statement in any prospectus that is corrected in any
subsequent prospectus that was delivered to the Purchaser at least five (5)
business days prior to the pertinent sale or sales by such Purchaser.
(c) PURCHASERS' INDEMNITY. Each Purchaser agrees to indemnify and
---------------------
hold harmless the Company (and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act and the officers,
-12-
<PAGE>
directors, agents or employees of such controlling person, each officer of the
Company who signs the Registration Statement and each director of the Company)
and each other Purchaser from and against any losses, claims, damages or
liabilities (including reasonable legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim) to which the Company (or any such officer, director or controlling
person) or each other Purchaser may become subject (under the Securities Act or
otherwise), insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement on the effective date thereof if such untrue statement
was made in reliance upon and in conformity with written information furnished
by or on behalf of such Purchaser specifically for inclusion in the Registration
Statement; provided, however, such Purchaser shall not be liable in any such
case to the extent that such loss, claims, damage or liability arises out of, or
is based upon, an untrue statement made in reliance upon and in conformity with
written information furnished by or on behalf of such Purchaser, if such
information is corrected and written notice of such correction is delivered to
the Company at least five (5) business days prior to the pertinent sale or
sales. The Purchasers' obligation to indemnify the Company and each other
Purchaser hereunder shall be limited to the total amount of the net proceeds
received by such Purchaser from the sales of the Shares to which the loss
relates pursuant to the Registration Statement and provided, further, that the
indemnity agreement contained in this Section 7.2(c) shall not apply to amounts
paid in settlement or any loss, claim, damage of liability if such settlement is
effected without the consent of the Purchasers (which consent shall not be
unreasonably withheld).
(d) NOTICE OF CLAIM AND REPRESENTATION. Promptly after receipt by
----------------------------------
any indemnified person of a notice of a claim or the beginning of any action in
respect of which indemnity is to sought against an indemnifying person pursuant
to this Section 7.2, such indemnified person shall notify the indemnifying
person in writing of such claim or of the commencement of such action, and,
subject to the provisions hereinafter stated, in case any such action shall be
brought against an indemnified person and such indemnifying person shall have
been notified thereof, such indemnifying person shall be entitled to participate
therein, and, to the extent it shall wish, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified person. After notice from
the indemnifying person to such indemnified person of its election to assume the
defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof; provided, however,
-------- -------
that if there exists a conflict of interest, or should one develop, that would
make it inappropriate, in the opinion of counsel to the indemnified person, for
the same counsel to represent both the indemnified person and such indemnifying
person or any affiliate or associate thereof, the indemnified person (together
with all other indemnified persons that may be represented without conflict by
one counsel) shall be entitled to retain its own counsel at the expense of such
indemnifying person. The failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Section 7.2 to the extent such failure is not prejudicial. No
indemnifying party, in the defense of any claim or litigation, shall, except
with the consent of each indemnified party, consent to the entry of any judgment
or enter into any settlement that does not include as
-13-
<PAGE>
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation.
(e) CONTRIBUTION OBLIGATION. If the indemnification provided for
-----------------------
in this Section 7.2 is unavailable under state or federal law to an indemnified
person hereunder in respect to any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to herein, then the
indemnifying person, in lieu of indemnifying such indemnified person, shall
contribute to the amount paid or payable by such indemnified person as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company and the applicable
Purchaser(s) in connection with the untrue or alleged untrue statements of
material fact or omissions or alleged omissions to state a material fact which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company and the
applicable Purchaser(s) shall be determined by reference to, among other things,
whether the untrue or alleged untrue statements of material fact or omissions or
alleged omissions to state a material fact relate to information supplied by the
Company or by the applicable Purchaser(s) and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages or liabilities referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim. The Company and
the Purchasers agree that it would not be just and equitable if contribution
pursuant to this Section 7.2(e) were determined by pro rata allocation or by any
other method of allocation that does not take account of the equitable
considerations referred to herein. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the foregoing, any Purchaser's
obligation to contribute hereunder shall be limited to the total amount of net
proceeds received by such Purchaser from the sale of the Shares to which the
loss relates pursuant to the Registration Statement.
8. AFFIRMATIVE COVENANTS OF THE COMPANY.
------------------------------------
8.1 INFORMATION COVENANTS.
---------------------
(a) FINANCIAL INFORMATION. The Company will furnish the
---------------------
Purchasers promptly after they are sent, made available or filed, copies of all
reports, proxy statements and financial statements that the Company sends or
makes available to its shareholders and, within ten (10) days of filing, all
registration statements and reports that the Company files with the SEC,
including 10-Q, 10-K and 8-K reports, or with any other governmental authority
where such registration statements and reports may be filed.
