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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
[Fee Required]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from _____________ to
__________________
Commission file number 0-25678
MRV COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1340090
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
8917 Fullbright Avenue 91311
Chatsworth, California (Zip Code)
(Address of principal executive offices)
Issuer's telephone number: (818) 773-9044; (818) 773-0906 (Fax)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.0034 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
State issuer's revenues for its most recent fiscal year: $88,815,000
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
$363,373,768 based on the closing sale price at March 26, 1997 as
reported by The Nasdaq National Market.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
22,964,039 at April 4, 1997
DOCUMENTS INCORPORATED BY REFERENCE:
None
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The Annual Report on Form 10-K contains forward-looking statements.
These statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those anticipated in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the Section under Item 1 -
Description of Business - Risk Factors.
Readers should not place undue reliance on forward-looking
statements, which reflect management's view only as of the date of this Report.
The Company undertakes no obligation to publicly revise these forward-looking
statements to reflect subsequent events or circumstances. Readers should also
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission.
------------------------------------------
As used in this Report, "MRV" or the "Company" refers to MRV
Communications, Inc., its predecessor and its wholly-owned consolidated
subsidiaries, except where the context otherwise indicates. Any Speed to Any
Speed Ethernet, GigaHub, JavaMan, NBase, MegaStack, MegaSwitch, MegaSwitch II,
MegaVision, MRV Communications and West Hills LAN System are trademarks or trade
names of the Company. Trademarks of other companies are also used in this Report
and are the property of their respective owners.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
MRV is a leading manufacturer and marketer of high speed network
switching and fiber optic transmission systems which enhance the performance of
existing data- and telecommunications networks. The Company designs,
manufactures and sells two groups of products: (i) computer networking products,
primarily Ethernet LAN switches, hubs and related equipment and (ii) fiber optic
components for the transmission of voice, video and data across enterprise,
telecommunications and cable TV networks. The Company's advanced networking
solutions greatly enhance the functionality of LANs by reducing network
congestion while allowing end users to preserve their legacy investments in
pre-existing networks and providing cost-effective migration paths to next
generation technologies such as Gigabit Ethernet. The Company's fiber optic
components incorporate proprietary technology which delivers high performance
under demanding environmental conditions.
The Company offers a family of network, switching and related
products that enhance LAN performance and facilitate the migration to next
generation technologies such as Fast Ethernet, Gigabit Ethernet and
Asynchronous Transfer Mode ("ATM"). MRV's MegaSwitch family of switching
products range from complete switching systems to stackable switches which
upgrade performance of existing LANs by relieving congestion of overloaded
transmission speeds without requiring replacement of existing technologies. In
addition, the Company offers GigaHub, a multi-platform switchable hub, and
MegaStack, a LAN stackable hub, as well as a network management system and a
number of other products that support network connectivity.
The Company also offers a family of optical transmission components
and modules designed for transmission over fiber optic cable. These products
enable the transmission of voice, data, and video across fiber and are also
used in optical fiber test equipment. The Company's products include discrete
components, such as laser diodes and LEDs, and integrated components such as
transmitters, receivers and transceivers. The Company's components are used in
data networks, telecommunication transmission and access networks.
To position the Company for growth, management's strategy has been to
focus on rapidly developing markets in the communications arena, such as LAN
switching and access networks, and to concentrate on improving performance of
networks employing Ethernet protocols, thereby addressing the largest installed
base of network users. Management's strategy has also been to emphasize
development of innovative products that the Company may bring
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to market early and to capitalize on MRV's manufacturing expertise and ability
to combine proprietary fiber optic transmission and advanced switching
technologies to create high-speed, cost-effective networking solutions.
The Company's principal executive offices are located at 8917
Fullbright Avenue, Chatsworth, California 91311 and its telephone and fax
numbers are (818) 773-9044 and (818) 773-0906, respectively. The Company
maintains Web sites at "http://www.mrv.com" and "http://www.nbase.com."
Information contained on the Company's Web sites does not constitute part of
this Report.
COMPANY BACKGROUND
The Company was organized in July 1988 as MRV Technologies, Inc., a
California corporation and reincorporated in Delaware in April 1992, at which
time it changed its name to MRV Communications, Inc.
On May 1, 1995, the Company acquired certain assets and the
distribution business of Galcom Networking, Ltd. ("Galcom"), a network equipment
company located in Israel. The purchase price paid by the Company was
approximately $900,000 in cash and the assumption of approximately $1,800,000 in
liabilities and debt. In connection with the acquisition of assets from Galcom,
the Company issued to Galcom and certain of its employees five-year warrants to
purchase an aggregate of 300,000 shares at prices ranging from $4.25 to $7.38
per share.
On June 29, 1995, the Company acquired certain assets and the
distribution business of Ace 400 Communications Ltd. ("Ace"), a network
equipment company also located in Israel. The purchase price paid by the Company
was approximately $4,316,000 comprised of $100,000 in cash, the assumption of
approximately $467,000 in liabilities and debt and the issuance of approximately
855,000 shares of Common Stock valued at approximately $3,910,000 and extended a
right to Ace to sell to the Company up to $400,000 of Ace's inventory. In
connection with the acquisition of assets from Ace, the Company issued to the
trustee and an employee of Ace five-year warrants to purchase an aggregate of
330,000 shares of Common Stock at prices ranging from $4.57 to $4.67 per share.
The Galcom and Ace acquisitions provided the Company with experienced
personnel and technology for the Token Ring LAN, IBM Connectivity and
Multi-Platform Network Management IBM NetView and HP OpenView markets. Following
the acquisitions, the Company consolidated these operations in Israel with its
networking operations in the U.S.
On September 26, 1996, the Company completed an acquisition (the
"Fibronics Acquisition") from Elbit Ltd. ("Elbit") of certain of the assets and
selected liabilities of Elbit's wholly-owned subsidiary, Fibronics Ltd. and its
subsidiaries (collectively "Fibronics") related to Fibronics' computer
networking and telecommunications businesses (the "Fibronics Business") in
Germany, the United States, the United Kingdom, the Netherlands and Israel. The
assets acquired included Fibronics' technology in progress and existing
technology, its marketing channels, its GigaHub family of computer networking
products and other rights. The purchase price for the Fibronics Business was
approximately $22,770,000, which was paid using a combination of cash and shares
of Common Stock of the Company. In connection with the 458,991 shares of Common
Stock originally delivered to Elbit as partial payment of the purchase price,
the Company made certain guarantees to Elbit regarding the minimum proceeds
Elbit would receive upon resale of the shares. The Company secured such
guarantees by delivering to Elbit (i) a letter of credit from a major bank in
the amount of approximately $4,301,000 and (ii) an additional 137,305 shares of
its Common Stock (the "Security Shares"). In March 1997, MRV and Elbit agreed
to amend their agreement (the "March 1997 Amendment") regarding the Common Stock
portion of the purchase price paid to Elbit for the Fibronics Business. First,
the Company repurchased 184,381 shares, paying Elbit $4,230,000 (approximately
$23.00 per share) (plus accrued interest thereon at 0.67% per month from January
1, 1997 through March 13, 1997). Second, with respect to the remaining 274,610
shares (the "Additional Shares"), the Company guaranteed that the Additional
Shares can be resold by Elbit for at least $6,300,000 (approximately $23.00 per
share), plus interest thereon at 0.67% per month from January 1, 1997 through
the date of Elbit's resale. To secure any shortfall, the Company delivered to
Elbit pending resale of the Additional Shares a letter of credit from a major
bank, expiring on June 15, 1997, in the amount of approximately $6,536,000.
Elbit has agreed to sell the Additional Shares in the open market at no less
than the prevailing bid price at the time of sale; provided, however, that in no
event shall sales of the Additional Shares be at less than $23.00 per share.
Elbit must pay to the Company any difference between the amount received upon
resale of the Additional Shares and $6,300,000
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(plus the accrued interest) and return any unsold Additional Shares to the
Company. As part of the March 1997 Amendment, Elbit also returned the Security
Shares to the Company. The Company used proceeds it received from a private
placement of $30,000,000 principal amount of Debentures completed in September
1996 to fund the cash portion of the purchase price of the Fibronics
Acquisition.
With the integration of the Fibronics Business, MRV believes it will
be able to enhance the development of Fast Ethernet and Gigabit Ethernet
functions through the Fibronics GigaHub family of products, to offer a broader
range of networking products and to benefit from combined distribution channels
and sales in both the United States and Europe and greater product development
capability.
RISK FACTORS
The Company may from time to time make written or oral
forward-looking statements. Written forward-looking statements may appear in
documents filed with the Securities and Exchange Commission, in press releases,
and in reports to shareholders. The Private Securities Reform Act of 1995
contains a safe harbor for forward-looking statements on which the Company
relies in making such disclosures. In connection with this "safe harbor" the
Company is hereby identifying important factors that could cause actual results
to differ materially from those contained in any forward-looking statements made
by or on behalf of the Company. Any such statement is qualified by reference to
the following cautionary statements:
Risks of Technological Change, Development Delays and Product
Defects. The Company is engaged in the design and development of devices for
the computer networking, telecommunications and fiber optic communication
industries. As with any new technologies, there is a substantial risk that the
marketplace may not accept the Company's new products. Market acceptance of the
Company's products will depend, in large part, upon the ability of the Company
to demonstrate performance and cost advantages and cost-effectiveness of its
products over competing products and the success of the sales efforts of the
Company and its customers. There can be no assurance that the Company will be
able to continue to market its technology successfully or that any of the
Company's current or future products will be accepted in the marketplace.
Moreover, the computer networking, telecommunications and fiber optic
communication industries are characterized by rapidly changing technology,
evolving industry standards and frequent new product introductions, any of which
could render the Company's existing products obsolete. The Company's success
will depend upon its ability to enhance existing products and to introduce new
products to meet changing customer requirements and emerging industry standards.
The Company will be required to devote continued efforts and financial resources
to develop and enhance its existing products and conduct research to develop new
products. The development of new, technologically advanced products is a complex
and uncertain process requiring high levels of innovation, as well as the
accurate anticipation of technological and market trends. There can be no
assurance that the Company will be able to identify, develop, manufacture,
market or support new or enhanced products successfully or on a timely basis,
that new Company products will gain market acceptance or that the Company will
be able to respond effectively to product announcements by competitors,
technological changes or emerging industry standards. Furthermore, from time to
time, the Company may announce new products or product enhancements,
capabilities or technologies that have the potential to replace or shorten the
life cycle of the Company's existing product offerings and that may cause
customers to defer purchasing existing Company products or cause customers to
return products to the Company.
Complex products, such as those offered by the Company, may contain
undetected software or hardware errors when first introduced or when new
versions are released. While the Company has not experienced such errors in the
past, the occurrence of such errors in the future could, and the inability to
correct such errors would, result in the delay or loss of market acceptance of
the Company's products, material warranty expense, diversion of engineering and
other resources from the Company's product development efforts and the loss of
credibility with the Company's customers, system integrators and end users, any
of which would have a material adverse effect on the Company's business,
operating results and financial condition.
Potential Fluctuations in Operating Results. The Company's revenue
and operating results could fluctuate substantially from quarter to quarter and
from year to year. This could result from any one or a combination of factors
such as the cancellation or postponement of orders, the timing and amount of
significant orders from the Company's largest customers, the Company's success
in developing, introducing and shipping product enhancements and new products,
the product mix sold by the Company, adverse effects to the Company's financial
statements resulting from,
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or necessitated by, possible future acquisitions, new product introductions by
the Company's competitors, pricing actions by the Company or its competitors,
the timing of delivery and availability of components from suppliers, changes in
material costs and general economic conditions. Although the Company has not had
adverse fluctuations in results from continuing operations in the past, there
can be no assurance that these factors or others would not cause such
fluctuations in the future. The volume and timing of orders received during a
quarter are difficult to forecast. The Company's customers from time to time
encounter uncertain and changing demand for their products. Customers generally
order based on their forecasts. If demand falls below such forecasts or if
customers do not control inventories effectively, they may cancel or reschedule
shipments previously ordered from the Company. The Company's expense levels
during any particular period are based, in part, on expectations of future
sales. If sales in a particular quarter do not meet expectations, operating
results could be materially adversely affected. Further, there can be no
assurance that the Company will be able to sustain its recent rate of growth
or continue profitable operations.
Competition. The markets for fiber optic components and network
switching products are intensely competitive and subject to frequent product
introductions with improved price/performance characteristics, rapid
technological change and the continual emergence of new industry standards. The
Company competes and will compete with numerous types of companies including
companies which have been established for many years and have considerably
greater financial, marketing, technical, human and other resources, as well as
greater name recognition and a larger installed customer base, than the Company.
This may give such competitors certain advantages, including the ability to
negotiate lower prices on raw materials and components than those available to
the Company. In addition, many of the Company's large competitors offer
customers broader product lines which provide more comprehensive solutions than
the Company currently offers. The Company expects that other companies will also
enter markets in which the Company competes. Increased competition could result
in significant price competition, reduced profit margins or loss of market
share. There can be no assurance that the Company will be able to compete
successfully with existing or future competitors or that competitive pressures
faced by the Company will not materially and adversely affect the business,
operating results and financial condition of the Company.
Management of Growth. The Company has grown rapidly in recent years,
with revenues increasing from $2,400,000 for the year ended December 31, 1991,
to $17,500,000, $39,200,000 and $88,800,000 for the years ended December 31,
1994, 1995 and 1996, respectively. The Company's recent growth, both internally
and through the acquisitions it has made since January 1, 1995, has placed a
significant strain on the Company's financial and management personnel and
information systems and controls, and the Company must implement new and enhance
existing financial and management information systems and controls and must add
and train personnel to operate such systems effectively. While the strain placed
on the Company's personnel and systems has not had a material adverse effect on
the Company to date, there can be no assurance that a delay or failure to
implement new and enhance existing systems and controls will not have such an
effect in the future. The Company's recent growth through the acquisition of the
Fibronics Business discussed in "Risks Associated with Recent Acquisition and
Potential Future Acquisitions" below and its intention to continue to pursue its
growth strategy through efforts to increase sales of existing and new products
can be expected to place even greater pressure on the Company's existing
personnel and compound the need for increased personnel, expanded information
systems, and additional financial and administrative control procedures. There
can be no assurance that the Company will be able to successfully manage
expanding operations.
Risks Associated with Recent Acquisition and Potential Future
Acquisitions. On September 26, 1996, the Company completed the Fibronics
Acquisition from Elbit, acquiring certain of the assets and selected liabilities
related to Fibronics' computer networking and telecommunications businesses in
Germany, the United States, the United Kingdom, the Netherlands and Israel. The
assets acquired include Fibronics' technology in progress and existing
technology, its marketing channels, its GigaHub family of computer networking
products and other rights. The purchase price for the Fibronics Business was
approximately $22,770,000, which was paid using a combination of cash and Common
Stock of the Company. During the years ended December 31, 1994 and 1995, and the
period from January 1, 1996 through September 25, 1996 (the day the Fibronics
Business was acquired by the Company), the Fibronics Business reported net
revenues of $33,355,000, $35,003,000 and $19,481,000, respectively, and net
income (losses) of ($11,557,000), $79,000 and $(6,143,000), respectively.
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In connection with the Fibronics Acquisition, the Company incurred charges of
$17,795,000, $6,974,000 and $4,357,000 for purchased technology, restructuring,
and interest expenses related to financing, respectively. These charges caused
the Company to incur a net loss of $9,654,000 for the year ended December 31,
1996. The Company's ability to operate the Fibronics Business profitably will
depend upon its ability to integrate this business successfully, including (i)
integration of the products, technologies and personnel of the Fibronics
Business into the Company, (ii) management's ability to reduce operating costs
of the Fibronics Business and (iii) the continued market acceptance of the
products and technology acquired from Fibronics.
An important element of management's strategy is to review
acquisition prospects that would complement the Company's existing products,
augment its market coverage and distribution ability or enhance its
technological capabilities. While the Company has no current agreements or
negotiations underway with respect to any new acquisitions, the Company may
acquire additional businesses, products or technologies in the future. Future
acquisitions by the Company could result in charges similar to those incurred in
connection with the Fibronics Acquisition, potentially dilutive issuance of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses related to goodwill and other intangible assets, any of
which could materially adversely affect the Company's business, financial
condition and results of operations and/or the price of the Company's Common
Stock. Acquisitions entail numerous risks, including the assimilation of the
acquired operations, technologies and products, diversion of management's
attention to other business concerns, risks of entering markets in which the
Company has no or limited prior experience and potential loss of key employees
of acquired organizations. Prior to the Fibronics Acquisition, management had
only limited experience in assimilating acquired organizations. There can be no
assurance as to the ability of the Company to successfully integrate the
products, technologies or personnel of any business that might be acquired in
the future, and the failure of the Company to do so could have a material
adverse effect on the Company's business, financial condition and results of
operations.
International Operations. International sales have become an
increasingly important segment of the Company's operations, with the
acquisitions of Galcom and Ace in 1995 and the Fibronics Business in 1996.
Approximately 19%, 45% and 53% of the Company's net revenues for the years ended
December 1994, 1995 and 1996, respectively, were from sales to customers in
foreign countries. The Company has offices in, and conducts a significant
portion of its operations in and from, Israel. MRV is, therefore, directly
influenced by the political and economic conditions affecting Israel. Any major
hostilities involving Israel, the interruption or curtailment of trade between
Israel and its trading partners or a substantial downturn in the economic or
financial condition of Israel could have a material adverse effect on the
Company's operations.
Sales to foreign customers are subject to government controls and
other risks associated with international sales, including difficulties in
obtaining export licenses, fluctuations in currency exchange rates, political
instability, trade restrictions and changes in duty rates. Although the Company
has not experienced any material difficulties in this regard to date, there can
be no assurance that it will not experience any such material difficulties in
the future. The Company's sales are currently denominated in U.S. dollars and to
date its business has not been significantly affected by currency fluctuations
or inflation. However, the Company conducts business in several different
countries and thus fluctuations in currency exchange rates could cause the
Company's products to become relatively more expensive in particular countries,
leading to a reduction in sales in that country. In addition, inflation in such
countries could increase the Company's expenses. To date, the Company has not
hedged against currency exchange risks. In the future, the Company may engage in
foreign currency denominated sales or pay material amounts of expenses in
foreign currencies and, in such event, may experience gains and losses due to
currency fluctuations. The Company's operating results could be adversely
affected by such fluctuations or as a result of inflation in particular
countries where material expenses are incurred. Moreover, the Company's
operating results could also be adversely affected by seasonality of
international sales, which are typically lower in Asia in the first calendar
quarter and in Europe in the third calendar quarter. These international factors
could have a material adverse effect on future sales of the Company's products
to international end-users and, consequently, the Company's business, operating
results and financial condition.
Manufacturing and Dependence on Suppliers and Third Party
Manufacturers . The Company uses internally developed Application Specific
Integrated Circuits ("ASICs"), which provide the functionality of multiple
integrated circuits in one chip, in the manufacture of its Local Area Network
("LAN") switching products. To develop ASICs
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successfully, the Company must transfer a code of instructions to a single mask
from which low cost duplicates can be made. Each iteration of a mask involves a
substantial up-front cost, which costs can adversely affect the Company's result
of operations and financial condition if errors or "bugs" occur following
multiple duplication of the masks. While the Company has not experienced
material expenses to date as a result of errors discovered in ASIC masks,
because of the complexity of the duplication process and the difficulty in
detecting errors, the Company could suffer a material adverse effect to its
operating results and financial condition if errors in developing ASICs were to
occur in the future. Moreover, the Company currently relies on a single foundry
to fabricate its ASICs and does not have a long-term supply contract with this
supplier, any other ASIC vendor or any other of its limited source vendors,
purchasing all of such components on a purchase order basis. While the Company
believes it would be able to obtain alternative sources of supply for the ASICs
or other key components, a change in ASIC or other suppliers of key components
could require a significant lead time and, therefore, could result in a delay in
product shipments. While the Company has not experienced delays in the receipt
of ASICs or other key components, any future difficulty in obtaining any of
these key components could result in delays or reductions in product shipments
which, in turn, could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company outsources the assembly, test and quality control of
material, components, subassemblies and systems relating to its networking
products to third party contract manufacturers. Though there are a large number
of contract manufacturers which the Company can use for its outsourcing, it has
elected to use a limited number of vendors for a significant portion of board
assembly requirements in order to foster consistency in quality of the products.
These independent third party manufacturers also provide these services to other
companies. Risks associated with the use of independent manufacturers include
unavailability of or delays in obtaining adequate supplies of products and
reduced control of manufacturing quality and production costs. If the Company's
contract manufacturers fail to deliver products in the future on a timely basis,
or at all, it could be difficult for the Company to obtain adequate supplies of
products from other sources in the near term. There can be no assurance that the
Company's third party manufacturers will provide adequate supplies of quality
products on a timely basis, or at all. While the Company could outsource with
other vendors, a change in vendors may require significant lead time and may
result in shipment delays and expenses. The inability to obtain such products on
a timely basis, the loss of a vendor or a change in the terms and conditions of
the outsourcing would have a material adverse effect on the Company's business,
operating results and financial condition.