(b) INFORMATION CONFIDENTIAL. Each Purchaser acknowledges that
------------------------
the information received by it pursuant hereto is confidential and for such
Purchaser's use only, and it will not use such information in violation of the
Exchange Act or reproduce, disclose, or disseminate such information to any
other person (other than its employees or agents having a need to know the
contents of such information, and its attorneys), except in connection with the
-14-
<PAGE>
exercise of rights under this Agreement unless (i) the Purchaser is required to
disclose such information by a governmental or regulatory body, (ii) such
information is or becomes generally available to the public other than as a
result of a disclosure by the Purchaser, (iii) such information is or becomes
available on a non-confidential basis from a source other than the Company
provided that such source is not bound by a confidentiality agreement with the
Company known to the Purchaser, or (iv) such information is disclosed to any
actual or prospective assignee of the Shares, provided such person has executed
in favor of the Company a confidentiality agreement containing terms
substantially identical to this section.
9. MISCELLANEOUS.
-------------
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
------------------------------------------
and warranties made by the Purchasers and the Company in this Agreement and the
respective obligations of each party, to be performed on the terms hereof at,
prior to, or after the Closing Date hereunder, shall not expire with, or be
terminated, or extinguished by, such Closing on the Closing Date. All
statements as to factual matters contained in any certificate, exhibit or other
instrument delivered by or on behalf of the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be the
representations and warranties of the Company hereunder as of the date of such
certificate or instrument.
9.2 EXPENSES. The Company shall, upon request, pay all of the
--------
reasonable legal fees of a single counsel selected by the Purchasers in
connection with the preparation, execution and delivery of the Agreement and the
related documents against presentation of itemized invoices detailing services
rendered, up to a maximum of $10,000. The Company shall pay upon request
against presentation of itemized invoices detailing services rendered, all
reasonable fees and expenses, including reasonable attorneys' fees and expenses,
incurred by the Purchasers in the enforcement or attempt to enforce any covenant
of the Company under this Agreement or any other Transaction Document which is
not performed as and when required by such document.
9.3 MODIFICATION; WAIVER. No modification or waiver of any provision
--------------------
of this Agreement shall be effective unless in writing and approved by the
Company and the Purchasers. Upon the effectuation of each waiver, consent,
agreement of amendment or modification, the Company promptly shall give written
notice thereof to the Purchasers as provided in Section 9.4 of this Agreement.
9.4 NOTICES. Any notice, demand or report herein required or
-------
permitted to be given shall be deemed given upon personal delivery, upon the
transmittal thereof if made by telecopy with confirmed transmission receipt or
upon the third business day following mailing by certified first class mail
postage prepaid and addressed to the parties as follows: If to the Company, to
its principal executive offices at 21300 Victory Blvd., Suite 1200 Woodland
Hills, CA 91367, if to the Purchasers, to the address set forth on Exhibit A to
---------
this Agreement, or to such other single place as any single addressee shall
designate by written notice to the other addressees.
-15-
<PAGE>
9.5 SUCCESSORS AND ASSIGNS. All covenants and agreements of the
----------------------
parties contained in this Agreement shall be binding upon and inure to the
benefit of their respective successors and permitted assigns. Except for an
assignment by operation of law in connection with a merger or consolidation
involving the Company, the Company may not assign or transfer any of its rights
or obligations under any Transaction Document without the prior written consent
of the Purchasers. Any purported assignment in violation of this section shall
be void.
9.6 GOVERNING LAW. This Agreement shall in all respects be governed
-------------
by the laws of the State of California, United States of America as such laws
are applied to agreements between California residents entered into and to be
performed entirely within California without reference to rules of conflicts of
laws.
9.7 ENTIRE AGREEMENT. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
9.8 CALIFORNIA QUALIFICATION. THE SALE OF THE SECURITIES WHICH ARE
------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES WITH RESPECT TO SUCH SECURITIES ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
9.9 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
9.10 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
-------------------
exercise any rights, power, or remedy accruing to either party, upon any breach
or default of the other party under this Agreement, shall impair any such
rights, power, or remedy, nor shall it be construed to be a waiver of any such
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. It is further agreed that any waiver, permit, consent,
or approval of any kind or character on a party's part of any breach or default
under this Agreement, or any waiver on a party's part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing, and that all remedies, either
under this Agreement or by law or otherwise afforded to such party, shall be
cumulative and not alternative.