The Company relies exclusively on its own production capability for
critical semiconductor lasers and light emitting diodes ("LEDs") used in its
products. Because the Company manufactures these and other key components of its
products at its own facility and such components are not readily available from
other sources, any interruption of the Company's manufacturing process could
have a material adverse effect on the Company's operations. Furthermore, the
Company has a limited number of employees dedicated to the operation and
maintenance of its wafer fabrication equipment, the loss of any of whom could
result in the Company's inability to effectively operate and service such
equipment. Wafer fabrication is sensitive to many factors, including variations
and impurities in the raw materials, the fabrication process, performance of the
manufacturing equipment, defects in the masks used to print circuits on the
wafer and the level of contaminants in the manufacturing environment. There can
be no assurance that the Company will be able to maintain acceptable production
yields and avoid product shipment delays. In the event adequate production
yields are not achieved, resulting in product shipment delays, the Company's
business, operating results and financial condition could be materially
adversely affected.
Lack of Patent Protection; Dependence on Proprietary
Technology. The Company holds no patents and only recently has filed patent
applications with respect to certain aspects of its technology. The Company
currently relies on unpatented proprietary know-how, which may be duplicated,
and employs various methods, including confidentiality agreements with
employees, to protect its proprietary know-how. Such methods may not afford
complete protection, however, and there can be no assurance that others will not
independently develop such know-how or obtain access to it or independently
develop technologies that are substantially equivalent or superior to the
Company's technology. In the event that protective measures are not successful,
the Company's business, operating results and financial condition could be
materially and adversely affected. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. There can be no assurance that any patents
will be issued as a result of the pending applications or any future patent
applications, or, if issued, would provide the Company with meaningful
protection from competition. In addition, there can be no assurance
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that any patents issued to the Company will not be challenged, invalidated or
circumvented. Since United States patent applications are maintained in secrecy
until patents issue and since the publication of inventions in technical or
patent literature tends to lag behind such inventions by several months, the
Company cannot be certain that it was the first creator of inventions covered by
pending patent applications, that it was the first to file patent applications
for such inventions or that the Company is not infringing on the patents of
others. Litigation may be necessary to enforce the Company's patents, if issued,
or other intellectual property rights, to protect the Company's trade secrets,
to determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement. Such litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on the Company's business, financial condition and results of operations
regardless of the final outcome of such litigation. In the event that any of the
Company's products are found to infringe on the intellectual property rights of
third parties, the Company would be required to seek a license with respect to
such patented technology, or incur substantial costs to redesign the infringing
products. There can be no assurance that any such license would be available on
terms acceptable to the Company or at all, that any of the Company's products
could be redesigned on an economical basis or at all, or that any such
redesigned products would be competitive with the products of the Company's
competitors.
Dependence on Key Personnel. The Company is substantially dependent
upon a number of key employees, including Dr. Shlomo Margalit, its Chairman of
the Board of Directors and Chief Technical Officer, Dr. Zeev Rav-Noy, its Chief
Operating Officer, and Noam Lotan, its President and Chief Executive Officer.
The loss of the services of any one or more of these officers could have a
material adverse effect on the Company. The Company has entered into employment
agreements with each officer and owns and is the beneficiary of key man life
insurance policies in the amounts of $1,000,000 each on the lives of Drs.
Margalit and Rav-Noy and Mr. Lotan. There can be no assurance that the proceeds
from these policies will be sufficient to compensate the Company in the event of
the death of any of these individuals, and the policies do not cover the Company
in the event that any of them becomes disabled or is otherwise unable to render
services to the Company.
Attraction and Retention of Qualified Personnel. The Company's
ability to develop, manufacture and market its products and its ability to
compete with its current and future competitors depends, and will depend, in
large part, on its ability to attract and retain qualified personnel.
Competition for qualified personnel in the networking and fiber optics
industries is intense, and the Company will be required to compete for such
personnel with companies having substantially greater financial and other
resources than the Company. If the Company should be unable to attract and
retain qualified personnel, the business of the Company could be materially
adversely affected. There can be no assurance that the Company will be able to
attract and retain qualified personnel.
Share Prices Have Been and May Continue to Be Highly Volatile. Over
the last several months, the market price of the Company's Common Stock has been
extremely volatile. The market price of the Common Stock is likely to continue
to be highly volatile and could be significantly affected by factors such as
actual or anticipated fluctuations in the Company's operating results,
announcement of technological innovations or new product introductions by the
Company or its competitors, changes of estimates of the Company's future
operating results by securities analysts, developments with respect to patents,
copyrights or proprietary rights, general market conditions and other factors.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the common stocks of technology companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In
addition, it is possible that in a future fiscal quarter, the Company's results
of operations will fail to meet the expectations of securities analysts or
investors and, in such event, the market price of the Company's Common Stock
would be materially adversely affected.
Possible Issuance of Preferred Stock; Anti-takeover Provisions. The
Company is authorized to issue up to 1,000,000 shares of Preferred Stock, par
value $.01 per share. The Preferred Stock may be issued in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors without further action by stockholders. The terms of any such series
of preferred stock may include voting rights (including the right to vote as a
series on particular matters), preferences as to dividend, liquidation,
conversion and redemption rights and sinking fund provisions. No preferred stock
is currently outstanding, and the Company has no present plans for the issuance
thereof. The Company has agreed not to issue any shares of preferred stock until
December 7, 1997, without the prior written consent of H. J. Meyers & Co., Inc.
(the successor to Thomas James Associates, Inc. the Company's underwriter in its
initial public stock offering). The issuance of any such preferred stock could
materially adversely affect the rights
8
<PAGE> 9
of the holders of Common Stock, and therefore, reduce the value of the Common
Stock. In particular, specific rights granted to future holders of preferred
stock could be used to restrict the Company's ability to merge with, or sell its
assets to, a third party, thereby preserving control of the Company by the
present owners.
Forward-looking Statements. This Report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements may be deemed to include the Company's plans to develop and offer new
and enhanced networking and optical transmission products and its efforts to
expand its customer base. Such forward-looking statements may also be deemed to
include the Company's expectations concerning factors affecting the markets for
its products, the growth in those markets in general, the timing of new product
introductions by the Company and anticipated benefits from such product
introductions or technological developments. Such forward-looking statements
also may include the Company's expectations of benefits from the acquisition of
the Fibronics Business or its OEM or other arrangements with certain of its
customers. Actual results could differ from those projected in any
forward-looking statements for, among other things, the reasons detailed in the
other sections of this "Risk Factors" portion of this Report. The
forward-looking statements are made as of the date of this Report and the
Company assumes no obligation to update the forward-looking statements or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.
INDUSTRY BACKGROUND
The global communications industry has undergone significant
transformation and growth since the mid-1980's as a result of increased demand
for communications services and applications, as well as advances in technology
and changes in network architectures and public policy. The client server
network architecture with its shared information and resources, the increased
power of conventional applications as well as the proliferation of graphic
intensive applications such as multimedia, Internet and intranets, have resulted
in a strong demand for bandwidth. This trend is expected to continue as
additional bandwidth intensive applications, such a video conferencing, are used
increasingly. Further, as a result of changes in communications regulations and
the adoption of common standards, enterprise networks, such as LANs and WANs,
and access networks, such as telecommunications and cable TV, are expected to
converge. The demand for high bandwidth applications, as well as the convergence
of data communications and telecommunications, has significantly increased the
requirement for networking and fiber optic equipment that increases the capacity
of networks through high speed and more efficient transmission technologies.
High-speed switching systems enhance the bandwidth of LANs so that a
greater number of users can utilize more complex applications without
experiencing network congestion. Fiber optic transmission components also
enhance the functionality of enterprise and access networks by enabling
high-speed transmission of voice, video and data across fiber optic cable.
Market research firms forecast strong growth in both of these sectors. In August
1996, an industry analyst estimated that the market for LAN switches will grow
from $1.7 billion in 1995 to $10.5 billion in 1999, a compounded annual growth
rate of 58%. In February 1996, KMI Corporation estimated that the worldwide
fiber optics market, including cables, connectors and transceivers, was $6.1
billion in 1995 and that it will grow to $12.3 billion by 1999, a compounded
annual growth rate of 19%. The Company believes that the growth of fiber optic
components will outpace that of the overall fiber optics industry.
LAN ENVIRONMENT
The most common LAN architecture, "shared-media" networking, cannot
effectively accommodate the market's requirements for high-speed networking.
Shared-media networks require computers to alternate communication over a single
LAN, thereby allowing a computer to send information only when other computers
are not doing so. As more computers are added to a single LAN, demand for access
to the network increases and, as a result, individual users experience slower
network response times and data transfer rates. Most of these networks operate
with the Ethernet protocol, which is significantly less expensive than the
closest competing technology, Token Ring.
There are two fundamentally different but complementary approaches to
alleviating network congestion. The first approach, referred to as
"segmentation," reduces the number of desktops connected to a single LAN
segment, which increases the available bandwidth per user. The segmentation of
users into smaller LANs alleviates network congestion by allowing fewer users to
share a given amount of capacity. The second approach is to increase the
capacity of
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<PAGE> 10
networks through new high-speed transmission technologies and high bandwidth
fiber optic applications. LAN switching technology is an innovation that enables
both of these solutions. A switch is a device that partitions a network into
multiple segments which enables several simultaneous "conversations," thereby
reducing the traffic on each segment while allowing access to the entire
network. A switch also allows connection with different speeds, thereby
facilitating faster backbones and migration to faster technologies.
Enhanced LAN Performance through Segmentation and Switching. LAN
switching systems have emerged as the preferred method for segmenting networks
because these systems are implemented more easily, efficiently and cost-
effectively than hub architectures which once dominated the networking equipment
industry. In contrast to hubs, which indiscriminately forward data to all ports,
Ethernet switches only forward network traffic to the designated receiving port
or ports. Ethernet switches can also support different data rates on different
ports with some ports operating at 10 Mbps and others at substantially higher
speeds, thus enabling "Any Speed to Any Speed" Ethernet transmission. A major
driver to the growth in Ethernet switching is the large installed base. Between
60% to 70% of all LANs are currently based on Ethernet standards. As a result,
Ethernet switching offers fast and cost-effective upgrades without impacting
network performance or requiring infrastructure changes to existing cabling and
network adapters. Switching also allows LANs based on different architectures,
such as Ethernet and Token Ring, to be connected efficiently and allows these
systems to access servers and backbones which use a variety of high-speed
technologies, such as Fast Ethernet, Gigabit Ethernet, Fiber Distributed Data
Interface ("FDDI") and ATM.
Another important benefit of switches is their ability to combine
groups of computers into virtual LANs ("VLANs"). As a result, workgroups can be
set up according to business relationships rather than physical proximity.
Unlike hub and router systems, which require segment users to be physically
grouped together, VLANs simplify network administration as users relocate. VLANs
can also be used for controlling bandwidth and directing excess capacity to
workgroups and users as needed. Moreover, by confining traffic to desired
workgroups, VLANs improve network security.
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<PAGE> 11
Enhanced LAN Performance Through High-speed Transmission Technologies
and Switching. While Ethernet switching is being used to increase the efficiency
of existing capacity, switching technology also incorporates high-speed
transmission technologies that increases a system's capacity. High-speed
technologies such as Fast Ethernet, Gigabit Ethernet, FDDI and ATM increase
transmission speeds from 10 Mbps to 100 Mbps and from 100 Mbps to 1,000 Mbps (1
Gbp). Higher transmission speeds have helped to increase the demand for LAN
switches in two important ways. First, LAN switches create uplinks between slow
desktops and high-speed fiber backbones, which are necessary if data transfer is
to occur between devices that operate at different speeds. Second, as high-speed
file servers or fiber backbones are upgraded, the system's switches must be
upgraded as well.
Two alternative high-speed networking technologies, FDDI and ATM, are
used in networking backbones, but because of their high cost for end-users they
are rarely used to connect desktop computers within a LAN. Both FDDI and ATM
transmit data in unique formats which also make them difficult to incorporate
into pre-existing Ethernet LANs.
Fast Ethernet has emerged as a cost-effective, interoperable
technology that enables the integration of ATM and FDDI backbones with Ethernet
switches and provides a non-disruptive, tenfold increase in speed from 10 Mbps
to 100 Mbps. Furthermore, unlike FDDI and ATM, Fast Ethernet is based on fully
defined standards which use the same data format and core communication protocol
as Ethernet. This similarity permits easy integration with existing Ethernet
networks and allows organizations to retain the benefit of network
administrators who have been trained in the management of Ethernet networks.
Thus, migration from Ethernet to Fast Ethernet involves a simple change of
adapter cards and an upgrade of hubs and switches. In addition, implementation
of Fast Ethernet costs end users approximately $150, which is significantly less
expensive than FDDI or ATM implementation that generally costs more than $500
per NIC connection. As a result of these factors, in January 1996 an industry
analysis reported market estimates that Fast Ethernet revenues increased from $7
million in 1994 to $45 million in 1995 and that the market was expected to
approach $300 million during 1996.
Many industry experts believe that similar benefits will be offered
by the next generation of Ethernet technology, Gigabit Ethernet, which is
expected to provide raw data bandwidth of 1,000 Mbps while maintaining full
11
<PAGE> 12
compatibility with the installed base of Ethernet nodes. Management believes
that demand for Gigabit Ethernet is likely to grow as more LANs move to Fast
Ethernet, generating substantial traffic loads on backbone networks. Dataquest
has recently forecasted that the Gigabit Ethernet market will reach $2.9 billion
by 2000, at which time will become the dominant communications backbone
technology.
To promote the implementation of Gigabit Ethernet, the Gigabit
Ethernet Alliance ("GEA") was formed in May 1996. The Company is a member of the
GEA which includes Advanced Micro Devices, Inc., Bay Networks, Inc., Cabletron
Systems, Inc., Cisco Systems, Inc., Compaq Computer Corporation, Digital
Equipment Corporation, Hewlett- Packard Company, Intel Corporation, Lucent
Technologies Inc., Sun Microsystems, Incorporated, U B Networks and 3Com
Corporation.
FIBER OPTIC ENVIRONMENT
Fiber optic transmission can generally carry more information at less
expense and with greater signal quality than copper wire. The higher the speed
of transmission, the greater the capacity and the larger the span of the
network, the more essential is fiber optic transmission. Fiber has long replaced
copper as the preferred technology for long distance communications and major
backbone telephony and data transmissions. Due to its advantages, fiber optic
technology is also increasingly used to enhance performance and capacity within
enterprise networks and access networks. As a result, the market for fiber optic
products continues to grow both domestically and internationally.
Demand for fiber optic transmission components is driven by four
factors: (i) fiber applications have expanded beyond traditional telephony
applications and are being deployed in enterprise network backbones to support
high-speed data communications; (ii) within access networks, fiber is rapidly
expanding downstream toward end-users as access networks deploy
Fiber-in-the-Loop and FTTC architectures to support services such as fast
Internet access and interactive video; (iii) the growth of cellular
communications and personal communications systems ("PCS") requires fiber to be
deployed both within and between cells; and (iv) the usage of fiber in short
distances increases the demand for components as more are used per mile of
fiber. As the size, number and complexity of these fiber networks increases,
management expects that the demand for fiber optic components will grow
significantly.
Fiber Optic Transmission in Data Communications. As higher speed
connections are implemented in LAN/WAN systems, fiber optic transmission becomes
an essential element in computer networks. From transmission speeds of 100 Mbps
and higher, and transmission distances of 100 meters and longer, fiber optic
transmission must be deployed. Virtually all high-speed transmission standards,
such as FDDI, ATM, Fast Ethernet and Gigabit Ethernet, specify fiber optic media
as the most practical technology for transmission. The steady rise in high-speed
connections and the growth in the span of networks, including the need to
connect remote workgroups, are driving the deployment of fiber optic cable
throughout enterprise networks.
Fiber Optic Transmission in Access Networks. To meet end user's
increased demand for content, software and services, network operators must
acquire additional bandwidth by either enhancing their existing networks or
constructing new ones. Cable TV operators are increasingly seeking to provide
general telecommunication services, high-speed Internet access and
video-on-demand. As a result, they are now faced with the need to transmit
"upstream," from customer premises to the cable TV operator and to send
different signals to individual end-users. Similarly, local enterprise carriers
("LECs") are implementing new technological standards, such as Synchronous
Optical Network ("SONET") and fiber-intensive architectures such as FTTC to
enable High-speed Internet Access and the delivery of cable TV and ATM services
to the home. Management believes that deployment of and upgrades to these
systems will increase the demand for the Company's fiber optic components which
typically are better able to endure environmental factors such as rain, snow,
heat and wind cost-effectively. In addition, cellular and PCS communications
represent a fast emerging market for fiber optic networks, including their usage
in the backbone and landline portion of wireless networks.
PRODUCTS AND TECHNOLOGY
MRV offers advanced solutions for network connectivity requirements
by providing high speed LAN switching and fiber optic transmission products
which serve the computer networking and the broadband sections of the
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<PAGE> 13
communications industry. The Company designs and sells two groups of products:
(i) high-speed networking equipment, including LAN switches and (ii) fiber optic
transmission solutions for SONET, ATM, FDDI, Fast Ethernet, cable TV and
wireless infrastructure.
ENTERPRISE NETWORKING SOLUTIONS
The Company designs network switching systems that increase the
productivity and functionality of LANs. MRV offers its customers a family of
network, switching and related products that enhance LAN performance and
facilitate the migration to next generation technologies such as Fast Ethernet,
Gigabit Ethernet and ATM.
The MegaSwitch Product Family. The Company's MegaSwitch products are
a family of Fast Ethernet switches which are marketed under MRV's NBase trade
name. The MegaSwitch products range from complete switching systems to stackable
switches which upgrade performance of existing LANs by relieving congestion of
overloaded network segments, enable full duplex and flow control and provide an
easy, cost-effective migration to higher transmission speeds without requiring
replacement of existing infrastructure. The MegaSwitch I, which was first
introduced in 1995, is a family of three Fast Ethernet switches, which enhance
the bandwidth of the corporate backbone to support higher traffic levels. These
systems are scalable and are compatible with a wide range of existing network
protocols and technologies. The Company's MegaSwitch II products, introduced in
1996, are designed for corporate, campus and metropolitan deployment as a
cost-effective method of connecting existing networks with higher-speed
backbones and are based on "Any Speed to Any Speed" Ethernet switching,
including Gigabit Ethernet with access to ATM. Fast Ethernet, Gigabit and ATM
uplink modules incorporate InterSwitch VLAN capabilities. InterSwitch VLANs
enable the network administrator to define separate VLANs spanning multiple
switches in order to achieve optimal network performance and serve multiple
workgroups.
Product Name Application and Functionality
- ------------ -----------------------------
MegaSwitch II This cost-effective stackable switch is a 12 port, high
performance switch which provides an uplink to ATM and
Gigabit Ethernet backbones, supports Ethernet/Fast Ethernet
traffic by automatically configuring for 10 Mbps/100 Mbps,
provides for zero packet loss even at extended network
links of up to 110 km and incorporates VLAN capability.
This switch can be used as an upgrade for an existing
workgroup or as a fully configured enterprise switch.
MegaSwitch I These stackable switches, with up to 13 ports provide a
migration path to upgrade from a legacy 10 Mbps LAN to a
100 Mbps network. These switches provide segmentation of 10
Mbps shared LAN and higher speed server or backbone
connections enabling interconnection of workgroups or
high-speed workstations.
Hubs and Network Management. To implement network segments, the
Company offers GigaHub, a multi-platform switchable hub, and MegaStack, a
stackable hub; and, to enable management and control of its switching products
and hub products, MRV has developed and offers MegaVision.
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<PAGE> 14
Product Name Application and Functionality
------------ -----------------------------
GigaHub This enterprise network solution for medium to large
corporate networks requiring both shared and switched
connectivity in a mixed protocol environment, provides a 12
Gbps modular enterprise switching hub, supporting Ethernet,
Fast Ethernet, FDDI, ATM and Token Ring, as well as voice
and point-to-point protocols, and allowing integration of
LAN distribution and switching in a single hub.
MegaStack This high-speed stackable hub system implements Ethernet
and Fast Ethernet LAN segments, provides performance for
mission-critical and bandwidth-intensive applications,
connects from 12 to 180 users, is stackable with fiber
optic connectivity to remote locations and offers
plug-and-play convenience and built-in auto-partitioning
for instant isolation of network failures.
MegaVision This full-featured network management system provides
affordable and comprehensive management and control of all
MegaSwitch and MegaStack products and automatically detects
and monitors any SNMP compliant devices. It operates on all
major NMS platforms including Windows 3.1, Windows 95,
Windows NT Client, Novell NMS, HP/Open View for Windows or
UNIX.
Related Networking Products. The Company also offers a number of
other products supporting network connectivity. Examples of such products are
summarized in the table below.
Products Description and Functionality
-------- -----------------------------
Fiber Optic These products consist of Ethernet and Fast Ethernet fiber
Transceivers and optic transceivers that enable campus or metropolitan
Converters deployment of Ethernet or Fast Ethernet networks through
fiber optic interconnection of LANs to a distance of over
100 km, and multimode to single mode fiber converters for
FDDI, ATM and SONET that extend the range of FDDI, ATM and
SONET via fiber.