9.11 SEVERABILITY. If any provision in this Agreement or any other
------------
Transaction Document is found or held to be invalid or unenforceable, then the
meaning of such provision shall be construed, to the extent feasible, so as to
render the provision enforceable, and if no
-16-
<PAGE>
feasible interpretation would save such provision, it shall be severed from the
remainder of such document which shall remain in full force and effect unless
the severed provision is essential and material to the rights or benefits
received by any party. In such event, the parties shall use their best efforts
to negotiate, in good faith, a substitute, valid and enforceable provision or
agreement which most nearly effects their intent in entering into this Agreement
or such other Transaction Document, as appropriate.
[Signature Page Follows]
-17-
<PAGE>
The foregoing Agreement is hereby executed as of the date first above written.
VERTEL CORPORATION
By:_______________________________________
Title:____________________________________
SIERRA VENTURES __, L.P.
By S.V. Associates __, L.P.,
Its General Partner
By:_______________________________________
Jeffrey M. Drazan,
a General Partner
PEQUOT PRIVATE EQUITY FUND, L.P.
By: Dawson-Samberg Capital Mgmt., Inc.,
Investment Advisor
By:_______________________________________
PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC.
By: Dawson-Samberg Capital Mgmt., Inc.,
Investment Advisor
By:_______________________________________
[SIGNATURE PAGE TO COMMON STOCK PURCHASE AGREEMENT]
<PAGE>
EXHIBIT A
SCHEDULE OF PURCHASERS
----------------------
<TABLE>
<CAPTION>
Price Aggregate
Name Number of Shares per Share Purchase Price
- ---- ---------------- --------- --------------
<S> <C> <C> <C>
Sierra Ventures V, L.P. 1,000,000 $1.50 $1,500,000.00
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
Attention: Jeff Drazan
Pequot Private Equity Fund, L.P. 887,618 $1.50 $1,331,427.00
c/o Dawson-Samberg Capital
Management, Inc.
354 Pequot Avenue.
Southport, CT 06490
Attention: Amiel Peretz
Pequot Offshore Private Equity Fund, L.P. 112,382 $1.50 $ 168,573.00
c/o Dawson-Samberg Capital
Management, Inc.
354 Pequot Avenue.
Southport, CT 06490
Attention: Amiel Peretz
</TABLE>
-A1-
<PAGE>
EXHIBIT B
SCHEDULE OF EXCEPTIONS
----------------------
none
-B1-
<PAGE>
EXHIBIT C
LEGAL OPINION OF VENTURE LAW GROUP
----------------------------------
September 29, 1998
To the Persons Listed
on Attachment A hereto
Ladies and Gentlemen:
We have acted as counsel for Vertel Corporation, a California corporation
(the "Company"), in connection with the sale by the Company to you of an
-------
aggregate of 2,000,000 shares of the Company's Common Stock (the "Shares"),
------
pursuant to the Common Stock Purchase Agreement (the "Purchase Agreement") dated
------------------
September 29, 1998 among the Company and the persons listed on Exhibit A
---------
thereto. This opinion is given to you in compliance with Section 5.5 of the
Purchase Agreement. Unless defined herein, capitalized terms have the meaning
given them in the Agreement.
In rendering this opinion, we have made such legal and factual examinations
and inquiries as we have deemed advisable or necessary for the purpose of
rendering this opinion. In addition, we have examined originals or copies of
documents, corporate records and other writings which we consider relevant for
the purposes of this opinion. In such examination we have assumed the
genuineness of all signatures on original documents, the conformity to original
documents of all copies submitted to us and the due execution and delivery of
all documents where due execution and delivery are a prerequisite to the
effectiveness thereof. In making our examination of documents executed by
entities other than the Company, we have assumed that each other entity had the
power to enter into and perform all its obligations thereunder and we also have
assumed the due authorization by each such other entity of all requisite actions
and the due execution and delivery of such documents by each such other entity.
Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on our knowledge or belief, it is intended to
signify that in the course of our representation of the Company in connection
with the transactions referred to in the first paragraph hereof, no information
has come to the attention of Craig Johnson, Elias Blawie, Mark Silverman or
Sanjay Khare that would give them actual knowledge of the existence or absence
of such facts. We have not undertaken any independent investigation to
determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of the Company.
-B1-
<PAGE>
In rendering the opinion set forth in paragraph (a) below, we have relied
exclusively on the Certificate of Gordon Almquist, Chief Financial Officer of
the Company (the "Opinion Certificate"), except as to the Company's good
-------------------
standing in the State of California, as to which opinion, we have relied on the
certificates of the California Secretary of State and Franchise Tax Board.
In rendering the opinion set forth in paragraph (c) below to the extent
they relate to the status of the capitalization of the Company, we have relied
without further investigation on statements in the Opinion Certificate relating
to the capitalization of the Company.
In rendering our opinion set forth in paragraphs (d) or (g) below, we are
assuming that the Shares being issued to you are at a price not less than the
"greater of book or market value" as specified in Part III, Section 5(i)1(d) of
Schedule D of the Bylaws of the National Association of Securities Dealers, Inc.
In rendering the opinion expressed in paragraph (h) below, we have assumed
and express no opinion with respect to the following: (i) that the
representations and warranties of the Purchaser set forth in the Agreement are
true and complete; and (ii) the accuracy and completeness of the information
provided by the Company to the Purchaser in connection with such offer and sale.
We have also assumed the accuracy of, and have relied upon, the Company's
representations to us that the Company has made no offer to sell the Securities
by means of any "general solicitation," as defined in Regulation D under the
--------------------
Securities Act or the "publication of any advertisement" (as defined under the
--------------------------------
California Corporate Securities Act of 1968, as amended, and the regulations
thereunder) and that no offer or sale of the Shares has been made or will be
made in any states other than California.
The opinions hereinafter expressed are subject to the following further
qualifications:
(i) Our opinions are qualified by the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
relating to or affecting the rights of creditors generally, including, without
limitation, laws relating to fraudulent transfers or conveyances, preferences
and equitable subordination;
(ii) Our opinions are qualified by the limitations imposed by general
principles of equity upon the availability of equitable remedies or the
enforcement of provisions of the Agreement; and the effect of judicial decisions
which have held that certain provisions are unenforceable when their enforcement
would violate the implied covenant of good faith and fair dealing, or would be
commercially unreasonable, or where their breach is not material;
(iii) A requirement that provisions of the Agreement may only be
waived in writing will not be enforced to the extent an oral agreement has been
executed modifying provisions of the Agreement;
-B2-
<PAGE>
(iv) Our opinion is based upon current statutes, rules, regulations,
cases and official interpretive opinions, and it covers certain items that are
not directly or definitively addressed by such authorities;
(v) The effect of judicial decisions which may permit the
introduction of extrinsic evidence to modify the terms or the interpretation of
the Agreement;
(vi) The enforceability of provisions of the Agreement providing for
arbitration of disputes to the extent that arbitration of a particular dispute
would be against public policy;
(vii) The enforceability of provisions of the Agreement which purport
to establish evidentiary standards or to make determinations conclusive;
(viii) The enforceability of provisions of the Agreement which purport
to establish particular courts as the forum for the adjudication of any
controversy relating to the Agreement;
(ix) The enforceability of provisions of the Agreement expressly or
by implication waiving broadly or vaguely stated rights, or waiving rights
granted by law where such waivers are against public policy;
(x) The enforceability of provisions of the Agreement providing
that rights or remedies are not exclusive, that every right or remedy is
cumulative, or that the election of a particular remedy or remedies does not
preclude recourse to one or more other remedies.
(xi) We express no opinion as to compliance with applicable
antifraud statutes, rules or regulations of applicable state and federal laws
concerning the issuance or sale of securities; and
(xii) We express no opinion as to the enforceability of provisions in
the Agreement purporting to provide for indemnification and contribution to the
extent the provisions thereof may be subject to limitations of public policy and
the effect of applicable statutes and judicial decisions.
Based upon and subject to the foregoing, and except as set forth in
the Company's Schedule of Exceptions, we are of the opinion that:
(a) The Company is a corporation duly organized and existing under the
laws of the State of California, and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is
qualified to do business as a foreign corporation in each state in which the
failure to be so qualified would have a material adverse effect on the Company.
-B3-
<PAGE>
(b) The Company has the requisite corporate power to execute and deliver
the Agreement, to sell and issue the Shares thereunder, and to carry out and
perform its obligations under the terms of the Agreement.