Token Ring These products consist of multimedia Token Ring hubs with
fiber, coax, UTP and STP connectivity which extends the
distance between segments of Token Ring networks, and fiber
optic transceivers with multimode and single mode fiber,
which allow flexible implementation of IBM midrange and
mainframe terminal connectivity.
Midrange These products consist of Twinax Star panels, multiplexers
Connectivity and repeaters which allow flexible implementation of IBM
mid-range and mainframe terminal connectivity.
The Company's Recent Advance in Gigabit Ethernet. Gigabit Ethernet
aims to support the extension of Ethernet and Fast Ethernet standards to higher
speeds while insuring full interoperability with existing networks. The Company
recently developed an advance in Gigabit technology which it proposed to the
IEEE Gigabit Ethernet task force and which proposal was accepted in November
1996. The Company's proposal maximizes bandwidth utilization and doubles the
span of the network while also providing for delay sensitive applications such
as video. At the core of this technology is the ability to "save" one frame
during a collision event. This way, at least one frame transmitted will reach
its destination, thereby doubling throughput. The key advantages to the
Company's Gigabit Ethernet implementation include guaranteed bandwidth
utilization not influenced by collision, multimedia support and superior quality
of service.
Direct IP Switching. "Internet Protocol" ("IP") has become the
preferred network protocol for directing information across intranets. Because
of the rapid increase in high bandwidth intranet applications, current router
based IP rates have been unable to keep pace with network requirements. The
Company has developed, and introduced in the first quarter of 1997 as part of
its MegaSwitch product line, a series of DirectIP switching products that
provide the control and security of traditional routing with the performance of
switching. Furthermore, DirectIP switching allows full interoperability with
all standard based hubs, switches and NICs, thereby providing a cost-effective
solution to intranet router bottlenecks. In addition, management believes that
distributing the routing function over a number of DirectIP switches will
virtually eliminate the possibility that a single point of failure may occur in
any given network, thereby reducing operating costs.
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OPTICAL TRANSMISSION PRODUCTS
The Company offers a family of optical transmission components and
modules designed for transmission over fiber optic cable. These products address
transmission of voice, data and video across fiber and are also used in optical
fiber test equipment. The Company's products include discrete components, such
as laser diodes and LEDs and integrated components such as transmitters,
receivers and transceivers. The Company's components are used in data networks,
telecommunication transmission and access networks. Management believes that the
Company is benefitting from two major demand trends in this area: first, the
growth of the market, especially computer networking and the access networks, by
both LECs and cable TV providers; and second, as transmission speed and capacity
grow, a larger portion of all networks traffic is transmitted via fiber optic
versus copper wires.
Discrete Components. Discrete components include laser diodes and
LEDs. Every fiber optic communication system utilizes semiconductor laser diodes
or LEDs as its source of optical power. Laser diodes and LEDs are solid state
semiconductor devices that efficiently convert electronic signals into pulses of
light of high purity and brightness. The Company believes that its lasers and
LEDs, which can carry data over distances in excess of 20 km are among the most
powerful in their wavelength range in terms of optical power coupled into single
mode fiber.
Integrated Components. The Company's integrated components include an
LED and laser based transmitter/receiver product line, designed for computer
networking applications and the Company has recently introduced data link
products designed for SONET and ATM transmission standards. This product line
consists of products compatible with single mode fiber optic cable, which is
more suitable for long distance and high-speed transmission than multimode fiber
optic cable. As most currently available data link modules are designed for
multimode fiber optic cable, the Company has designed its products to be
adaptable, providing for easy conversion from a multimode type data link to a
single mode optical fiber.
Products for the Access Network. The Company has recently introduced
a line of products that addresses the rapidly growing deployment of the access
network. These products include fiber optic transmission by both LECs and cable
TV providers to address the increasing demand for telephony, Internet access and
interactive cable TV services.
The following is a brief description of these products.
FTTC: Telephone and High-speed Internet Access. Recently, the Company
started volume shipments of a new "Bi-directional" optical
transmission and reception module for two-way simultaneous
transmission of telephony and data over one fiber instead of the two
fibers normally used to transmit and receive information. This
product is integrated into the DISC system currently deployed by Bell
South in one of the largest FTTC projects in the United States.
Downstream Cable TV. The Company has recently engaged in new business
opportunities for linear lasers and receivers for cable TV and
believes its products are well positioned to serve this market. The
Company further believes that the upgrade of existing cable networks
and the deployment of fiber by the telephone companies to provide
cable TV delivery services is expected to increase the demand for the
Company's products.
Return Path Laser Transmitters. The Company's return path laser
transmitters send video, voice and data signals from the end user to
the cable TV operator. For interactive applications such as cable
modems and Fast Internet access, a cable network must have two-way
optical transmitters and receivers in place before those services can
be offered. Most of today's cable networks still have just a one-way
downstream path.
DFB Laser Module for Cable TV (Narrowcasting). The Company offers DFB
laser modules with high power and stable analog transmission which
enable cable TV operators to send different signals to individual end
users, a capability known as narrowcasting.
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<PAGE> 16
PRODUCT DEVELOPMENT
All of the Company's research and development projects are geared
toward technological advances with the goal of enabling the Company to introduce
innovative products early to market. New networking and fiber optic components
are constantly introduced to the market. This product introduction is driven by
a combination of rapidly evolving technology and standards, as well as changing
customer needs. MRV's research and product development strategy emphasizes
continuing evaluation of emerging trends and technical challenges in order to
identify new markets and product opportunities. The Company believes that its
success is due in part to its ability to maintain sophisticated technology
research programs while simultaneously focusing on practical applications to its
customers' strategic needs.
In order to meet its customers' price and performance demands, MRV
has focused on developing custom ASICs to implement its core switching
technologies. The Company spends significant resources to maintain and extend
its comprehensive ASIC design and test expertise. All custom ASICs are developed
internally using third party state-of-the-art design tools and the Company's
proprietary methodologies. The Company's ASIC expertise in conjunction with its
innovative product architectures and firmware enable the Company to develop
products characterized by high performance, reliability and low cost.
From its product development programs the Company expects to
introduce a number of new products within the next 12 months. One new product is
JavaMan, a platform independent, Internet-ready Network Management System
("NMS") which the Company created to expand the reach of MegaVision over the
Internet. All necessary software is expected to reside on MegaSwitch II,
pre-configured prior to customer delivery. JavaMan's use of existing Web
standards provides remote manageability in both Internet and intranet
environments
The Company also has a number of other new networking product
development programs underway, including Gigabit Ethernet switching and ATM
uplink modules. These products are being developed in response to current
technological trends and end user demands for greater bandwidth and product
flexibility. The Company is in the process of consolidating Fibronics' research
and development projects with its own programs. Among initial projects, the
Company is focusing on the integration of the GigaHub with MegaSwitch II
technology, including Gigabit Ethernet. The Company has recently announced a
GigaFrame product strategy for 1997, the architecture for which will consist of
a Gigabit Ethernet Switch, a GigaHub enterprise switch, MegaSwitch II and two
new low cost 10 Mbps to 100 Mbps stackable switches.
New products under development in the area of fiber optics include
transmission products for cellular and personal communication systems which
allow transmission over fiber optic cable between sites. The Company is also
developing fiberoptic components that will improve the system performance for
cable TV transmission. MRV also has research and development projects underway
seeking to enhance various of its fiber optic transmission products and is
participating in Bell South's FTTC project.
There can be no assurance that the technologies and applications
under development by the Company will be successfully developed, or, if they are
successfully developed, that they will be successfully marketed and sold to the
Company's existing and potential customers.
At December 31, 1996, the Company had 54 employees dedicated to
research and product development. Research and development expenditures totaled
approximately $2,100,000, $4,000,000 and $8,201,000 for years ended December 31,
1994, 1995 and 1996, respectively.
CUSTOMERS
The Company has sold its products worldwide to over 500 diverse
customers a wide range of industries, primarily; data communications,
telecommunications and cable TV. The Company anticipates that these customers
will continue to purchase its products in the foreseeable future. No customer
accounted for more than 10% of the Company's revenues in 1994, 1995 or 1996.
Current customers include:
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<PAGE> 17
NETWORK SWITCHING
-----------------
COMPUTERS AND ELECTRONICS GOVERNMENT AGENCIES
------------------------- -------------------
- AMP Incorporated - Ealing (Borough of London)
- Data General Corporation - Federal Bureau of Investigation
- Fujitsu Ltd. (Japan) - MITI (Japan)
- International Business - National Security Administration
Machines Corporation - Police Department of
- Intel Corporation Berlin/Potsdam
- Matsushita (Germany) - Social Security Administration
- U B Networks - US Coast Guard
BANKING, FINANCE AND INSURANCE DIVERSIFIED AND OTHER
------------------------------ ---------------------
- Bankhaus Rinderknecht (Zurich) - Bayer AG
- GE Capital - The Walt Disney Co.
- NationsBank - Eastman Kodak
- Trans America Corporation - Tele-Communications, Inc.
FIBER OPTIC COMPONENTS
----------------------
DATA COMMUNICATIONS TELECOMMUNICATIONS
-------------------- ------------------
- Bay Networks, Inc. - Asea Brown Boveri
- Canoga Perkins - Broadband Network Inc.
- Cisco Systems, Inc. - Crosscom
- Connectware - Lucent Technologies Inc.
- Network Systems Corporation - Photon Technology (China)
- Nortel - Reltec
- Optical Data Systems - Transcom
VIDEO AND VOICE COMMUNICATIONS INSTRUMENTATION
------------------------------ ---------------
- Augat Communication Products Inc. - EXFO
- C-Cor - GN Nettest
- General Instrument - Kingfisher International
- Optelecom, Inc. - Noyes Fiber Systems
- Tektronix - 3M
MARKETING
The Company markets and sells its products under the NBase
Communications, NBase Switch Communications, MRV Communications and West Hills
LAN System brand names. Each product line has a dedicated sales and marketing
organization. The Company employs various methods, such as public relations,
advertising, and trade shows to build awareness of its products. Public
relations activities are conducted both internally and through relationships
with outside agencies. Major public relation activities are focused around new
product introductions, corporate partnerships and other events of interest to
the market. The Company supplements its public relations through media
advertising programs and attendance at various trade shows throughout the year,
both in the United States and internationally.
The Company also establishes working relationships with trade
analysts, testing facilities and high visibility corporate accounts. Since the
results obtained by these organizations can often influence customers' purchase
decisions, a positive response from these organizations regarding the Company's
technology is important to product acceptance and purchase. Other activities
include attendance at technology seminars, preparation of competitive analyzes,
sales training, publication of technical and educational articles, maintenance
of a Web site and direct mailing of company literature. The Company also
believes that its participation in high-profile interactive projects such as
Bell South's FTTC project significantly enhances its reputation and name
recognition among existing and potential customers.
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<PAGE> 18
SALES AND DISTRIBUTION
The Company continually seeks to expand its distribution capability
to capitalize on its technological expertise and production capacity and to
augment and increase distribution channels to accelerate its growth. Products
are sold through VARs, systems integrators, distributors, manufacturer's
representatives and OEM customers. The Company's sales and distribution
divisions are organized along four primary lines: OEM sales and partnerships;
VARs and systems integrators; manufacturer's representatives; and domestic and
international distributors.
Direct Sales. The Company employs a worldwide direct sales force
primarily to sell its products to large OEM accounts and to a lesser extent to
end users of the Fibronics product line. MRV believes that a direct sales force
can best serve large customers by allowing salespeople to develop strong,
lasting relationships which can effectively meet the customers' needs. The
direct sales staff is located across the United States, Europe and Israel. The
integration of the Fibronics Business has more than doubled the Company's sales
force immediately preceding the acquisition.
Each of the Company's OEM partners resells the products under its own
name. The Company believes that the OEM partnerships enhance its ability to sell
its products in significant quantities to large organizations. Since these OEM
partners provide their own technical and sales support to their customers, the
Company is able to focus on other sales channels. The Company customarily enters
into contracts with OEM customers to establish the terms and conditions of sales
made pursuant to orders from OEMs. These OEMs incorporate the Company's product
into systems or sub-systems, which are then sold to end users via various
distribution channels. The Company has established OEM relationships in
connection with its switching equipment with leading communications and
networking companies including U B Networks, Fujitsu and Intel. The Company's
fiber optic components are sold only to OEMs.
To complement its direct sales effort the Company utilizes the
following indirect sales channels:
Domestic and International Distributors. The Company works with
distributors domestically and internationally and has recently begun selling
products through Tech Data. Geographic exclusivity is normally not awarded
unless the distributor has exceptional performance. Distributors must
successfully complete the Company's training programs and provide system
installation, technical support, sales support and follow-on service to local
customers. Generally, distributors have agreements with a one year term subject
to automatic renewal unless otherwise canceled by either party. In certain cases
with major distributors, the agreements are terminable on 30 days' notice. The
Company uses stocking distributors, which purchase the Company's product and
stock it in their warehouse for immediate delivery, and non-stocking
distributors, which purchase the Company's product after the receipt of an
order. Internationally, the Company sells through approximately 80 distributors
in Asia, Africa, Europe, Australia, the Middle East, Canada and Latin America.
Value-Added Resellers. MRV uses a select group of VARs in the U.S.
which are generally selected for their ability to offer the Company's products
in combination with related products and services, such as system design,
integration and support. Such specialization allows the Company to penetrate
targeted vertical markets such as telecommunications and cable TV. Generally,
the Company uses a two-tier distribution system to reach a broader range of
customers, however VARs may purchase the product directly from the Company if
the volume warrants a direct relationship.
Manufacturers' Representatives. To supplement the Company's direct
sales efforts, manufacturer's representatives are assigned by territory in the
U.S. and work exclusively on commission.
Customer Support and Service. The Company is committed to providing
strong technical support to its customers. MRV operates a customer service
group, and provides support through its engineering group, sales staff,
distributors, OEMs and VARs. Customer support personnel are currently located at
the Company's offices in California, Maryland and Israel.
International Sales. International sales accounted for approximately
19%, 45% and 53% of the Company's net revenues in 1994, 1995 and 1996
respectively.
18
<PAGE> 19
MANUFACTURING
The Company has developed proprietary ASICs to implement high level
component integration in its networking product development process. To develop
ASICs successfully, the Company must transfer a code of instructions to a single
mask from which low cost duplicates can be made. Each iteration of a mask
involves a substantial up-front cost, which costs can adversely affect the
Company's result of operations and financial condition if errors or "bugs" occur
following multiple duplication of the masks. While the Company has not
experienced material expenses to date as a result of errors discovered in ASIC
masks, because of the complexity of the duplication process and the difficulty
in detecting errors, the Company could suffer a material adverse effect to its
operating results and financial condition if errors in developing ASICs were to
occur in the future. Moreover, the Company currently relies on a single foundry
to fabricate its ASICs and does not have long-term supply contract with this
supplier, any other ASIC vendor or any other of its limited source vendors,
purchasing all of such components on a purchase order basis. While the Company
believes it would be able to obtain alternative sources of supply for the ASICs
or other key components, a change in ASIC or other key suppliers of key
components could require a significant lead time and, therefore, could result in
a delay in product shipments. While the Company has not experienced delays in
the receipt of ASICs or other key components, any future difficulty in obtaining
any of these key components could result in delays or reductions in product
shipments which, in turn, could have material adverse effect on the Company's
business, operating results business and financial condition.
The Company outsources the assembly, test and quality control of its
computer networking products to third party contract manufacturers, thereby
allowing it to react quickly to market demand, to avoid the significant capital
investment required to establish and maintain manufacturing and assembly
facilities and to concentrate its resources on product design and development.
Final assembly, burn-in, final testing and pack-out are performed by the Company
to maintain quality control. The Company's manufacturing team is experienced in
advanced manufacturing and testing, in engineering, in ongoing
reliability/quality assurance and in managing third party contract
manufacturer's capacity, quality standards and manufacturing process. Although
there are a large number of contract manufacturers which the Company can use for
its outsourcing, MRV has elected to use one vendor for a significant portion of
its board assembly requirements in order to foster consistency in quality of the
products. This independent third party manufacturer also provides these services
to other companies. Risks associated with the use of independent manufacturers
include unavailability of or delays in obtaining adequate supplies of products
and reduced control of manufacturing quality and production costs. If the
Company's contract manufacturer fails to deliver products in the future on a
timely basis, or at all, it would be extremely difficult for the Company to
obtain adequate supplies of products from other sources on short notice. There
can be no assurance that the Company's third party manufacturer will provide
adequate supplies of quality products on a timely basis, or at all. The Company
can outsource with another vendor or vendors; however, such a change in vendors
may require significant time and result in shipment delays and expenses. The
inability to obtain such products on a timely basis, the loss of such vendor or
a change in the terms and conditions of the outsourcing would have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company relies exclusively on its own production capability for
critical semiconductor lasers and LEDs used in its products. The Company's
optical transmission production process involves (i) a wafer processing facility
for semiconductor laser diode and LED chip manufacturing under stringent and
accurate procedures using state-of-the-art wafer fabrication technology, (ii)
high precision electronic and mechanical assembly, and (iii) final assembly and
testing. Relevant assembly processes include die attach, wirebond, substrate
attachment and fiber coupling. The Company also conducts tests throughout its
manufacturing process using commercially available and in-house built testing
systems that incorporate proprietary procedures. The Company performs final
product tests on all of its products prior to shipment to customers. Many of the
key processes used in the Company's products are proprietary; and, therefore,
many of the key components of the Company's products are designed and produced
internally. Because the Company manufactures these and other key components of
its products at its own facility and such components are not readily available
from other sources, any interruption of the Company's manufacturing process
could have a material adverse effect on the Company's operations. Furthermore,
the Company has a limited number of employees dedicated to the operation and
maintenance of its wafer fabrication equipment, the loss of any of whom could
result in the Company's inability to effectively operate and service such
equipment. Wafer fabrication is sensitive to a wide variety of factors,
including variations and impurities in the raw materials, difficulties in the
fabrication process, performance
19
<PAGE> 20
of the manufacturing equipment, defects in the masks used to print circuits on
the wafer and the level of contaminants in the manufacturing environment. There
can be no assurance that the Company will be able to maintain acceptable
production yields and avoid product shipment delays. In the event adequate
production yields are not achieved resulting in product shipment delays, the
Company's business, financial condition and results of operations could be
materially adversely affected. The Company believes that it has sufficient
manufacturing capacity for growth in the coming years.
The Company is subject to a variety of federal, state, and local
governmental laws and regulations related to the storage, use, emission,
discharge, and disposal of toxic, volatile or otherwise hazardous chemicals used
in the manufacturing process. There can be no assurance that environmental laws
and regulations will not result in the need for additional capital equipment or
other requirements. Further, such laws and regulations could restrict the
Company's ability to expand its operations. Any failure by the Company to obtain
required permits for, control of use of, or adequately restrict the discharge,
emission or release of, hazardous substances under present or future laws and
regulations could subject the Company to substantial liability or could cause
its manufacturing operations to be suspended. Such liability or suspension of
manufacturing operations could have a material adverse effect on the Company's
operating results. To date such laws and regulations have not had a material
adverse effect on the Company's operating results.
COMPETITION
The communications equipment and component industry is intensely
competitive. The Company competes directly with a number of established and
emerging computer, communications and networking device companies. Direct
competitors in network switching include Bay Networks, Inc., Cabletron Systems,
Inc., Cisco Systems Inc., Digital Equipment Corporation, FORE Systems, Inc.,
Hewlett-Packard Company, International Business Machines Corporation and 3Com
Corporation. In addition, direct competitors in fiber optic transmission
products include AMP Incorporated, Fujitsu, Hewlett-Packard Company, Lucent
Technologies Inc., Mitsubishi, NEC Electronics Inc., Ortel Corporation, Phillips
Semiconductors and Siemens Components, Inc. Many of the Company's competitors
have significantly greater financial, technical, marketing, distribution and
other resources and larger installed customer bases than the Company. Several of
these competitors have recently introduced or announced their intentions to
introduce new competitive products. Many of the larger companies with which the
Company competes offer customers a broader product line which provides a more
comprehensive networking solution than the Company's products. The ability to
act as a single source vendor and provide a customer with an enterprise-wide
networking solution has increasingly become an important competitive factor. In
addition, there are a number of early stage companies which are developing Fast
Ethernet, Gigabit Ethernet switching and alternative solutions. If developed
successfully, these solutions could be higher in performance or more
cost-effective than the Company's products.
Moreover, there are also several alternative network technologies.
For example, in the local access market, the Company's products compete with
telephone network technology known as "ADSL." In this technology, digital
signals are transmitted through existing telephone lines from the central office
to the home. The Company also expects that competitive pricing pressures could
result in price declines for the Company's and its competitors' products. Such
increased competition could result in reduced margins and loss of market share
which would materially and adversely affect the Company's business, operating
results and financial condition.
The networking industry has become increasingly concentrated in
recent years as a result of consolidation. This consolidation is likely to
permit the Company's competitors to devote significantly greater resources to
the development and marketing of new competitive products and the marketing of
existing competitive products to their larger installed bases. The Company
expects that competition will increase substantially as a result of these and
other industry consolidations and alliances, as well as the emergence of new
competitors.
PROPRIETARY RIGHTS
To date, the Company has relied principally upon copyrights and trade
secrets to protect its proprietary technology. The Company generally enters into
confidentiality agreements with its employees and key suppliers and otherwise
seeks to limit access to and distribution of the source code to its software and
other proprietary information. There can be no assurance that such steps will be
adequate to prevent misappropriation of the Company's technology or that a third
party will not independently develop technology similar or superior to the
Company's technology. The Company has patent applications pending. There can
be no assurance that patents will be issued with respect to the
20
<PAGE> 21
pending applications or that, if issued, such patents will be upheld as valid or
will prevent the development of competitive products. In addition, the laws of
some foreign countries may not permit the protection of the Company's
proprietary rights to the same extent as do the laws of the United States.
There has been substantial industry litigation regarding intellectual
property rights involving technology companies. In the future, litigation may be
necessary to protect trade secrets and other intellectual property rights owned
by the Company, to enforce any patents issued to the Company, to defend the
Company against claimed infringement of the rights of others and to determine
the scope and validity of the proprietary rights of others. Any such litigation
could be costly and a diversion of management's attention, which could have a
material adverse effect on the Company's business, operating results and
financial condition. An adverse determination in such litigation could further
result in the loss of the Company's proprietary rights, subject the Company to
significant liabilities, require the Company to seek licenses from third parties
or prevent the Company from manufacturing or selling its products, any of which
could have a material adverse effect on the Company's business, operating
results and financial condition. The Company typically has agreed to indemnify
its customers and key suppliers for liability incurred in connection with the
infringement of a third party's intellectual property rights. While to date the
Company has not received any communications alleging that the Company's products
infringe on the intellectual property rights of others, there can be no
assurance that the Company will not be subject to such claims in the future.
EMPLOYEES
As of December 31, 1996, the Company had 352 full-time employees,
including six executive officers, 153 in production, 105 in marketing and sales,
54 in research and development and 34 in general administration. None of the
Company's employees are represented by a union or governed by a collective
bargaining agreement, and the Company believes its relationship with its
employees is good.
ITEM 2. PROPERTIES
The Company's principal administrative, sales and marketing, research
and development and manufacturing facility is located in Chatsworth, California.
The facility covers approximately 17,700 square feet and is leased from an
unaffiliated third party at an annual base rent of approximately $106,000 (plus
local taxes) for a lease term expiring in March 1999. In addition, the Company
leases space in two buildings near its primary facility in Chatsworth,
consisting of approximately 5,000 square feet and approximately 12,800 square
feet from unaffiliated third parties at annual base rentals of approximately
$43,000 and $91,000 (plus local taxes), respectively. Both of these lease terms
also expire in March 1999.
The Company also leases space in German Town, Maryland for its sales
office and warehouses. This facility covers approximately 4,800 square feet and
is leased from an unaffiliated third party at an annual base rent of
approximately $35,000 per year (plus local taxes) for a lease term expiring
August 2000.
The Company's administrative, sales and marketing, research and
development and manufacturing operations in Israel are located in Yokneam,
Israel in facilities that cover approximately 23,400 square feet, are leased for
total annual base rents of approximately $206,000 for a lease term expiring in
January 2002.
The Company leases approximately 5,200 square feet of space from an
unaffiliated third party in Basingstoke, England which it uses for sales,
marketing and warehousing. The premises are leased for total annual base rents
of approximately $75,000 for a lease term expiring in August 1999.
The Company leases approximately 1,600 square feet of space from an
unaffiliated third party in Frankfurt, Germany, which it uses for sales,
marketing and warehousing. The premises are leased for total annual base rents
of approximately $221,000 for a lease term expiring in August 1999.
The Company also occupies space under a capital lease with an
unaffiliated third party in Milan, Italy which it uses for sales offices and
warehousing. Annual payments under the lease are approximately $220,000 and the
lease runs through March 2004.
21
<PAGE> 22
The Company believes that its present facilities are sufficient to
meet its current needs and that adequate additional space will be available for
lease when required.
ITEM 3. LEGAL PROCEEDINGS
In July 1996, R. Douglas Sherrod, a former employee of the Company
who was terminated in August 1994, filed an action in Superior Court of Los
Angeles County, California against the Company and three of its executive
officers and directors, Mr. Noam Lotan, Dr. Shlomo Margalit and Dr. Zeev
Rav-Noy. The complaint seeks compensatory and punitive damages in unspecified
amounts, together with attorneys fees and costs of suit, for alleged wrongful
termination, breach of contract, negligent misrepresentation and fraud. The
bases of the complaint are Mr. Sherrod's claims that he was terminated
supposedly in retaliation for having informed the Company of its alleged use of
proprietary information of a third party and claimed that he insisted that such
information be destroyed; that he was purportedly induced by the defendants to
join the Company by the entry into a stock option agreement which the Company
allegedly had no intention of performing; and that the Company allegedly
breached the stock option agreement. Management believes that the complaint is
without merit and intends to vigorously defend the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is traded in the over-the-counter market and has been included
in the Nasdaq National Market since February 28, 1994 under the symbol "MRVC."
The following table sets forth the high and low closing sale prices of the
Common Stock for the periods indicated as reported by The Nasdaq National Market
(as adjusted for the 3-for-2 stock split effected May 20, 1996 and the 2-for-1
stock split effected July 29, 1996).
<TABLE>
1995: HIGH LOW
----- ---- ---
<S> <C> <C>
First Quarter .................................. $ 4.92 $ 3.59
Second Quarter.................................. $ 4.46 $ 3.63
Third Quarter................................... $ 7.13 $ 4.25
Fourth Quarter.................................. $ 8.46 $ 5.50
1996
----
First Quarter................................... $ 17.67 $ 8.42
Second Quarter.................................. $ 37.13 $ 15.63
Third Quarter................................... $ 27.94 $ 15.00
Fourth Quarter ................................. $ 24.88 $ 17.00
</TABLE>
At April 4, 1997 the Company had 250 stockholders of record, as
indicated on the records of the Company's transfer agent who held, management
believes, for approximately 13,350 beneficial holders.
The Company has never declared or paid cash dividends on the Common
Stock since its inception. The Company currently intends to retain all of its
earnings, if any, for use in the operation and expansion of its business and
does not intend to pay any cash dividends to its stockholders in the foreseeable
future.
22
<PAGE> 23
Recent Sales of Unregistered Securities
During August and September 1996, the Company sold an aggregate of
$30 million principal amount 5% convertible subordinated debentures due August
6, 1999 (the "Debentures") and warrants to purchase up to 600,000 shares of
Common Stock at a weighted average exercise price of $26.67 per share for three
years to a total of 14 investors in a private financing, receiving proceeds
aggregating $30 million. The Debentures were convertible into Common Stock of
the Company at any time at the option of the holders at a discount from the
market price of the Common Stock at the time of conversion that decreased over
the life of the Debentures until it reached a floor. Through December 31, 1996,
$12,675,000 principal amount of Debentures and $178,000 of accrued interest had
been converted into approximately 812,000 shares of Common Stock.
On September 26, 1996, as part of the purchase price connection with
the acquisition from Elbit of the Fibronics Business, the Company issued
458,991 shares of Common Stock of Elbit.
On November 26, 1996, the Company completed a private placement of
200,000 shares of Common Stock to Intel Corporation ("Intel") for $4,000,000
($20.00 per share). As part of the private placement, the Company issued to
Intel three-year warrants to purchase up to 500,000 additional shares of Common
Stock at $20.00 per share. Of such warrants, warrants to purchase 200,000 shares
of Common Stock are exercisable under certain conditions.
The above-described sales of securities were not effected through
any broker-dealer, and no underwriting discounts or commissions were paid in
connection with such sales. Exemption from registration requirements is claimed
under the Securities Act of 1933 (the "Securities Act") in reliance on Section
4(2) of the Securities Act, Regulation D promulgated thereunder or Section
3(a)(9) of the Securities Act. No brokers' commissions or fees were paid in
connection with any of the foregoing transactions. The recipients of securities
in each such transaction represented their intention to acquire the securities
for investment only and not with a view to, or for sale in connection with, any
distribution thereof and appropriate legends were affixed to the certificates
evidencing the securities in such transactions. All recipients had adequate
access to information about the Company. No consideration or other remuneration
was paid or given, and no solicitation was made, in connection with the
conversion of the Debentures.
ITEM 6. SELECTED FINANCIAL DATA
The following selected statement of operations data for the three
years in the period ended December 31, 1996 and the balance sheet data as of
December 31, 1995 and 1996 are derived from the financial statements and notes
thereto included elsewhere herein audited by Arthur Andersen LLP, independent
public accountants, as set forth in their report also incorporated by reference
herein. The selected statement of operations data for the three years in the
period ended December 31, 1993 and the balance sheet data as of December 31,
1992, 1993 and 1994 were derived from audited financial statements of the
Company not included herein. The following data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company, including
the notes thereto, included elsewhere in this Report.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues, net .................................................. $ 4,422 $ 7,426 $17,526 $39,202 $88,815
Cost of goods sold ............................................. 2,280 3,936 10,328 22,608 51,478
Research and development expenses .............................. 589 1,103 2,144 4,044 8,201
Selling, general and administrative expenses ................... 631 1,259 2,615 6,799 14,025
------- ------- ------- ------- -------
Operating income before non-recurring charges(1)................ 922 1,128 2,439 5,751 15,111
Purchased technology in progress(1) ............................ - - - 6,211 17,795
Restructuring costs(1) ......................................... - - - 1,465 6,974
------- ------- ------- ------- -------
Operating income (loss) ........................................ 922 1,128 2,439 (1,925) (9,658)
Other income (expense) ......................................... (122) 198 162 654 153
Interest expense related to convertibles debentures
and acquisition ............................................. - - - - (4,357)
------- ------- ------- ------- -------
Income (loss) before provision for income taxes,
minority interests and extraordinary items .................. 800 1,326 2,601 (1,271) (13,862)
Provision (credit) for income taxes ............................ 282 487 983 2 (4,404)
Minority interests ............................................. - - - - 196
Extraordinary item-debt restructuring .......................... 42 - - - --
------- ------- ------- ------- -------
Net income (loss) .............................................. $ 560 $ 839 $ 1,618 $(1,273) $(9,654)
======= ======= ======= ======= =======
Net income (loss) per share ................................... $ 0.08 $ 0.07 $ 0.13 $(0.07) $(0.49)
======= ======= ======= ======= =======
Weighted average common and common equivalent shares
outstanding(2) .............................................. 7,636 12,050 12,567 18,377 19,739
CONSOLIDATED BALANCE SHEET DATA:
At December 31,
---------------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(In thousands)
Working capital ................................................ $ 3,773 $ 3,514 $ 11,303 $ 22,019 $ 56,973
Total assets ................................................... 6,389 7,328 16,667 33,307 96,943
Total liabilities .............................................. 1,437 1,537 3,761 8,049 43,790
Long-term debt, net of current portion ........................ 34 - - 271 18,892
Stockholders' equity (deficit) ................................. 4,952 5,791 12,906 25,258 52,301
</TABLE>
- -----------
(1) Non-recurring charges consist of purchased technology in progress
and restructuring charges incurred as a result of the Ace and Galcom
acquisitions in 1995 and the Fibronics Acquisition in 1996 as well as
interest expense related to the Fibronics Acquisition in 1996.
Purchased technology in progress for the year ended December 31, 1995
was $6,211,000. The purchased technology is for R&D projects in
progress at the time of acquisition of assets from Ace and Galcom.
Restructuring costs during the year ended December 31, 1995 were
$1,465,000 and are associated with a plan adopted by the Company in
1995 calling for the merger of the newly acquired subsidiaries and
the Company's LAN product division. The plan also called for the
closure of some facilities, termination of redundant employees and
cancellation of representation agreements. Excluding the
non-recurring charges, net of their tax effects, net income would
have increased to $4,345,000 ($0.22 per share) for the year ended
December 31, 1995. Purchased technology in progress for the year
ended December 31, 1996 was $17,795,000 and was in conjunction with
the
23
<PAGE> 24
acquisition of assets from subsidiaries of Elbit. Restructuring costs
during the year ended December 31, 1996 were $6,974,000 and are
associated with a plan adopted by the Company on September 30, 1996
calling for the reduction of workforce, closing of certain
facilities, retraining of certain employees and elimination of
particular product lines due to this acquisition. Interest expense
related to acquisition for the year ended December 31, 1996 was
$4,357,000 and was connected with the private placement of
$30,000,000 principal amount of Debentures, proceeds from which the
Company used to finance the cash portion of the purchase price for
the Fibronics Business. Excluding the non-recurring charges, net of
their tax effects, net income would have been $10,555,000 or $0.46
per Share for the year ended December 31, 1996.
(2) Fully diluted earnings per share information differs from primary
earnings per share information for the year ended December 31, 1994.
The number of shares included 147,480 common share equivalents
resulting from outstanding warrants.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following and elsewhere in this
Report. The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Report.
GENERAL
Since its inception in 1988, the Company has manufactured and
marketed semiconductor optical transmission products for the fiber optics
communications industry. In 1993, the Company expanded its product line to
include products incorporating Ethernet switching technology that improved
network throughput and enhanced efficiency of LANs and introduced its first
switch marketed under the NBase trademark in the fourth quarter of 1993. During
1994, the Company expanded commercial shipments of its LAN switching products.
In 1995, the Company augmented its networking products with the acquisitions of
certain assets of Galcom and Ace, which resulted in charges of $6,211,000 and
$1,465,000 for purchased technology in progress and restructuring, respectively.
Net revenues from sales of networking products and semiconductor optical
transmission products were 60% and 40%, respectively, during the year ended
December 31, 1995 and approximately 69% and 31%, respectively, during the year
ended December 31, 1996.
In September 1996, the Company completed the Fibronics Acquisition,
acquiring assets related to Fibronics' computer networking and
telecommunications businesses in Germany, the United States, the United Kingdom,
the Netherlands and Israel. The assets acquired included Fibronics' technology
in progress and existing technology, its marketing channels, its GigaHub family
of computer networking products and other rights. This acquisition also resulted
in charges in the amount $17,795,000 and $6,974,000 for purchased technology in
progress and restructuring, respectively.
In September 1996, the Company completed a private placement of an
aggregate of $30,000,000 principal amount of 5% convertible subordinated
debentures due August 6, 1999 (the "Debentures"). Proceeds from this private
placement were used to purchase the Fibronics Business. The Debentures were
convertible into Common Stock of the Company at any time at the option of the
holders at a discount from the market price of the Common Stock at the time of
conversion that decreased over the life of the Debentures until it reached a
floor. At a meeting of the Emerging Issues Task Force held on March 13, 1997,
the staff of the Securities and Exchange Commission ("SEC") announced its
position on the accounting treatment for the issuance of convertible preferred
stock and debt securities with a beneficial conversion feature such as that
contained in the Debentures. As announced, the SEC requires that a beneficial
conversion feature attached to instruments such as the Debentures that are
convertible into equity be recognized and measured by allocating a portion of
the proceeds equal to the intrinsic value of that feature to additional paid-in
capital and charging it to interest expense. As a result of this position, the
Company added a non-recurring, non-cash charge to its results of operations for
the year ended December 31, 1996 related to the issuance of the Debentures in
the amount of $4,357,000. The Company also plans to report additional
non-recurring charges over the quarters ending March 31, 1997 and June 30, 1997
totaling approximately $250,000, more than $200,000 of which will be reported in
the quarter ending March 31, 1997. The Company will not need to report future
charges relating to the issuance of the Debentures beyond the second quarter of
1997 as the outstanding principal and accrued interest were paid in full at
April 4, 1997 through conversion into Common Stock. See "Liquidity and Capital
Resources" below.
The Company's international sales are not concentrated in any
specific country. The estimated operating profit from international sales for
the years ended December 31, 1996, 1995 and 1994 and 1993 were $8,009,000,
$2,646,000, and $466,000, respectively. The amounts for the years ended December
31, 1996 and 1995 are before non-recurring charges. At December 31, 1995 and
1996, 16% and 14% of the Company's assets were located in the Middle East and at
December 31, 1996, 17% of the Company's assets were located in the European
Community. Except for such assets, there were no significant assets located in
geographic regions outside of the U.S. at December 31, 1995 or 1996. In years
prior to 1995, substantially all the assets were located in the U.S.
24
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, statement
of operations data of the Company expressed as a percentage of revenues (except
for revenue growth rates).
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Revenues, net ...................................................... 100.0% 100.0% 100.0%
Revenue growth rate from prior period .............................. 136.0 124.0 126.6
Cost of goods sold ................................................. 58.9 57.7 58.0
----- ----- -----
Gross profit ....................................................... 41.1 42.3 42.0
Operating expenses:
Research and development expenses ............................... 12.2 10.3 9.2
Selling, general and administrative expenses .................... 14.9 17.3 15.8
----- ----- -----
Operating income before non-recurring charges ...................... 13.9 14.7 17.0
Purchased technology in progress ................................ - 15.8 20.0
Restructuring costs ............................................. - 3.7 7.9
----- ----- -----
Operating income ................................................... 13.9 (4.9) (10.9)
Other income (expense), net ........................................ 0.9 1.7 --
Interest expense related to convertible debentures
and acquisitions ................................................ -- -- (4.9)
----- ----- -----
Income (loss) before taxes ......................................... 14.8 (3.2) (15.8)
===== ===== =====
Pro forma financial data (excluding non-recurring charges):
Operating income ............................................... - 14.6 17.0
Income (loss) before taxes ..................................... - 16.3 17.2
</TABLE>
Years ended December 31, 1996 and 1995
Revenues. Revenues for the year ended December 31, 1996 were
$88,815,000 compared to $39,202,000 for the year ended December 31, 1995, an
increase of 126%. Revenues from sales of networking products and optical
transmission products were 69% and 31%, respectively, of total revenues during
the year ended December 31, 1996 as compared to 60% and 40%, respectively, of
total revenues during the year ended December 31,1995. The changes represented
increases of $38,140,000 or 162% and $11,473,000 or 73% in revenues from
networking products and optical transmission products, respectively, for the
year ended December 31, 1996. Total revenues increased as a result of strong
demand for LAN connectivity and fiber optic products. Revenues from networking
products increased primarily due to sales of the MegaSwitch II product line and
revenues from optical transmission products increased primarily as a result of
volume shipments, beginning in the third quarter of 1996, of a new bidirectional
optical transmission and reception module for Fiber-to-the-Curb ("FTTC")
applications and sales to the cable TV industry. International sales accounted
for approximately 53% of revenues for the year ended December 31, 1996 as
compared to approximately 45% of revenues for the year ended December 31, 1995.
International sales, as a percentage of total revenues, increased because of
increased concentration of sales and marketing efforts overseas and
acquisitions. While the Company has achieved significant revenue growth in
previous periods, there can be no assurance that the Company will sustain such
growth.
Gross Profit. Gross profit for the year ended December 31, 1996 was
$37,337,000 as compared to $16,594,000 for the year ended December 31, 1995. The
changes represented an increase of $20,743,000 or 125% for the year ended
December 31, 1996. Gross profit as a percentage of revenues was approximately
42% for both the years ended December 31, 1995 and 1996.
Research and Development. For the years ended December 31, 1996 and
1995, research and development expenses ("R&D") expenses were $8,201,000 and
$4,044,000, respectively, which represented approximately 9.2% of revenues for
1996 and 10.3% for 1995. R&D expenses increased primarily due to additions in
engineering personnel and the commencement of new R&D projects. Research and
development expenses were lower as a percentage of revenues in 1996 primarily
because certain of the Company's R&D programs in Israel were partially funded by
the Chief Scientist of Israel and R&D expenses were spread over a larger revenue
base. The Company continues to devote significant resources to its R&D efforts.
During 1995 and 1996, the
25
<PAGE> 26
Company's R&D activities were focused on expanding its family of networking
switching products and extending its fiber optic expertise into new product
areas.
Selling, General and Administrative. For the year ended December 31,
1996, selling, general and administrative ("SG&A") expenses increased to
$14,025,000 from $6,799,000 in 1995. The increase in SG&A expenses is due
primarily to increased marketing expenses, including those associated with
additions to personnel. As a percentage of sales, SG&A expenses decreased from
17.3% to 15.8% for the years ended December 31, 1995 and December 31, 1996,
respectively. The decrease as a percentage of sales in the year ended December
31, 1996 resulted because increases experienced in the year ended December 31,
1995 from the opening of additional offices were not incurred in 1996.
Purchased Technology in Progress and Restructuring Costs. Purchased
technology in progress for the year ended December 31, 1996 was $17,795,000. The
purchased technology in 1996 was for R&D projects of Fibronics in progress at
the time of the Fibronics Acquisition on September 26, 1996. Restructuring costs
during the year ended December 31, 1996 were $6,974,000. The restructuring in
1996 was associated with a plan adopted by the Company on September 30, 1996, in
conjunction with the Fibronics Acquisition, calling for the reduction of
workforce, closing of certain facilities, retraining of certain employees and
elimination of particular product lines. Purchased technology in progress for
the year ended December 31,1995 was $6,211,000. The purchased technology is for
R&D projects in progress at the time of acquisition of assets from Galcom and
Ace. Restructuring costs during the year ended December 31, 1995 were
$1,465,000. The restructuring in 1995 was associated with a plan adopted by the
Company on June 30, 1995 calling for the merger of new subsidiaries acquired in
the Ace and Galcom acquisitions in 1995 and the Company's LAN products division.