(c) The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, par value $0.01 per share, 24,487,557 of which were
issued and outstanding on September 15, 1998, and 2,000,000 shares of Preferred
Stock, par value $0.01 per share, none of which are issued and outstanding prior
to the Closing. All of such issued and outstanding shares are validly issued,
fully paid and nonassessable. The Company has reserved 2,000,000 shares of
Common Stock for issuance pursuant to the Agreement. As of the close of
business on September 15, 1998 there were options outstanding under present or
former option plans which may be exercised to purchase an aggregate of 3,548,654
shares of the Company's Common Stock. All outstanding securities of the Company
were issued in compliance with applicable federal and state securities laws. To
our knowledge, except as described above and shares reserved pursuant to the
Company's stock option and purchase plans described in the Company's SEC
Documents, there are no preemptive rights, options or warrants or other
conversion privileges or rights presently outstanding to purchase any of the
authorized but unissued stock of the Company.
(d) All corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of the Agreement by the Company, the authorization, sale, issuance
and delivery of the Shares and the performance of all of the Company's
obligations under the Agreement, has been taken. The Agreement constitutes a
valid and binding obligation of the Company enforceable in accordance with its
terms. The Shares have been validly issued, and are fully paid and
nonassessable and have the rights, preferences and privileges described in the
Company's Articles of Incorporation.
(e) To our knowledge, the execution, delivery and performance of and
compliance with the Agreement, and the issuance of the Shares have not resulted
and will not result in any material violation of, or conflict with, or
constitute a material default under, (i) the Company's Articles of Incorporation
or Bylaws, or (ii) any statute, rule or regulation or any judgment or order
known to us of Federal or California law to which the Company is a party, or by
which the Company is bound.
(f) To our knowledge, there are no actions, suits, proceedings or
investigations pending or threatened against the Company, or its properties
before any court or governmental agency that, either in any case or in the
aggregate, might result in any materially adverse change in the business or
financial condition of the Company, its properties or assets or its prospects as
described in the SEC Documents, or in any material impairment of the right or
ability of the Company to carry on its business as now conducted or as proposed
to be conducted in the SEC Documents or in any material liability on the part of
the Company, and none that questions the validity of the Agreement or any action
taken or to be taken in connection therewith.
(g) No consent, approval or authorization of or designation, declaration or
filing with, any governmental authority or shareholder on the part of the
Company is required in connection with the valid execution and delivery of the
Agreement, or the offer, sale or issuance of the
-B4-
<PAGE>
Shares, or the consummation of any other transaction contemplated by the
Agreement, except the notice filing required by Section 25102(f) of the
California Corporate Securities Law of 1968, as amended.
(h) The offer, sale and issuance of the Shares to be issued in conformity
with the terms of the Purchase Agreement, constitutes a transaction exempt from
the registration requirements of Section 5 of the Securities Act by virtue of
Section 4(2) thereof and exempt from the qualification requirements of the
California Corporate Securities Law of 1968, as amended.
We express no opinion as to matters governed by any laws other than the
laws of the State of California and the federal law of the United States of
America. We express no opinion as to whether the laws of any particular
jurisdiction apply, and no opinion to the extent that the laws of any
jurisdiction other than those identified above are applicable to the Agreement
or the transactions contemplated thereby.
This opinion is furnished to you pursuant to Section 5.5 of the Purchase
Agreement and is solely for your benefit and may not be relied on by, nor may
copies be delivered to, any other person without our prior written consent. We
assume no obligation to inform you of any facts, circumstances, events or
changes in the law that may hereafter be brought to our attention that may
alter, affect or modify the opinion expressed herein.
Sincerely,
VENTURE LAW GROUP,
A Professional Corporation
EJB
-B5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 26, 1998 AND THE RELATED CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE NINE MONTHS IN THE PERIOD ENDED SEPTEMBER 26,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> DEC-27-1997
<PERIOD-END> SEP-26-1998
<CASH> 7,306
<SECURITIES> 0
<RECEIVABLES> 4,986
<ALLOWANCES> 503
<INVENTORY> 0
<CURRENT-ASSETS> 13,361
<PP&E> 3,482
<DEPRECIATION> 2,495
<TOTAL-ASSETS> 18,539
<CURRENT-LIABILITIES> 5,493
<BONDS> 0
0
0
<COMMON> 245
<OTHER-SE> 17,168
<TOTAL-LIABILITY-AND-EQUITY> 18,539
<SALES> 14,829
<TOTAL-REVENUES> 14,829
<CGS> 3,484
<TOTAL-COSTS> 15,581
<OTHER-EXPENSES> (2,189)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 1,437
<INCOME-TAX> 296
<INCOME-CONTINUING> 1,141
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<EXTRAORDINARY> 0
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<NET-INCOME> 1,141
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