The plan also called for the closure of some facilities, termination of
redundant employees and cancellation of representation agreements.
Interest Expense Related to Convertible Debentures and Acquisition.
To give effect to the accounting treatment announced by the staff of the SEC at
the March 13, 1997 meeting of the Emerging Issues Task Force relevant to the
Company's issuance of the Debentures having "beneficial conversion" features,
the value of the fixed discount has been reflected in the 1996 financial
statements as additional interest expense and such fixed discount has been
accreted through the first possible conversion date of the respective issuance.
Net Loss. Net loss increased from a loss of $1,273,000 during the
year ended December 31, 1995 to a loss of $9,654,000 for the year ended December
31, 1996. The increase in net loss in 1996 was due to the Fibronics Acquisition,
which included charges for purchased technology in progress, restructuring costs
and interest expense related to the convertible debentures and acquisition. Net
income for the year ended December 31 1996 would have been $10,555,000,
excluding $20,209,000 of charges, net of tax effects, associated with the
Fibronics Acquisition. Net income for the year ended December 31, 1995 would
have been $4,345,000, excluding $5,618,000 of charges, net of tax effects,
associated with the acquisitions of Galcom and Ace. Excluding, these
non-recurring charges, net income increased by $6,210,000 or 143% for the year
ended December 31, 1996.
Years Ended December 31, 1995 and 1994
Revenues. Revenues for the year ended December 31, 1995 were
$39,202,000, as compared to $17,526,000 for the year ended December 31, 1994.
Revenues from sales of networking products and optical transmission products
were 60% and 40%, respectively, of total revenues during the year ended December
31, 1995 as compared to 36% and 64%, respectively, of total revenues during the
year ended December 31, 1994. The changes represented an increase of $21,676,000
or 124% of total revenues and $17,144,000 or 271% and $4,532,000 or 40% in
revenues from networking products and optical transmission products,
respectively, for the year ended December 31, 1995. Total revenues increased as
a result of greater marketing efforts and greater market acceptance of the
Company's products, both domestically and internationally. The sales and
marketing resources obtained in the acquisition of assets from Ace and Galcom
during the year ended December 31, 1995 also contributed additional revenues.
Revenues from networking products increased primarily due to the introduction of
new products, additional marketing and sales efforts and expansion of the
networking industry and revenues from optical transmission products increased
primarily as a result of additional sales and marketing efforts. International
sales accounted for approximately 45% of revenues for the year ended December
31, 1995 as compared to 19% of revenues for the year ended December 31, 1994.
International sales, as a percentage of total revenues, increased because of
greater marketing efforts in overseas markets and a larger number of sales
personnel in those markets obtained in the acquisition of the Galcom assets.
Gross Profit. Gross profit for the year ended December 31, 1995 was
$16,594,000 as compared to $7,198,000 for the year ended December 31, 1994, an
increase of $9,396,000 or 131% for the year ended December 31, 1995. The
increase in gross profit was primarily due to increased sales. Gross profit as a
percentage of revenues for the years ended 1994 and 1995 was 41% and 42%
respectively.
26
<PAGE> 27
Research and Development. R&D expenses for the years ended December
31, 1994 and 1995, were $2,144,000 and $4,044,000 which represented 12% and 10%
of revenues, respectively. The percentage decrease in R&D spending was
attributable to the increased revenues. The Company intends to continue
development of its networking and fiber optic products, and to invest in the
research and development of other new products. Management believes that the
ability of the Company to develop and commercialize new products is a key
competitive factor.
Selling, General and Administrative. SG&A expenses for the year ended
December 31, 1995 increased to $6,799,000 from $2,615,000. As a percentage of
revenues, SG&A increased from 15% to 17% for the year ended December 31, 1994
and December 31, 1995, respectively. The increase in SG&A expenses was due
primarily to additional personnel and overhead costs as a result of the
acquisitions of the Galcom and Ace assets and increased marketing and personnel
costs.
Purchased Technology in Progress and Restructuring Costs. In
connection with the Company's acquisition of certain assets of Galcom and Ace,
it acquired incomplete R&D projects that will be included in its ongoing R&D
activities. For those projects that will have no alternative future use to the
Company and where technological feasibility had not yet been established, the
Company allocated $6,211,000 of the purchase price to technology in progress and
recorded the expense during the year ended December 31, 1995.
In connection with the Company's integration of the acquired
companies during the year ended December 31, 1995 the Company recorded
$1,465,000 as restructuring costs, which primarily related to the closing of
several Company facilities, a reduction of its workforce and the settlement of
distribution agreements which were terminated early.
The total purchase price, including related costs, for the Ace and
Galcom assets were approximately $4,812,000 and $2,885,000, respectively. The
value of the ongoing operations with existing sales of Ace and Galcom that were
acquired by the Company were believed by management to be inconsequential
because their sales were in rapid decline. The decline was the result of the
increasing obsolescence of the older products which were being sold. Of the
combined total purchase price, including related costs, of $7,697,000
approximately $6,211,000 was allocated to the purchased technology in process.
Subsequent to the acquisition of the technologies in development, it was
determined by the Company that these technologies would not be commercially
viable because of the preemptive success of an alternative technology that was
also in process at the Company at the time of the acquisition. The effect on
operations of the acquisitions of Galcom and Ace was that they initially
necessitated a restructuring of the Company's operations so as to integrate all
LAN product activities throughout the organization. The restructuring, which
involved workforce reductions at all levels, as well as office and plant
closures, was essentially completed according to plan during the first part of
1996. During 1995, there were no adverse effects on the Company's liquidity or
capital resources as a result of the acquisitions and the Company does not
anticipate any such effects, as a result of the acquisitions, in future periods.
Immediately after the acquisition of the businesses, the Company
initiated a restructuring plan that called for a merger of the two operations
into one subsidiary and an assumption by the surviving entity of certain
international and U.S. operations previously managed directly by the Company.
This included, for example, sales by the subsidiary of the Company's LAN
products into some of the sale channels developed by the Company prior to the
acquisitions. Since the operating plans of the Company did not distinguish these
operations from those of the businesses acquired, it is not practicable to
quantify their impact. The product lines of the businesses acquired are aimed at
computer connecting for the IBM AS400 and mainframe environment. The Company's
LAN products are aimed at the personal computer connectivity environment.
Net Income. Net income decreased from $1,618,000 for the year ended
December 31, 1994 to a net loss of $1,273,000 for the year ended December 31,
1995. The decrease in net income is principally due to non-recurring charges
during the year ended December 31, 1995 of $7,676,000 for the cost of purchased
technology in progress acquired in the Ace and Galcom acquisitions and costs
associated with the adoption of a restructuring plan. Excluding the
non-recurring charges, net of their tax effects, net income would have increased
to $4,345,000 for the year ended December 31, 1995. The increase of 169% over
the same period in 1994 is primarily due to substantially increased sales.
27
<PAGE> 28
Selected Quarterly Financial Data
The following table sets forth certain selected operating data for
the quarters indicated. This information has been derived from the unaudited
consolidated financial statements of the Company which in the opinion of
management contain all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of such information. These operating results
are not necessarily indicative of results for any future period and results may
fluctuate significantly from quarter to quarter in the future.
<TABLE>
<CAPTION>
(Amounts in thousands)
1994 1995 1996
---------------------------------- ---------------------------------- ----------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues, net............ $2,759 $3,846 $4,731 $6,190 $6,737 $8,310 $11,135 $13,020 $15,529 $19,586 $22,664 $31,036
Gross profit............. 1,269 1,570 1,802 2,557 2,477 3,475 4,826 5,816 6,540 8,175 9,382 13,240
Operating income before
non-recurring charges... 408 499 589 943 858 1,221 1,645 2,027 2,720 3,224 3,558 5,609
Operating income (loss).. 408 499 589 943 858 (6,455) 1,645 2,027 2,720 3,224 (21,211) 5,609
Net income (loss)........ 292 349 402 575 705 (4,707) 1,155 1,574 1,879 2,283 (15,504) 1,688
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
In October 1994, the Company received proceeds of approximately
$5,497,000 from the issuance of 3,439,430 shares of Common Stock, upon exercise
of the same number of warrants that had been issued in the Company's initial
public offering of December 1992. In January 1995, MRV received net proceeds of
approximately $9,355,000 from the public offering of 2,700,000 shares of Common
Stock.
Net cash used in operating activities were $6,198,000 and $2,087,000
for the years ended December 31, 1995 and 1994, respectively. For the year ended
December 31, 1995, the funds were used for increased inventories and receivables
as a result of increased revenues. In 1995, the cash provided by financing
activities resulted primarily from the issuance of 2,700,000 shares of Common
Stock at $4.00 per share less offering costs and the issuance of 819,972 shares
in connection with the purchase of assets from Ace-North Hills. The majority of
cash used in investing activities in 1995 was for the purchase of investments
and the majority of cash provided by investing activities in the same period was
from the redemption of short-term investments. For the year ended December 31,
1994, the cash provided by financing activities were the result of the exercise
of IPO Warrants. Net cash used in investing activities for the year ended
December 31, 1995 was $5,565,000 which resulted primarily from the restriction
of the Company's cash as security against letters of credit issued by a bank on
behalf of the Company.
Net cash used in operating activities for the year ended December 31,
1996 was $148,000 and $6,198,000 for same period in 1995. The funds were used
primarily for increased inventories and receivables as a result of increased
revenues. Net cash provided by financing activities for the years ended December
31, 1995 and 1996 were $9,669,000 and $38,882,000. respectively. In 1995, the
cash provided by financing activities resulted primarily from the issuance of
2,700,000 shares of Common Stock at $4.00 per share less offering costs and the
issuance of 819,972 shares in connection with the purchase of assets from
Ace-North Hills. The majority of cash used in investing activities in 1995 was
for the purchase of investments and the majority of cash provided by investing
activities in the same period was from the redemption of short-term investments.
Net cash used in investing activities for the year ended December 31, 1995 was
$5,565,000 which resulted primarily from the restriction of the Company's cash
as security against letters of credit issued by a bank on behalf of the Company.
Net cash used in investing activities for the year ended December 31, 1996 was
$26,047,000. Cash provided by financing activities in 1996 was primarily from
the private placement of $30,000,000 principal amount of Debentures relating to
the Fibronics Acquisition and proceeds from the issuance of Common Stock. The
majority of cash used for investing activities during 1996 was for the purchase
of the Fibronics Business and net purchases of investments.
Accounts receivable were $24,296,000 at December 31, 1996 as compared
to $10,780,000 at December 31, 1995. The increase in accounts receivable was
primarily attributable to the increase in overall sales.
28
<PAGE> 29
Royalties are payable by Galcom, Ace and Fibronics to the Office of
the Chief Scientist of Israel ("OCS") at rates of approximately 2% to 3% on
proceeds from the sale of products arising from the research and development
activities for which OCS has provided grants. The total amount of royalties may
not exceed the amount of the grants. The Company does not expect that revenues
from royalty bearing products will result in material royalty payment
obligations in the future.
In September 1996, the Company completed a private placement of
$30,000,000 principal amount of Debentures. The Debentures were convertible into
Common Stock at a discount from the market price at the time of conversion. At
April 4, 1997, principal and accrued interest on the Debentures had been paid in
full through their conversion into a total of 1,816,159 shares of Common Stock
at an average conversion rate of $16.77 per share. As part of the private
placement, the Company also issued to the investors three-year warrants to
purchase an aggregate of up to 600,000 shares of Common Stock a weighted average
exercise price of $26.67 per share.
In September 1996, the Company completed the Fibronics Acquisition
from Elbit. The purchase price for the Fibronics Business was approximately
$22,770,000, which was paid using a combination of cash and shares of Common
Stock of the Company. Cash in the amount of $12,240,000 was paid at the time of
sale and the balance was paid by the delivery of 458,991 shares of Common Stock
of the Company. The cash was provided from a portion of the proceeds of the
private placement of Debentures. In connection with the 458,991 shares of Common
Stock that were originally delivered to Elbit as partial payment of the purchase
price, the Company made certain guarantees to Elbit regarding the minimum
proceeds Elbit would receive upon resale of the shares. The Company secured such
guarantees by delivering to Elbit (i) a letter of credit from a major bank in
the amount of approximately $4,301,000 and (ii) an additional 137,305 shares of
its Common Stock (the "Security Shares"). In March 1997, MRV and Elbit agreed to
amend their agreement (the "March 1997 Amendment") regarding the Common Stock
portion of the purchase price paid to Elbit for the Fibronics Business. First,
the Company repurchased 184,381 shares, paying Elbit $4,230,000 (approximately
$23.00 per share) (plus accrued interest thereon at 0.67% per month from January
1, 1997 through March 13, 1997). Second, with respect to the remaining 274,610
shares (the "Additional Shares"), the Company guaranteed that the Additional
Shares can be resold by Elbit for at least $6,300,000 (approximately $23.00 per
share), plus interest thereon at 0.67% per month from January 1, 1997 through
the date of Elbit's resale. To secure any shortfall, the Company delivered to
Elbit pending resale of the Additional Shares a letter of credit from a major
bank, expiring on June 15, 1997, in the amount of approximately $6,536,000.
Elbit has agreed to sell the Additional Shares in the open market at no less
than the prevailing bid price at the time of sale; provided, however, that in no
event shall sales of the Additional Shares be at less than $23.00 per share.
Elbit must pay to the Company any difference between the amount received upon
resale of the Additional Shares and $6,300,000 (plus the accrued interest) and
return any unsold Additional Shares to the Company. As part of the March 1997
Amendment, Elbit also returned the Security Shares to the Company.
In November 1996, the Company completed a private placement of
200,000 shares of Common Stock to Intel Corporation ("Intel") for $4,000,000
($20.00 per share). As part of the private placement, the Company issued to
Intel three-year warrants to purchase up to an additional 500,000 shares of
Common Stock at $20.00 per share. Of such warrants, warrants to purchase 200,000
shares of Common Stock are exercisable under certain conditions.
EFFECTS OF INFLATION AND CURRENCY EXCHANGE RATES
The Company believes that the relatively moderate rate of inflation
in the United States over the past few years has not had a significant impact on
the Company's sales or operating results or on the prices of raw materials.
However, in view of the Company's recent expansion of operations in Israel which
has experienced substantial inflation, there can be no assurance that inflation
in Israel will not have a materially adverse effect on the Company's operating
results in the future.
The Company's sales are currently denominated in U.S. dollars and to
date its business has not been significantly affected by currency fluctuations
or inflation. However, the Company conducts business in several different
countries and thus fluctuations in currency exchange rates could cause the
Company's products to become relatively more expensive in particular countries,
leading to a reduction in sales in that country. In addition, inflation in such
countries could increase the Company's expenses. To date, the Company has not
hedged against currency exchange risks. In the future, the Company may engage in
foreign currency denominated sales or pay material amounts of expenses in
foreign currencies and, in such event, may experience gains and losses due to
currency fluctuations. The Company's operating results could be adversely
affected by such fluctuations or as a result of inflation in particular
countries where material expenses are incurred.
POST-RETIREMENT BENEFITS
The Company does not provide post-retirement benefits affected by
SFAS 106.
29
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements filed as part of this Report are the following:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996
Assets F-3
Liabilities and Stockholders' Equity F-4
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1996 F-5
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 1996 F-6
Consolidated Statements of Cash Flows for each of the three F-7 and
years in the period ended December 31, 1996 F-8
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MRV Communications, Inc.:
We have audited the accompanying consolidated balance sheets of MRV
COMMUNICATIONS, INC. (a Delaware corporation) and subsidiaries as of December
31, 1995 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MRV Communications, Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
February 7, 1997
F-2
<PAGE> 32
MRV COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,951 $ 14,641
Restricted cash 6,272 --
Short-term investments 1,000 17,659
Accounts receivable, net of allowance of
$825 in 1995 and $2,468 in 1996 10,780 24,296
Inventories 8,382 18,238
Deferred income tax asset 804 2,660
Other current assets 608 4,377
-------- --------
Total current assets 29,797 81,871
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Building -- 1,464
Machinery and equipment 1,655 3,941
Furniture and fixtures 66 286
Computer hardware and software 795 1,513
Leasehold improvements 102 533
-------- --------
2,618 7,737
Less--Accumulated depreciation and
amortization (558) (1,489)
-------- --------
2,060 6,248
-------- --------
OTHER ASSETS:
Deferred income tax asset 925 6,036
Goodwill, net of accumulated
amortization of $42 in 1995
and $210 in 1996 525 2,788
-------- --------
1,450 8,824
-------- --------
$ 33,307 $ 96,943
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 33
MRV COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of capital
lease obligations $ 33 $ 119
Accounts payable 4,342 11,328
Accrued liabilities 1,766 6,389
Accrued restructuring costs 422 3,549
Customer deposit -- 1,500
Income taxes payable 1,215 2,013
------- --------
Total current liabilities 7,778 24,898
------- --------
LONG-TERM LIABILITIES:
Convertible debentures -- 17,325
Capital lease obligations, net of
current portion 34 1,035
Other long-term liabilities 237 532
------- --------
Total long-term liabilities 271 18,892
------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
MINORITY INTEREST -- 852
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value:
Authorized - 1,000 shares;
no shares issued or outstanding -- --
Common stock, $0.0034 par value:
Authorized - 40,000 shares
Issued and outstanding - 19,049
shares in 1995 and 21,745
in 1996 63 72
Capital in excess of par value 23,491 60,164
Retained earnings (deficit) 1,704 (7,950)
Cumulative translation adjustments -- 15
------- --------
25,258 52,301
------- --------
$33,307 $ 96,943
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 34
MRV COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES, net: $ 17,526 $ 39,202 $ 88,815
-------- -------- --------
COSTS AND EXPENSES:
Cost of goods sold 10,328 22,608 51,478
Research and development expenses 2,144 4,044 8,201
Selling, general and
administrative expenses 2,615 6,799 14,025
Purchased technology in
progress -- 6,211 17,795
Restructuring costs -- 1,465 6,974
-------- -------- --------
15,087 41,127 98,473
-------- -------- --------
Operating income (loss) 2,439 (1,925) (9,658)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense related to
convertible debentures
and acquisition -- -- (4,357)
Minority interest -- -- (196)
Interest income 210 641 702
Interest expense -- (102) (743)
Other (48) 115 194
-------- -------- --------
162 654 (4,400)
-------- -------- --------
Income (loss) before provision
(benefit) for income taxes 2,601 (1,271) (14,058)
PROVISION (BENEFIT) FOR INCOME TAXES 983 2 (4,404)
-------- -------- --------
NET INCOME (LOSS) $ 1,618 $ (1,273) $ (9,654)
======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE
INFORMATION:
Primary earnings (loss) per
common share $ .13 $ (.07) $ (.49)
======== ======== ========
Fully diluted earnings (loss)
per common share $ .13 $ (.07) $ (.49)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Primary 12,567 18,377 19,739
======== ======== ========
Fully diluted 12,714 18,377 19,739
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 35
MRV COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN RETAINED CUMULATIVE
----------------- EXCESS OF EARNINGS TRANSLATION
SHARES AMOUNT PAR VALUE (DEFICIT) ADJUSTMENTS TOTAL
------ ------ ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1993 11,771 $39 $ 4,393 $ 1,359 $ $ 5,791
Exercise of stock
warrants 3,440 12 5,485 -- -- 5,497
Net income -- -- -- 1,618 -- 1,618
------ --- ------- ------- --- --------
BALANCE,
December 31, 1994 15,211 51 9,878 2,977 -- 12,906
Issuance of common
stock in connection
with the secondary
public offering 2,700 9 9,346 -- -- 9,355
Issuance of common
stock in connection
with the acquisition
of ACE 400
Communications, Ltd. 855 2 3,908 -- -- 3,910
Exercise of stock
warrants and options 283 1 359 -- -- 360
Net loss -- -- -- (1,273) -- (1,273)
------ --- ------- ------- --- --------
BALANCE,
December 31, 1995 19,049 63 23,491 1,704 -- 25,258
Issuance of common
stock in connection
with the acquisition
of Fibronics Ltd. 459 2 10,528 -- -- 10,530
Shares held by trustee
relating to Fibronics
acquisition 137 -- -- -- -- --
Conversion of
debentures 812 2 12,851 -- -- 12,853
Exercise of stock
warrants and options 1,088 4 4,938 -- -- 4,942
Issuance of common
stock for cash 200 1 3,999 -- -- 4,000
Interest expense related
to convertible debentures
and acquisition
(see Note 4) -- -- 4,357 -- -- 4,357
Translation adjustments - -- -- -- -- 15 15
Net loss -- -- -- (9,654) -- (9,654)
------ --- ------- ------- --- --------
BALANCE,
December 31, 1996 21,745 $72 $60,164 $(7,950) $15 $ 52,301
====== === ======= ======= === ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 36
MRV COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,618 $ (1,273) $ (9,654)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 97 305 943
Provision for losses on accounts
receivable 270 525 1,643
(Gain) loss on sale of property and
equipment -- (6) 192
Realized (gain) loss on investment 48 -- (180)
Purchased technology in progress -- 5,691 17,795
Interest related to convertible
debentures and acquisition -- -- 4,357
Amortization of premium (discount)
on U.S. Treasury notes 8 8 --
Minority interests' share of income -- -- 196
Changes in assets and
liabilities, net of effects
from acquisitions:
Decrease (increase) in:
Accounts receivable (3,417) (6,859) (10,937)
Inventories (2,077) (5,397) (5,697)
Deferred income taxes (282) (1,357) (6,839)
Other assets (618) 166 (3,031)
Increase (decrease) in:
Accounts payable 1,584 1,457 1,912
Accrued liabilities and
restructuring 266 154 6,623
Income taxes payable 421 425 798
Customer deposits (18) (15) 1,500
Accrued severance pay -- (19) 231
Deferred rent 13 (3) --
------- -------- --------
Net cash used in operating
activities (2,087) (6,198) (148)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (410) (1,035) (2,593)
Proceeds from the sale of property
and equipment -- 14 --
Purchases of investments (1,000) (22,013) (45,612)
Proceeds from sale of investments 1,676 24,741 29,133
Restricted cash -- (6,272) 6,272
Cash used in acquisitions, net of
cash received -- (1,000) (13,247)
------- -------- --------
Net cash provided by
(used in) investing
activities 266 (5,565) (26,047)
------- -------- --------
</TABLE>
F-7
<PAGE> 37
- 2 -
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
common stock 5,497 9,715 8,942
Proceeds from the issuance of
debentures -- -- 30,000
Principal payments on notes payable (42) -- --
Principal payments on capital
lease obligations -- (78) (60)
Loans receivable from officers 37 32 --
------- ------- --------
Net cash provided by
financing activities 5,492 9,669 38,882
------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS -- -- 3
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,671 (2,094) 12,690
CASH AND CASH EQUIVALENTS,
beginning of year 374 4,045 1,951
------- ------- --------
CASH AND CASH EQUIVALENTS,
end of year $ 4,045 $ 1,951 $ 14,641
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE> 38
MRV COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BACKGROUND
MRV Communications, Inc. (the Company) designs, manufactures, markets and
sells high speed network switching and fiber optic transmission systems which
enhance the performance of existing data and telecommunications networks. The
Company sells two groups of products: (1) computer networking products,
primarily Ethernet local area network (LAN) switches, hubs and related
equipment, and (2) fiber optic components for the transmission of voice, video
and data across enterprise telecommunications and cable TV networks. The
Company's networking solutions enhance the functionality of LAN's by reducing
network congestion while allowing end users to preserve their investments in
pre-existing networks and providing cost-effective migration paths to next
generation technologies such as Gigabit Ethernet. The Company markets and
sells its products both domestically and internationally.
In May 1996, the Company acquired 50 percent of the outstanding stock of a
company located in Italy and in September 1996, the Company acquired certain
assets and the distribution business of a company located in Israel (see Note
3). The results of operations of the acquired businesses since the acquisition
dates have been included in the accompanying consolidated financial statements.
The following summarized unaudited pro forma financial information for the year
ended December 31, 1996 assumes the acquisitions occurred on January 1, 1996 (in
thousands, except for per share data):
Revenues, net $111,000
Net income 1,294
Earnings per common share $ .07
========
Pro forma net income and earnings per common share amounts do not include
the purchased technology in progress costs, net of their tax effects, included
in the accompanying 1996 Statement of Operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, NBase Communications, Inc., NBase
Communications, Ltd. (Nbase Ltd.), NBase Europe GmbH (Nbase Europe) and NBase
Fibronics, Ltd. (Fibronics), and its 50 percent-owned subsidiary, EDSLAN SRL
(EDS). All significant intercompany transactions and accounts have been
eliminated.
FOREIGN CURRENCY TRANSLATION
The financial statements of NBase Ltd. and Fibronics have been prepared in
U.S. dollars as the currency of the primary economic environment in which the
operations of these companies are conducted is the U.S. dollar. Thus, the
functional currency of these companies is the U.S. dollar.
F-9
<PAGE> 39
Transactions and balances originally denominated in U.S. dollars are
presented at their original amounts. Transactions and balances in other
currencies are translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards NO. 52, and are included in determining net
income or loss.
The financial statements of NBase Europe and EDS have been prepared in the
companies' local currencies and have been translated into U.S. dollars. The
functional currency for these companies is their local currency.
Assets and liabilities are translated from the local currencies into U.S.
dollars at the exchange rate prevailing at the balance sheet date. Revenues,
expenses and cash flows are translated at weighted average exchange rates for
the period to approximate translation at the exchange rates prevailing at the
dates those elements are recognized in the financial statements. Translation
adjustments resulting from the process of translating the local currency
financial statements into U.S. dollars are not included in determining net
income or loss but are accumulated and reported as a separate component of
stockholders' equity in the accompanying consolidated December 31, 1996 balance
sheet.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION PLAN
The Company accounts for its stock based compensation plan (see Note 8)
under the provisions of APB Opinion No. 25. The Company has elected to follow
the disclosure provisions of Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation", beginning January 1, 1995
for employee awards. See Note 8 for disclosure of pro forma loss and loss per
common share amounts for the years ended December 31, 1995 and 1996 as required
by SFAS 123. The Company has adopted SFAS 123 for all non-employee awards
beginning January 1, 1996.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of products.
The Company's three largest customers together accounted for approximately
13 percent, 14 percent and 12 percent of the Company's revenues in 1994, 1995
and 1996, respectively. There were no customers with a receivable balance
greater than 10 percent of total receivables at December 31, 1995 and 1996.
Sales to countries outside the United States approximated 19 percent, 45
percent and 53 percent of the Company's revenues in 1994, 1995 and 1996,
respectively. See Note 9 for sales by geographic areas.
PURCHASED TECHNOLOGY IN PROGRESS AND RESTRUCTURING COSTS
In connection with the Company's acquisitions (see Note 3), the Company
acquired incomplete research and development (R&D) projects that will be
included in the current R&D activities of the Company. For projects that will
have no alternative future use to the Company and where technological
feasibility had not yet been established, the Company allocated $6,211,000 and
$17,795,000 to technology in progress and recorded the expense during the years
ended December 31, 1995 and 1996, respectively.
F-10
<PAGE> 40
Also in connection with the Company's acquisitions, during the years ended
December 31, 1995 and 1996, the Company recorded $1,465,000 and $6,974,000 as
restructuring costs, respectively, which primarily related to the closing of
several Company facilities, a reduction of its workforce, elimination of product
lines and the settlement of distribution agreements. The reduction of the
workforce in 1995 related to 63 employees, of which six were upper management
personnel. The reduction of the workforce in 1996 related to 95 employees, of
which seven were upper management personnel.
The following summarizes the major restructuring costs for 1995 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Accrued termination benefits $ 221 $1,574
Accrued legal and consulting 201 244
Accrued for closing of facilities -- 521
Accrued for settlement of distribution
agreements -- 394
Accrued for elimination of product lines -- 268
Other -- 548
------ ------
Total accrued costs 422 3,549
------ ------
Closing of facilities 179 278
Settlement of distribution agreements 205 306
Termination benefits 427 1,525
Legal and consulting -- 157
Elimination of product lines -- 482
Other costs 232 677
------ ------
Total cash paid 1,043 3,425
------ ------
$1,465 $6,974
====== ======
</TABLE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents.
RESTRICTED CASH BALANCES
At December 31, 1995, cash balances included restricted deposits with a
bank amounting to $6,272,000, which were given as a security against letters of
credit issued by the bank on behalf of the Company (see Note 7). At December 31,
1996, the letters of credit were secured by a portion of the Company's
short-term investments (see below).
SHORT-TERM INVESTMENTS
The Company accounts for its investments under the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."
At December 31, 1995 and 1996, short-term investments consisted of U.S.
Treasury notes. As defined by the standard, the Company has classified its
investments in these debt securities as "held-to-maturity" investments and all
investments are recorded at their amortized cost basis, which approximated their
fair value at December 31, 1996. All investments mature by October 1997.
As noted above, $6,388,000 of the U.S. Treasury notes have been pledged as
security against letters of credit issued by a bank on behalf of the Company
(see Note 7).
F-11
<PAGE> 41
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of material, labor and overhead.
Inventories consisted of the following as of December 31, 1995 and 1996
(in thousands):
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Raw materials $4,750 $ 8,295
Work-in-process 2,035 3,975
Finished goods 1,597 5,968
------ -------
$8,382 $18,238
====== =======
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred, while significant replacements and betterments
are capitalized.
Depreciation and amortization are provided using the straight-line method
based upon the estimated useful lives of the related assets. Useful lives range
from three to thirty-three years.
GOODWILL
The Goodwill resulted from the Company's acquisitions during 1995 and
1996. It is amortized on a straight-line basis over 8 years.
CUSTOMER DEPOSIT
The customer deposit at December 31, 1996 represents an advance payment
from a company. The payment has been deferred until the related revenue is
earned in 1997.
WARRANTY
The Company warrants its products against defects in materials and
workmanship for one to three year periods. The estimated cost of warranty
obligations is recognized at the time of revenue recognition.
STATEMENTS OF CASH FLOWS
Cash paid for income taxes was $834,000 in 1994, $932,000 in 1995 and
$1,620,000 in 1996. There was no cash paid for interest in 1994. Cash paid for
interest was $102,000 in 1995 and $150,000 in 1996.
During 1996, the Company acquired property and equipment with a cost of
$1,147,000 through a capital lease agreement. Also in 1996, $12,675,000
principal amount of debentures and $178,000 of accrued interest was converted
into approximately 812,000 shares of common stock. During 1995, the Company
purchased property and equipment with a cost of $100,000 through a capital lease
agreement. These non-cash transactions are excluded from the 1995 and 1996
Statements of Cash Flows.
The 1995 Statement of Cash Flows includes an amount of $5,691,000 that
represents the fair value of consideration given and net liabilities assumed for
the Company's acquisitions that was allocated to purchased technology in
progress. This amount differs from the amount shown on the 1995 Statement of
Operations by $520,000, which represents legal, consulting and other costs which
were allocated to purchased technology in progress on the Statement of
Operations (see Note 3).
F-12
<PAGE> 42
COMMON STOCK SPLITS
On May 20, 1996, the Company effected a 3 for 2 stock split of its common
stock, and on July 29, 1996, the Company effected a 2 for 1 stock split of its
common stock. All share amounts set forth in these consolidated financial
statements have been retroactively restated to give effect to these stock
splits.
EARNINGS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
shares of common stock and common stock equivalents (dilutive stock warrants,
stock options and convertible debentures) outstanding during the related periods
(adjusted retroactively for the common stock splits described in Note 2). The
weighted average number of common stock equivalent shares includes shares
issuable upon the assumed exercise of stock warrants and options, less the
number of shares assumed purchased with the proceeds available from such
exercise. The effect of dilutive common share equivalents is not included in the
loss per common share calculations for 1995 and 1996. Fully diluted earnings per
share differs from primary earnings per share in 1994.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts to
conform to the current year presentation.
3. ACQUISITIONS AND RESTRUCTURING
On May 1, 1995, the Company acquired certain assets and the distribution
business of Galcom Networking, Ltd. (Galcom), a network equipment company
located in Israel. The purchase price paid by the Company was approximately
$900,000 in cash and the assumption of approximately $1,800,000 in liabilities
and debt.
On June 29, 1995, the Company acquired certain assets and the distribution
business of ACE 400 Communications, Ltd. (ACE), a network equipment company
located in Israel. The purchase price paid by the Company was $100,000 in cash,
the assumption of approximately $467,000 in liabilities and debt, the issuance
of 855,000 shares of the Company's common stock (valued at $3,910,000), and
extended a right to ACE to sell to the Company up to $400,000 of ACE's
inventory.
Subsequent to the acquisition dates, the Company consolidated operations
in Israel and formed a new subsidiary in Israel named NBase Communications, Ltd.
Each of the businesses acquired also owned a subsidiary in the United States.
These operations were also consolidated and the Company formed a new subsidiary
in the United States named NBase Communications, Inc.
In May 1996, the Company purchased 50 percent of the outstanding stock of
EDSLAN SRL, an Italian networking company. The purchase price paid by the
Company was approximately $1,050,000. The purchase agreement calls for the
Company to receive 80 percent of EDS' profits or losses from the date of
acquisition.
On September 26, 1996, the Company acquired certain assets and the
distribution business of Fibronics, Ltd., a computer networking and
telecommunications company located primarily in Israel and Germany. On the date
of acquisition, Fibronics, Ltd. was a wholly-owned subsidiary of Elbit, Ltd.
(Elbit). The purchase price paid by the Company was $22,770,000, of which
$12,240,000 was paid in cash and $10,530,000 was paid through the delivery of
approximately 459,000 shares of the Company's common stock.
F-13
<PAGE> 43
The Company has guaranteed Elbit that it will realize at least $10,530,000
from the shares of common stock, plus interest thereon at 0.67% per month from
January 1, 1997 until such shares are resold. The Company secured the guarantee
with a letter of credit from a major bank in the amount of approximately
$4,300,000 (see Note 7) and by issuing to a trustee an additional 137,000 shares
of common stock. After January 14, 1997, Elbit can, under certain circumstances,
elect to cause the Company to repurchase up to approximately 275,000 shares for
$6,300,000, plus interest thereon at 0.67% per month from January 1, 1997
through the date of purchase. In March 1997, the agreement was amended (see Note
10).
Subsequent to the acquisition date, the Company formed a new subsidiary in
Israel named NBase Fibronics, Ltd. and a new subsidiary in Germany named NBase
Europe GmbH.
All acquisitions were accounted for using the purchase method of
accounting, and accordingly, the purchase price was allocated to assets acquired
and liabilities assumed based on their estimated fair values, as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Inventory $ 319 $ 3,574
Accounts receivable -- 2,686
Property and equipment 600 1,793
Other assets -- 315
Current liabilities and debt (2,267) (3,962)
------- --------
Net assets acquired or
liabilities assumed (1,348) 4,406
Cash paid for legal, consulting and
other costs (395) (450)
Accrued legal, consulting and others
costs (125) (365)
Common stock issued to sellers (3,910) (10,530)
Cash paid to sellers (1,000) (13,287)
------- --------
Paid or accrued (5,430) (24,632)
Allocated to purchased
technology in progress 6,211 17,795
------- --------
Goodwill $ 567 $ 2,431
======= ========
</TABLE>
In connection with the acquisition of certain assets from Galcom, the
Company issued warrants to Galcom to purchase 225,000 shares of common stock at
prices ranging from $4.92 to $7.38 per share. The Company also issued warrants
to purchase 75,000 common shares to former employees of Galcom at prices ranging
from $4.25 to $4.75 per share, warrants to purchase 990,000 common shares at
prices ranging from $4.25 to $4.75 per share to existing employees and
consultants, warrants to purchase 45,000 common shares at $4.25 per share to an
outside consultant, and warrants to purchase 36,000 common shares at $4.25 per
share to a company for design services performed. All of these warrants are
exercisable over a five year period.
In connection with the acquisition of certain assets from ACE, the Company
issued warrants to the trustee of ACE to purchase 300,000 common shares at $4.57
per share, and issued warrants to purchase 30,000 shares at $4.67 per share to
an ACE employee. All of these warrants are exercisable over a five year period.
F-14
<PAGE> 44
4. CONVERTIBLE DEBENTURES
In September 1996, the Company completed a private placement of
$30,000,000 principal amount of convertible debentures. The proceeds from the
private placement were primarily used to finance the Company's 1996 acquisition
of certain assets from Fibronics, Ltd. (see Note 3). The debentures bear
interest at 5 percent per annum, payable semi-annually, and are convertible into
common stock at any time at the option of the holders. A discount from the
market price at the time of conversion applies beginning 90 days after the first
issuance of debentures. The Company can force conversion under certain
circumstances and after certain dates, and the debentures will automatically
convert into common stock at maturity if not previously converted. The
conversion price is a specified percentage of the prevailing market price of the
Company's common stock on the conversion date, which is defined in the debenture
agreement as the average of the closing bid price of a share of the Company's
stock for the five trading days immediately preceding the conversion date. The
conversion price is 85.5 percent of the applicable market price if the
debentures are converted during the 30 days beginning December 6, 1996. The
conversion price decreases by an additional one percent each 30 days after
January 4, 1997 until it reaches a floor of 77.5 percent.
To give effect to the accounting treatment announced by the staff of the
Securities and Exchange Commission ("SEC") at the March 13, 1997 meeting of the
Emerging Issues Task Force relevant to the Company's convertible subordinated
debenture issuance having "beneficial conversion" features, the value of the
fixed discount has been reflected in the 1996 financial statements as additional
interest expense and such fixed discount has been accreted through the first
possible conversion date of the respective issuance.
As part of the private placement, the Company also issued to the holders
three-year warrants to purchase an aggregate of up to 600,000 shares of common
stock at an exercise price of $26.67 per share. The fair value of the warrants
($852,000) has been recorded as an increase to stockholders' equity and will be
amortized as additional interest expense over the life of the debentures.
The financial position and results of operations presented in the
financial statements for the unaudited quarter ended September 30, 1996
have been restated to give effect to the additional interest expense.
As of December 31, 1996, $12,675,000 principal amount of debentures, and
$178,000 of accrued interest, had been converted into approximately 812,000
shares of common stock at an average conversion rate of $15.83 per share. At
December 31, 1996, there was a $17,325,000 principal amount of debentures
outstanding and $297,000 of interest was owed to the holders relating to the
debentures. This accrued interest is included in "accrued liabilities" on the
accompanying December 31, 1996 consolidated balance sheet. In 1996, $4,357,000
was recorded as additional interest expense and as an increase to Stockholders'
Equity relating to the "beneficial conversion" feature and the fair value of
the warrants.
5. EQUITY TRANSACTIONS
SECONDARY PUBLIC OFFERING
In January 1995, the Company completed a secondary public offering of its
common stock. The Company sold 2,700,000 shares at a price of $4.00 per share.
The gross and net proceeds of the offering were $10,800,000 and $9,355,000,
respectively. In connection with the offering, the Company sold to the
representatives of the underwriters three-year warrants to purchase 300,000
shares of common stock at $5.60 per share. The warrants may be exercised
beginning in January 1996 and expire in January 1999.
F-15
<PAGE> 45
SALE OF COMMON STOCK
In November 1996, the Company completed a private placement of 200,000
shares of common stock with a corporation for $4,000,000 ($20.00 per share). As
part of the private placement, the Company issued to the corporation three-year
warrants to purchase up to an additional 500,000 shares of common stock at
$20.00 per share. Of such warrants, warrants to purchase 200,000 shares of
common stock are exercisable only under certain circumstances.
COMMON STOCK PURCHASE WARRANTS
A summary of warrant activities for 1994, 1995 and 1996 is as follows
(number of shares in thousands):
<TABLE>
<CAPTION>
Number Exercise
of Shares Prices
---------- ---------------
<S> <C> <C>
Balance, December 31, 1993 3,712 $ .27 to 1.71
Issued -- --
Exercised (3,439) 1.67 to 1.71
Redeemed (5) 1.67
---------- ---------------
Balance, December 31, 1994 268 .27 to 1.71
Issued 2,100 4.25 to 7.38
Exercised (236) .27 to 1.67
Redeemed -- --
---------- ---------------
Balance, December 31, 1995 2,132 .27 to 7.38
Issued 2,106 8.42 to 26.65
Exercised (776) .27 to 8.42
Redeemed -- --
---------- ---------------
Balance, December 31, 1996 3,462 $ .27 to 26.65
========== ===============
</TABLE>
At December 31, 1996, warrants to purchase approximately 3,462,000 shares
were outstanding, of which 500 were exercisable at $.27 per share.
6. INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109).
Under SFAS 109, deferred income tax assets or liabilities are computed
based on temporary differences between the financial statement and income tax
bases of assets and liabilities using the enacted marginal income tax rate in
effect for the year in which the differences are expected to reverse. Deferred
income tax expenses or credits are based on the changes in the deferred income
tax assets or liabilities from period to period.
F-16
<PAGE> 46
The components of the net deferred income tax asset at December 31, 1995
and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Allowance for bad debts $ 298 $ 777
Inventory reserve 141 280
Warranty reserve 80 160
Accrued restructuring costs 213 1,147
State income taxes 84 296
Other, net (12) --
------- -------
Current portion 804 2,660
Purchased technology in progress 1,350 6,998
Valuation reserve (425) (962)
------- -------
925 6,036
------- -------
$ 1,729 $ 8,696
======= =======
</TABLE>
A full reserve has not been recorded against the asset due to the
probability of its recovery. The reserve that has been recorded reflects the
Company's estimate of the amount that may not be realized.
The provision (benefit) for income taxes for the years ended December 31,
1994, 1995 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current - Federal $ 1,051 $ 1,112 $ 1,692
- State 214 247 324
- Foreign -- -- 547
------- ------- -------
1,265 1,359 2,563
------- ------- -------
Deferred - Federal (252) (333) (5,694)
- State (30) (99) (1,022)
- Foreign -- (925) (251)
------- ------- -------
(282) (1,357) (6,967)
------- ------- -------
Provision (benefit)for
income taxes $ 983 $ 2 $(4,404)
======= ======= =======
</TABLE>
F-17
<PAGE> 47
Differences between the provision (benefit) for income taxes and income
taxes at the statutory federal income tax rate based on U.S. pre-tax income for
the years ended December 31, 1994, 1995 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income tax
provision
(benefit)
at statutory
federal rate $ 884 34.0% $ 889 34.0% $(4,780) (34.0)%
State and
local income
taxes, net
of federal
income tax
effect 159 6.1 160 6.1 563 4.0
Non-deductible
interest expense -- -- -- -- 1,542 11.0
Research and
development
credit (138) (5.3) (173) (6.7) (374) (2.7)
Effect of
foreign net
operating loss
carryforwards -- -- (925) (35.4) -- --
Foreign taxes at
rates less than
domestic taxes -- -- -- -- (1,925) (13.7)
Change in
valuation reserve -- -- -- -- 537 3.8
Other items,
net 78 3.0 51 2.0 33 .3
------ ------ ------ ------ ------- -----
$ 983 37.8% $ 2 --% $(4,404) (31.3)%
====== ====== ====== ====== ======= =====
</TABLE>
In 1995, NBase Ltd. qualified for a program under which it will be
eligible for a tax exemption on its income for a period of ten years from the
beginning of the benefits period. The Company estimates the benefit period will
begin in 1997 or 1998.
The Company does not provide U.S. federal income taxes on the
undistributed earnings of its foreign operations. The Company's policy is to
leave the income permanently invested in the country of origin. Such amounts
will only be distributed to the United States to the extent any federal income
tax can be fully offset by foreign tax credits.
7. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases its primary facilities in Chatsworth, California from
unaffiliated third parties at an annual combined base rent of approximately
$240,000 through March 1999. The Company also leases sales office and warehouse
space in Maryland, Israel, England, Germany and Italy at a combined annual base
rent of approximately $757,000, with lease terms expiring from August 1999
through March 2004.
F-18
<PAGE> 48
The Company leases all of its facilities and certain equipment under
noncancelable capital and operating leases. Minimum future obligations under
such agreements at December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1997 $ 233 $ 994
1998 213 772
1999 213 420
2000 213 299
2001 205 104
Thereafter 531 285
------- ---------
1,608 $ 2,874
=========
Less--Amount
representing interest (454)
-------
1,154
Less--Current portion (119)
-------
$ 1,035
=======
</TABLE>
Rent expense under noncancelable operating lease agreements for the years
ended December 31, 1994, 1995 and 1996 was $115,000, $405,000 and $684,000,
respectively.
EMPLOYMENT AGREEMENTS
In March 1992, the Company entered into three-year employment agreements
with three key officers of the Company, which in November 1994 were extended to
March 1998. The agreements specify annual salaries of $100,000 to $110,000 for
each of the officers, plus annual bonuses to be determined by the Board of
Directors.
ROYALTY COMMITMENT
As part of the purchase agreements of the Israeli companies referred to in
Note 3, the selling companies' commitments to pay royalties to the State of
Israel were assigned to the Company. The commitments arose in consequence of the
participation of the Israeli Government in product development through the
payment of grants.
The royalties are payable at a rate of between 1.5 percent and 5.0 percent
of the sales proceeds of the products developed up to 150 percent of the amount
of the grants received. The balance of the commitment for royalties at December
31, 1996 amounted to approximately $29,000,000.
LETTER OF CREDIT
During 1995, the Company, in connection with its acquisitions in Israel
(see Note 3), entered into a stand-by letter of credit (LOC) arrangement with a
bank in the amount of $4,935,000. As of December 31, 1996, the amount of the LOC
was reduced to $750,000. The arrangement expires in 1997. During 1996, the
Company entered into an LOC arrangement with a bank in the amount of
approximately $4,300,000 in connection with the Company's acquisition of
Fibronics. This LOC arrangement also expires in 1997.
F-19
<PAGE> 49
ACCOUNTS RECEIVABLE
The Company has agreements with several financial institutions to sell its
receivables with recourse. In the event of a customer's default, the Company
must repurchase the receivable. At December 31, 1996, the Company is
contingently liable in the amount of $4,473,497 relating to such receivables
sold with recourse. The following is detail of losses resulting from default for
1996 (in thousands):
<TABLE>
<S> <C>
Receivables transferred to financial institutions $14,037
Receivables returned uncollected 1,981
Receivables subsequently collected by the Company 1,963
Receivables to be collected at December 31, 1996 18
</TABLE>
LITIGATION
In July 1996, a former employee of the Company filed an action against the
Company and three of its executive officers. The complaint seeks compensatory
and punitive damages in unspecified amounts for alleged wrongful termination,
breach of contract, negligent misrepresentation and fraud. Management believes
that the complaint is without merit and intends to vigorously defend the action.
In the opinion of management, the lawsuit will not result in a material loss
to the Company.
8. STOCK-BASED COMPENSATION PLAN
In March 1992, the Board of Directors and stockholders of the Company
adopted a stock option plan (the Plan) that provides for the granting of options
to purchase up to 1,950,000 shares of common stock, consisting of both incentive
stock options and non-qualified options. Incentive stock options are issuable
only to employees of the Company and may not be granted at an exercise price
less than the fair market value of the common stock on the date the option is
granted. Non-qualified stock options may be issued to non-employee directors,
consultants and others, as well as to employees, with an exercise price
established by the Board of Directors. All incentive stock options granted as of
December 31, 1996 have been granted at prices equal to the fair market value of
the common stock on the grant date, and all options granted expire five or ten
years from the date of grant. All of the incentive stock options granted become
exercisable beginning one year from the date of grant in equal installments over
a three year period, while the non-qualified options become fully exercisable
beginning six months from the date of the grant. There were no options granted
prior to December 31, 1993.
The Company accounts for this plan and stock warrants issued to employees
under APB Opinion No. 25, under which no compensation cost has been recognized.
Had compensation cost for this plan and the stock warrants been determined
consistent with SFAS 123, the Company's net loss and loss per common share
amounts would have been reduced to the following pro forma amounts (net loss
amounts are in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C> <C>
Net Loss: As Reported $(1,273) $(9,654)
Pro Forma (2,066) (11,254)
Loss Per Common
Share: As Reported $ (0.07) $ (0.49)
Pro Forma (0.11) (0.57)
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
F-20
<PAGE> 50
A summary of the status of the Company's outstanding stock options at
December 31, 1994, 1995 and 1996 and changes during the years then ended is
presented in the table and narrative below (shares are in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
--------------------- --------------------- ---------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Shares Ex. Price Shares Ex. Price Shares Ex. Price
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year -- $ -- 391 $ 2.10 1,156 $ 3.59
Granted 512 2.00 812 4.07 672 12.45
Exercised -- -- (47) 2.11 (312) 3.28
Forfeited (121) 1.57 -- -- (41) 5.72
----- ------ ------ ------ ------ ------
Outstanding at end of year 391 $ 2.10 1,156 $ 3.59 1,475 $ 6.02
----- ------ ------ ------ ------ ------
Exercisable at end of year -- $ -- 84 $ 2.10 172 $ 3.05
----- ------ ------ ------ ------ ------
Weighted average fair value
of options granted n/a $ 1.74 $ 4.28
------ ------
</TABLE>
The fair value of each option grant is estimated on the date of grant
using an option pricing model with the following weighted-average assumptions
used for grants in 1996: risk-free interest rates of 6.5 percent; no expected
dividend yield; expected lives of 4 to 5 years; no expected volatility.
9. FOREIGN OPERATIONS
The Company operates principally in four geographic areas: the United
States, the European Community, the Pacific Rim and the Middle East. The
following is a summary of information by areas as of and for the year ended
December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
United European Middle Pacific All other
States Community East Rim Areas Total
------- --------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales to unaffiliated
customers $41,712 $34,256 $ 4,593 $6,401 $1,853 $ 88,815
Income (loss) from
operations 6,396 1,602 (17,656) -- -- (9,658)
Identifiable assets 67,014 16,192 13,737 -- -- 96,943
</TABLE>
Intercompany sales between geographic areas, which have been eliminated
from sales to unaffiliated customers and which are accounted for as arms length
transactions were as follows (in thousands):
<TABLE>
<S> <C>
From the Middle East to the United States $4,050
From the United States to the Middle East 981
From the Middle East to the European Community 2,720
From the United States to the European Community 1,157
</TABLE>
10. SUBSEQUENT EVENTS
CONVERTIBLE DEBENTURES
Subsequent to December 31, 1996, $17,325,000 principal amount of
debentures, and approximately $283,000 of accrued interest, were converted into
approximately 1,004,000 shares of common stock at an average conversion rate of
$17.53 per share. Currently, there are no principal amount of debentures
outstanding.
F-21
<PAGE> 51
FIBRONICS ACQUISITION
In March 1997, the Company and Elbit agreed to amend their agreement
regarding the common stock portion of the purchase price paid to Elbit for the
distribution business of Fibronics, Ltd. (see Note 3). First, the Company
repurchased approximately 184,000 shares, paying Elbit $4,230,000 (approximately
$23.00 per share) (plus accrued interest thereon at 0.67% per month from January
1, 1997 through March 13, 1997). Second, with respect to the remaining 275,000
shares (the "Additional Shares"), the Company guaranteed that the Additional
Shares can be resold by Elbit for at least $6,300,000 (approximately $23.00 per
share), plus interest thereon at 0.67% per month from January 1, 1997 through
the date of Elbit's resale. To secure any shortfall, the Company delivered to
Elbit pending resale of the Additional Shares a letter of credit from a major
bank, expiring on June 15, 1997, in the amount of approximately $6,536,000.
Elbit has agreed to sell the Additional Shares in the open market at no less
than the prevailing bid price at the time of sale; provided, however, that in no
event shall sales of the Additional Shares be at less than $23.00 per share.
Elbit must pay to the Company any difference between the amount received upon
resale of the Additional Shares and $6,300,000 (plus the accrued interest) and
return any unsold Additional Shares to the Company. As part of the amended
agreement, Elbit also returned the 137,000 shares to the Company.
401(K) PLAN
In February 1997, the Company established a 401(k) savings plan (the
Plan) under which all eligible employees may participate. The Plan calls for
the Company to make matching contributions to all eligible employees.
F-22
<PAGE> 52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers and directors of the Company are as follows:
<TABLE>
NAME AGE POSITION
---- --- --------
<S> <C> <C> <C>
Noam Lotan(1) 45 President, Chief Executive Officer and Director
Shlomo Margalit(1) 55 Chairman of the Board of Directors, Chief Technical Officer and
Secretary
Zeev Rav-Noy(1) 49 Chief Operating Officer, Treasurer and Director
Edmund Glazer 36 Vice President of Finance and Administration and Chief Financial
Officer
Khalid (Ken) Ahmad 44 Vice President of Marketing and Sales
Ofer Iny 28 Vice President of Engineering
Leonard Mautner(2)(3) 79 Director
Milton Rosenberg(2)(3) 74 Director
</TABLE>
- ------------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Noam Lotan has been the President, Chief Executive Officer and a
Director of the Company since May 1990 and became Chief Financial Officer of the
Company in October 1993, in which position he served until June 1995. From March
1987 to January 1990, Mr. Lotan served as Managing Director of Fibronics (UK)
Ltd., the United Kingdom subsidiary of Fibronics International Inc.
("Fibronics"), a manufacturer of fiber optic communication networks. The Company
purchased the Fibronics Business in September 1996. From January 1985 to March
1987, Mr. Lotan served as a Director of European Operations for Fibronics. Prior
to such time, Mr. Lotan held a variety of sales and marketing positions with
Fibronics and Hewlett-Packard. Mr. Lotan holds a Bachelor of Science degree in
Electrical Engineering from the Technion, the Israel Institute of Technology,
and a Masters degree in Business Administration from INSEAD (the European
Institute of Business Administration, Fontainebleau, France).
Dr. Shlomo Margalit, a co-founder of the Company, has been Chairman
of the Board of Directors and Chief Technical Officer since the Company's
inception in July 1988. From May 1985 to July 1988, Dr. Margalit served as a
founder and Vice President of Research and Development for LaserCom, Inc.
("LaserCom"), a manufacturer of semiconductor lasers. From 1982 to 1985, Dr.
Margalit served as a Senior Research Associate at the California Institute of
Technology ("Caltech"), and from 1976 to 1982, a Visiting Associate at Caltech.
From 1972 to 1982, Dr. Margalit served as a faculty member and Associate
Professor at the Technion. During his tenure at the Technion, Dr. Margalit was
awarded the "Israel Defense" prize for his work in developing infrared detectors
for heat guided missiles and the David Ben Aharon Award for Novel Applied
Research. Dr. Margalit holds a Bachelor of Science degree, a Masters degree and
a Ph.D. in Electrical Engineering from the Technion.
Dr. Zeev Rav-Noy, a co-founder of the Company, has been its Chief
Operating Officer and a Director of the Company since inception and served as
its President until May 1990. From May 1985 to July 1988, Dr. Rav-Noy co-founded
and served as Vice President of Operations of LaserCom and, from 1982 to 1985,
served as a research fellow at Caltech. From 1979 to 1982 Dr. Rav-Noy served as
a consultant to a number of companies, including Tadiran Electronic Industries,
Inc., an Israeli telecommunication, military, and consumer electronics
conglomerate, and the Yeda Research and Development Co. Ltd., a technology
exploitation and application company affiliated with the Weizman Institute in
Israel. Dr. Rav-Noy holds a Bachelor of Science degree and a Masters degree in
physics from Tel Aviv University and a Ph.D. in Applied Physics from the Weizman
Institute in Israel.
Edmund Glazer was appointed Vice President of Finance and
Administration and Chief Financial Officer in June 1995. He has been with the
Company since October 1994 serving as Operations Manager. In 1993 and 1994, Mr.
30
<PAGE> 53
Glazer served as a consultant providing document imaging and information systems
to clients. From 1986 to 1993, Mr. Glazer served as Vice President of Finance at
Concord Electrical Supply, a distributor of electrical and electronic products.
From 1984 to 1986, Mr. Glazer worked as a certified public accountant at the
accounting firm of Singer, Lewak Greenbaum & Goldstein. From 1981 to 1984, Mr.
Glazer worked as an auditor at the accounting firm of Weber, Lipshie & Co. In
1983, Mr. Glazer qualified as a Certified Public Accountant from the State of
California. Mr. Glazer holds a Bachelor of Science Degree in Business
Administration from the University of Southern California.
Khalid (Ken) Ahmad has been employed as Vice President of Marketing
and Sales since July 1990 and an Executive Officer since May 1992. From April
1990 to July 1990, Mr. Ahmad served as a consultant to the Company. From January
1990 to March 1990, Mr. Ahmad served as a consultant to Welwyn Microcircuits, a
British manufacturer, providing market research information on fiber optic
technology. From October 1988 to November 1989, Mr. Ahmad served as marketing
manager and regional sales manager for STC Components, a manufacturer of optical
transmission components. From 1985 to 1988, he served as marketing operations
manager for PCO, Inc. a manufacturer of optical transmission devices and data
links. From 1977 to 1985, Mr. Ahmad also held a variety of marketing and sales
management positions with Canoga Data Systems, a data communications equipment
manufacturer, and Deutsch Company, an aerospace manufacturer. Mr. Ahmad holds a
Bachelor of Science degree in Biology from California State University at San
Bernardino.
Ofer Iny has been Vice President of Engineering of the Company since
May 1994. From January 1993 to May 1994, he served as a consultant to the
Company. From September 1991 to January 1993, Mr. Iny was a researcher at Jet
Propulsion Laboratory, Microgravity and Microwave Group. From May 1990 to March
1992, Mr. Iny held the position of Senior Engineer at Whittaker Electronic
Systems, a manufacturer. Mr. Iny holds a Bachelor of Science degree in Physics
from California State University, Northridge, and a Masters degree in Physics
from University of California, Los Angeles ("UCLA").
Leonard Mautner has served as an advisor to the Company since its
inception and was elected a Director in March 1992. Mr. Mautner is President of
Leonard Mautner Associates, a management consulting company, which he founded in
1973, and in addition, from 1982 to 1988, served as a visiting lecturer at the
Anderson School of Management of UCLA. Mr. Mautner is also a Director of two
mutual funds, the First Pacific Advisors Perennial Fund and the First Pacific
Advisors Paramount Fund. From 1969 to 1979, Mr. Mautner was a General Partner of
Goodman & Mautner, Ltd., a venture capital partnership, and President of Goodman
& Mautner, Inc., the partnership's investment manager. Mr. Mautner holds a
Bachelor of Science degree in Electrical Engineering from the Massachusetts
Institute of Technology.
Milton Rosenberg has been an advisor to the Company since its
inception and was elected a Director in March 1992. He is President of M. R.
Associates, an investment and consulting company, which he founded in 1978. For
the past 15 years, Mr. Rosenberg has been a director of Bell Industries, a New
York Stock Exchange company engaged in the distribution of electronics
components. Mr. Rosenberg has been a consultant to high technology companies for
over 20 years. Mr. Rosenberg holds a Bachelor of Science degree in Electrical
Engineering from Drexel University and did graduate course work in Electrical
Engineering at Princeton University.
Each director is elected for a period of one year at the Company's
annual meeting of stockholders and serves until the next annual meeting and
until his successor is duly elected and qualified. Officers are elected by, and
serve at the discretion of, the Board of Directors, subject to relevant
employment agreements. None of the Directors of the Company are related by
blood, marriage or adoption to any of the Company's Directors or executive
officers.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission ("SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Directors, executive officers and 10% or greater shareholders are required by
the SEC regulations to furnish the Company with copies of all Section 16(a)
forms they file.
31
<PAGE> 54
The Company believes, based solely on a review of the copies of such
reports furnished to the Company, that each report required of the Company's
executive officers, directors and 10% or greater shareholders was duly and
timely filed during the year ended December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The members of the Board of Directors who are not employees of the
Company receive cash compensation of $800 per month and $500 for each Board of
Directors' meeting attended, while serving as Directors.
The following table sets forth a summary of all compensation paid by
the Company to its Chief Executive Officer and for each of its other executive
officers whose total annual salary and bonus exceeded $100,000 (the "Named
Executive Officers") during the fiscal year ended December 31, 1996:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------- ---------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS OPTIONS (#)
-------------------------------------------- ---------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Noam Lotan 1996 $100,000 $ 0 30,000
President and Chief Executive Officer 1995 $100,000 $ 0 0
1994 $100,000 $ 0 0
Shlomo Margalit 1996 $110,000 $ 0 0
Chairman of the Board of Directors, 1995 $110,000 $ 0 0
Chief Technical Officer and Secretary 1994 $110,000 $ 0 0
Zeev Rav-Noy 1996 $110,000 $60,000
Chief Operating Officer 1995 $110,000 $60,000 0
1994 $110,000 $60,000 0
Ken Ahmad 1996 $ 90,000 $32,420 0
Vice President of Marketing and Sales 1995 $ 90,000 $24,750 150,000
1994 $ 90,000 $30,000 0
</TABLE>
Drs. Margalit and Rav-Noy do not hold any options to purchase Common
Stock of the Company and none were granted to any of them during 1996. The
following table provides certain information regarding stock option grants made
to Messrs. Lotan and Ahmad during 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation for
Option Term(1)
----------------------------------
Number of Percent of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted(#) 1996 ($/Sh) (3) Date 5% 10%
---- ---------- ---- ---------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Noam Lotan 30,000 4.5% 8.42 1/10/2002 $2,924,576 $3,773,193
</TABLE>
- -----------
(1) The dollar amounts under these columns are the result of calculations
assuming the price of Common Stock on the date of the grant of the
option increases at the hypothetical 5% and 10% rates set by the
Securities and Exchange Commission and therefore are not intended to
forecast possible future appreciation, if any, of the Company's stock
price.
(2) Options are exercisable in equal annual increments of 1/3 beginning
on the anniversary of the grant date.
32
<PAGE> 55
(3) The exercise price per share of the options granted represented the
fair market value of the underlying shares on the date of grant.
No options were exercised by Mr. Lotan, Dr. Margalit, Dr. Rav-Noy or
Mr. Ahmad during 1996. The following table provides certain information
concerning unexercised options at December 31, 1996:
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996 (1)
------------------ ---------------------
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Noam Lotan 10,000 20,000 $133,300 $266,600
Ken Ahmad 100,000 50,000 $1,812,000 $906,000
</TABLE>
- -----------
(1) Based on the difference between $21.75 per share (the last sale price
of the Common Stock on December 31, 1996 as reported on The Nasdaq
National Market) and the respective per share exercise price.
EMPLOYMENT AGREEMENTS
In March 1992, the Company entered into three-year employment
agreements with Mr. Lotan, Dr. Margalit and Dr. Rav-Noy, which in November 1994
were extended to March 1998. Pursuant to the agreements, Mr. Lotan serves as
President, Chief Executive Officer and a Director of the Company, Dr. Margalit
serves as Chairman of the Board of Directors, Chief Technical Officer and
Secretary, and Dr. Rav-Noy serves as a Chief Operating Officer, Treasurer and a
Director. Mr. Lotan, Dr. Margalit and Dr. Rav-Noy receive base annual salaries
of $100,000, $110,000 and $110,000, respectively, and each is entitled to
receive a bonus determined and payable at the discretion of the Board of
Directors upon the recommendation of the Compensation Committee of the Board.
Recommendations with respect to bonus levels are based on achievement of
specified goals, such as new product introductions, profitability levels,
revenue goals, market expansion and other criteria as established by the
Compensation Committee.
Each officer also receives employee benefits, such as vacation, sick
pay and insurance, in accordance with the Company's policies which are
applicable to all employees. The Company has obtained, and is the beneficiary
of, key man life insurance policies in the amount of $1,000,000 on the lives of
each of Drs. Margalit and Rav-Noy and Mr. Lotan. All benefits under these
policies will be payable to the Company upon the death of an insured. In
November 1994, each of Mr. Lotan and Drs. Margalit and Rav-Noy agreed to extend
the terms of their respective employment agreement until March 1998.
STOCK OPTION PLAN
On March 27, 1992, the Board of Directors and stockholders of the
Company adopted the Plan, which provides for the grant to employees, officers,
directors and consultants of options to purchase up to 900,000 shares of Common
Stock, consisting of both "incentive stock options" within the meaning of
Section 422 of the United States Internal Revenue Code of 1986, as amended (the
"Code"), and non-qualified options. Incentive stock options are issuable only to
employees of the Company, while non-qualified options may be issued to
non-employee directors, consultants and others, as well as to employees of the
Company. The Board increased the Plan by 900,000 shares in February 1995, which
was approved by stockholders in June 1995 and in May 1996 increased the Plan by
150,000 shares, which was approved by stockholders in July 1996.
Under the Plan, the Compensation Committee has the authority to
determine the persons to whom options will be granted, the number of shares to
be covered by each option, whether the options granted are intended to be
incentive stock options, the duration and rate of exercise of each option, the
option price per share, the manner of exercise and the time, manner and form of
payment upon exercise of an option.
33
<PAGE> 56
The exercise price per share of Common Stock subject to incentive
stock options may not be less than the fair market value of the Common Stock on
the date the option is granted. The exercise price per share of Common Stock
subject to non-qualified options will be established by the Board of Directors.
The aggregate fair market value (determined as of the date the option is
granted) of the Common Stock that any employee may purchase in any calendar year
pursuant to the exercise of incentive stock options may not exceed $100,000. No
person who owns, directly or indirectly, at the time of the granting of an
incentive stock option to him, more than 10% of the total combined voting power
of all classes of stock of the Company shall be eligible to receive any
incentive stock options under the Plan unless the exercise price is at least
110% of grant. Non-qualified options are not subject to this limitation.
No incentive stock option may be transferred by an optionee other
than by will or the laws of descent and distribution and, during the lifetime of
an optionee, the option will be exercisable only by the optionee. In the event
of termination of employment other than by death or disability, the optionee
will have three months after such termination or until the expiration of such
option, whichever occurs first, to exercise the option. Upon termination of
employment of an optionee by reason of death or permanent total disability,
options remain exercisable for one year thereafter or until the expiration of
such option, whichever occurs first, to the extent they were exercisable on the
date of such termination. No similar limitation applies to non-qualified
options.
Stock options under the Plan must be granted within 10 years from the
effective date of the Plan. Incentive stock options granted under the Plan
cannot be exercised more than 10 years from the date of grant, except that
incentive stock options issued to 10% or greater stockholders are limited to
five year terms. All options granted under the Plan provide for the payment of
the exercise price in cash or by delivery to the Company of shares of Common
Stock already owned by the optionee having a fair market value equal to the
exercise price of the options being exercised, or by a combination of such
methods of payment. Therefore, an optionee may be able to tender shares of
Common Stock to purchase additional shares of Common Stock and may theoretically
exercise all of his stock options without making any additional cash investment.
Any unexercised options that expire or that terminate upon an
employee's ceasing to be employed with the Company become available once again
for issuance. At April 4, 1997, options for approximately 1,518,000 shares were
outstanding under the Plan and approximately 74,000 were reserved thereunder for
options available for future grant.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation includes a provision that
eliminates or limits the personal financial liability of the Company's
directors, except in situations where there has been a breach of the director's
duty of loyalty to the Company or its stockholders, acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, liability under Section 174 of the Delaware General Corporation Law
("Section 174") relative to unlawful payment of dividends, stock purchases or
redemptions, or any transaction from which the director derived an improper
personal benefit. Furthermore, Section 174 eliminates monetary liability for
gross negligence in exercising the duty of due care related to the directors'
fiduciary duties under state corporate law, however, such section does not
eliminate monetary liability of directors under the federal Securities laws. In
addition, the Company's Bylaws include provisions to indemnify its officers and
directors and other persons against expenses, judgments, fines and amounts paid
in settlement in connection with threatened, pending or completed suits or
proceedings against such persons by reason of serving or having served as
officers, directors or in other capacities, except that in relation to matters
with respect to which such persons shall be determined to be liable for
misconduct or negligence in the performance of their duties, the Company's
Bylaws provide for indemnification only to the extent that the Company
determines that such person acted in good faith and in a manner not opposed to
the best interests of the Company. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against the public policy as expressed in the
Act and is therefore unenforceable.
34
<PAGE> 57
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of April 4, 1997, of (i) each
person known by the Company to own beneficially 5% or more of the Common Stock,
(ii) each current director of the Company, (iii) each of the Named Executive
Officers , and (iv) all current directors and executive officers as a group.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------
NAME AND ADDRESS(1) OF BENEFICIAL
OWNER(2) OR IDENTITY OF GROUP NUMBER PERCENT
- ----------------------------------------------- ----------------- -------------
<S> <C> <C>
Shlomo Margalit 2,048,930 9.5%
Zeev Rav-Noy 1,976,930 9.1%
Noam Lotan(3) 975,937 4.5%
Ken Ahmad (4) 294,464 1.4%
Leonard Mautner 61,850 *
1434 Sixth Street, Suite 10
Santa Monica, CA 90401
Milton Rosenberg (5) 52,710 *
10975 Torreyana Road, Suite 304
San Diego, CA 92121
All executive officers and directors 5,469,821 25.1%
as a group (8 persons)(6)
</TABLE>
- ----------
* Less than 1%
(1) Except as otherwise set forth in the table, the address of each of
the person listed is c/o MRV Communications, Inc., 8917 Fullbright
Avenue, Chatsworth, CA 91311.
(2) Pursuant to the rules of the Securities and Exchange Commission,
shares of Common Stock that an individual or group has a right to
acquire within 60 days pursuant to the exercise of options or
warrants are deemed to be outstanding for the purpose of computing
the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
(3) Includes 10,000 shares issuable pursuant to stock options exercisable
within 60 days from March 25, 1997.
(4) Includes 100,000 shares issuable pursuant to stock options
exercisable within 60 days from March 25, 1997.
(5) Includes 24,000 shares issuable pursuant to stock options exercisable
within 60 days from March 25, 1997.
(6) Includes 193,000 shares issuable pursuant to stock options
exercisable within 60 days from March 25, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
35
<PAGE> 58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements filed as part of this Report are
referred to in Item 8 of this Report.
(2) Financial Statement Schedules
The information required by the applicable financial statement
schedules has been disclosed in the consolidated financial statements and notes
thereto and, accordingly, the schedules have been omitted.
(b) Reports on Form 8-K.
The Company filed reports on Form 8-K and 8-K/A with the Commission
on October 10, 1996 and December 9, 1996, respectively. The Company's Report on
Form 8-K (the "8-K") reported Items 2 and 7 and contained the following
financial statements:
Fibronics Ltd. Group, Combined Financial Statements, as of December 31,
1995, including:
Independent Auditors' Report
COMBINED FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations for the years ended December 31, 1995
and 1994
Statements of Cash Flows for the years ended December 31, 1995
and 1994 Notes to the Combined Financial Statements
The Company's Report on Form 8-K/A supplemented the 8-K and contained
the following financial statements of Fibronics Ltd Group:
INDEPENDENT AUDITORS' REPORT
COMBINED FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1995, 1994 and 1993
Statements of Operations for the years ended December 31, 1995,
1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993
Notes to the Combined Financial Statements
Unaudited Combined Balance Sheet at September 25, 1996
Unaudited Statement of Operations Nine Months ended September
30, 1996
Unaudited Statement of Cash Flows Nine Months ended September
30, 1996
Notes to Unaudited Combined Financial Statements
and the following Pro Forma Financial Information
Unaudited Pro Forma Combined Statements of Operations for the year
ended December 31, 1995
Unaudited Pro Forma Combined Statements of Operations for the Nine
Months ended September 30, 1996(c) Exhibits.
36
<PAGE> 59
The following exhibits are filed as part of this Report:
(c) Exhibits
Exhibit No. Description
- ----------- ------------
2.1 Agreement and Plan of Merger by and between MRV Technologies, Inc.
(a California corporation) and MRV Technologies, Inc. (a Delaware
corporation), as amended (incorporated by reference to Exhibit 2a
filed as part of Registrant's Registration Statement on Form S-1
(File No. 33-48003)).
2.2 Certificate of Merger by and between MRV Technologies, Inc. (a
California corporation) and MRV Technologies, Inc. (a Delaware
corporation) (incorporated by reference to Exhibit 2b filed as
part of Registrant's Registration Statement on Form S-1 (File No.
33-48003)).
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3a filed as part of Registrant's Registration
Statement on Form S-1 (File No. 33-48003)).
3.2 Certificate of Amendment of Certificate of Incorporation filed
with the Delaware Secretary of State on March 20, 1996.
3.3 Certificate of Amendment of Certificate of Incorporation filed
with the Delaware Secretary of State on July 29, 1996.
3.4 Bylaws (incorporated by reference to Exhibit 3b filed as part of
Registrant's Registration Statement on Form S-1 (File No.
33-48003)).
10.1 Form of Underwriter's Warrant issued to Hampshire Securities
(incorporated by reference to Exhibit 4f filed as part of
Registrant's Registration Statement on Form S-1 (File No.
33-86516)).
10.2 Lease for premises at 8917 Fullbright Avenue, Chatsworth, CA dated
August 5, 1991 (incorporated by reference to Exhibit 10a filed as
part of Registrant's Registration Statement on Form S-1 (File No.
33-48003)).
10.3 Lease for premises at 8943 Fullbright Avenue, Chatsworth, CA dated
March 3, 1993 (incorporated by reference to Exhibit 10a(1) filed
as part of Registrant's Registration Statement on Form S-1 (File
No. 33-48003)).
10.4 Key Employee Agreement between the Company and Noam Lotan dated
March 23, 1993 (incorporated by reference to Exhibit 10b(1) filed
as part of Registrant's Registration Statement on Form S-1 (File
No. 33-48003)).
10.5 Letter amending Key Employee Agreement between the Company and
Noam Lotan (incorporated by reference to Exhibit 10b(1)1 filed as
part of Registrant's Registration Statement on Form S-1 (File No.
33-48003)).
10.6 Letter amending Key Employee Agreement between the Company and
Noam Lotan (incorporated by reference to Exhibit 10b(1)2 filed as
part of Registrant's Registration Statement on Form S-1 (File No.
33-48003)).
10.7 Key Employee Agreement between the Company and Zeev Rav-Noy dated
March 23, 1992 (incorporated by reference to Exhibit 10b(2) filed
as part of Registrant's Registration Statement on Form S-1 (File
No. 33-48003)).
10.8 Letter amending Key Employee Agreement between the Company and
Zeev Rav-Noy (incorporated by reference to Exhibit 10b(2) filed as
part of Registrant's Registration Statement on Form S-1 (File No.
33-48003)).
10.9 Letter amending Key Employee Agreement between the Company and
Zeev Rav-Noy (incorporated by reference to Exhibit 10b(2) filed as
part of Registrant's Registration Statement on Form S-1 (File No.
33-48003)).
10.10 Key Employee Agreement between the Company and Shlomo Margalit
(incorporated by reference to Exhibit 10b(3) filed as part of
Registrant's Registration Statement on Form S-1 (File No.
33-48003)).
10.11 Letter amending Key Employee Agreement between the Company and
Shlomo Margalit (incorporated by reference to Exhibit 10b(3)1
filed as part of Registrant's Registration Statement on Form S-1
(File No. 33-48003)).
10.12 Form of Letter amending Key Employee Agreement between the Company
and Shlomo Margalit (incorporated by reference to Exhibit 10b(3)2
filed as part of Registrant's Registration Statement on Form S-1
(File No. 33-48003)).
10.13 Employment Letter between the Company and Khalid (Ken) Ahmad dated
August 8, 1990 (incorporated by reference to Exhibit 10b(4) filed
as part of Registrant's Registration Statement on Form S-1 (File
No. 33-48003)).
10.14 Form of Warrant issued in connection with Bridge Financing and to
certain consultants (incorporated by reference to Exhibit 10c(2)
filed as part of Registrant's Registration Statement on Form S-1
(File No. 33-48003)).
37
<PAGE> 60
10.15 License Agreement between the Company and Laser Precision
Corporation dated December 13, 1990 (incorporated by reference to
Exhibit 101(1) filed as part of Registrant's Registration
Statement on Form S-1 (File No. 33-48003)).
10.16 Form of Distributor Agreement (incorporated by reference to
Exhibit 10m filed as part of Registrant's Registration Statement
on Form S-1 (File No. 33-48003)).
10.17 Form of Sales Representative Agreement (incorporated by reference
to Exhibit 10n filed as part of Registrant's Registration
Statement on Form S-1 (File No. 33-48003)).
10.18 Form of Warrant issued to Managerial Resources, Inc. (incorporated
by reference to Exhibit 10o filed as part of Registrant's
Registration Statement on Form S-1 (File No. 33-48003))
10.19 Agreement for Sale and Purchase of Assets of ACE dated June 29,
1995 (incorporated by reference to Exhibit No. 2.1 & 2.1a of
Registrant's Report on Form 8-K (0-23452) dated June 29, 1995,
with respect to the ACE Acquisition).
10.20 Agreement for Purchase of Galcom Assets dated March 21, 1995
(incorporated by reference to Exhibit No. 2.1 and 2.1a of
Registrant's Report on Form 8-K (0-23452) dated May 1, 1995, with
respect to the Galcom Acquisition).
10.21 MRV Communications Inc. Incentive Plan for Grant of Warrants to
Employees Subsidiaries.
10.22 Asset Purchase Agreement dated September 26, 1996 between the
Company, Elbit Ltd and certain of its Fibronics subsidiaries
(incorporated by reference to Exhibit No. 2.1 of Registrant's
Report on Form 8-K (0-23452), dated October 9, 1996 with respect
to the Fibronics Acquisition).
38
<PAGE> 61
10.22.1 First Amendment to Asset Purchase Agreement dated March 13, 1997
between Elbit Ltd. and Registrant.
10.23 Standard Industrial/Commercial Single-Tenant Lease dated
October 8, 1996 between the Company and Nordhoff Development
relating to the premises located at 20415 Nordhoff Street,
Chatsworth, California.
10.24 Form of Debenture (aggregating $30,000,000 principal amount)
issued in private placement completed in September 1996.
10.25 Form of Warrants (aggregating 600,000) issued in private placement
completed in September 1996.
10.26 Form of Registration Rights Agreement entered into with investors
in private placement completed in September 1996.
10.27 Common Stock Purchase Agreement dated November 26, 1996 between
the Company and Intel Corporation.
10.28 Investor Agreement dated November 26, 1996 between the Company and
Intel Corporation.
10.29 Warrant to Purchase 300,000 shares of Common Stock in favor of
Intel Corporation.
10.30 Warrant to Purchase 100,000 shares of Common Stock in favor of
Intel Corporation.
10.31 Warrant to Purchase 100,000 shares of Common Stock in favor of
Intel Corporation.
11 Statement regarding computation of per share earnings (not
required due to Registrant's net loss for the year covered by this
report).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP to incorporation of Report on
Financial Statements into Company's Form S-8 (File No. 33- 96458)
and Form S-3 (File No. 333-17537).
25 Power of Attorney (contained on Signature Page).
39
<PAGE> 62
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"), the Registrant caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chatsworth,
State of California, on April 14, 1997
MRV COMMUNICATIONS, INC.
By: /s/ NOAM LOTAN
------------------------------------
Noam Lotan, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes an appoints Noam Lotan, Zeev Rav-Noy and Edmund
Glazer, and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution for him in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-K and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
Names Title Date
----- ----- ----
<S> <C> <C>
/s/ NOAM LOTAN
- --------------------------------- President, Chief Executive Officer (Principal
Noam Lotan Executive Officer), and a Director April 14, 1997
/s/ ZEEV RAV-NOY
- --------------------------------- Chief Operating Officer,
Zeev Rav-Noy Treasurer, and a Director April 14, 1997
/s/ SHLOMO MARGALIT Chairman of the Board, Chief Technical
- --------------------------------- Officer, Secretary, and a Director
Shlomo Margalit April 14, 1997
/s/ EDMUND GLAZER Vice President of Finance and
- --------------------------------- Administration, Chief Financial Officer
Edmund Glazer (Principal Financial and Accounting Officer) April 14, 1997
/s/ LEONARD MAUTNER
- ---------------------------------
Leonard Mautner Director April 14, 1997
/s/ MILTON ROSENBERG
- ---------------------------------
Milton Rosenberg Director April 14, 1997
</TABLE>
40
<PAGE> 1
EXHIBIT 3.2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 03/20/96
960079591 - 2290403
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MRV COMMUNICATIONS, INC.
MRV Communications, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), pursuant to the provisions of
the General Corporation Law of the State of Delaware (the "DGCL"), DOES HEREBY
CERTIFY as follow:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended by deleting the first paragraph of Section 4 of the Certificate of
Incorporation in its present form and substituting therefor new first and second
paragraphs of Section 4 in the following form:
A. This corporation is authorized to issue two classes of stock, to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares of this corporation is authorized to issue is Twenty One
Million (21,000,000) shares of capital stock.
B. Of such authorized shares, Twenty Million (20,000,000) shares
shall be designated "Common Stock" and have a par value of $.0067 per share. One
Million (1,000,000) shares shall be designated "Preferred Stock" and have a par
value of $0.01 per share. Upon the filing of this Certificate of Amendment of
the Certificate of Incorporation, each two shares of Common Stock of the
corporation outstanding immediately prior to such filing shall be reconstituted
as and converted into three shares of Common Stock.
SECOND: The amendment to the Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment has been duly adopted in
accordance with the provisions of Section 242 of the DGCL by (a) the Board of
Directors of the Corporation having duly adopted a resolution setting forth such
amendment and declaring its advisability and submitting it to the stockholders
of the Corporation for their approval, and (b) the stockholders of the
Corporation having duly adopted such amendment by vote of the holders of a
majority of the outstanding stock entitled to vote thereon at a special meeting
of stockholders called and held upon notice in accordance with Section 222 of
the DGCL.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment to be signed by Noam Lotan,
its President and Chief Executive Officer, and attested by Shlomo Margalit, its
Secretary, this 10th day of March, 1996.
MRV COMMUNICATIONS, INC.
By: /s/ NOAM LOTAN
---------------------------
Noam Lotan
President and Chief Executive Officer
ATTEST:
/s/ SHLOMO MARGALIT
- -----------------------------
Shlomo Margalit
Secretary
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MRV COMMUNICATIONS, INC.
MRV Communications, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), pursuant to the
provisions of the General Corporation Law of the State of Delaware (the
"DGCL"), DOES HEREBY CERTIFY as follows:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended by deleting the first paragraph of Section 4 of the Certificate of
Incorporation in its present form and substituting therefor new first and second
paragraphs of Section 4 in the following form:
A. This corporation is authorized to issue two classes of stock, to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares of this corporation is authorized to issue is forty-one
Million (41,000,000) shares of capital stock.
B. Of such authorized shares, Forty Million (40,000,000) shares
shall be designated "Common Stock" and have a par value of $.0034 per share.
One Million (1,000,000) shares shall be designated "Preferred Stock" and have a
par value of $0.01 per share. Upon the filing of this Certificate of Amendment
of the Certificate of Incorporation, each outstanding share of Common Stock of
the corporation outstanding immediately prior to such filing shall be
reconstituted as and converted into two shares of Common Stock.
SECOND: The amendment to the Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment has been duly adopted in
accordance with the provisions of Section 242 of the DGCL by (a) the Board of
Directors of the Corporation having duly adopted a resolution setting forth such
amendment and declaring its advisability and submitting it to the stockholders
of the Corporation for their approval, and (b) the stockholders of the
Corporation having duly adopted such amendment by vote of the holders of a
majority of the outstanding stock entitled to vote thereon at a special meeting
of stockholders called and held upon notice in accordance with Section 222 of
the DGCL.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment to be signed by Noam Lotan,
its President and Chief Executive Officer, and attested by Shlomo Margalit, its
Secretary, this 23rd day of July, 1996.
MRV COMMUNICATIONS, INC.
By: /s/ NOAM LOTAN
-------------------------------------
Noam Lotan
President and Chief Executive Officer
ATTEST:
/s/ SHLOMO MARGALIT
- -----------------------------
Shlomo Margalit
Secretary
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/29/96
960219667 - 2290403
<PAGE> 1
EXHIBIT 10.21
MRV COMMUNICATIONS INC. INCENTIVE PLAN FOR GRANT OF WARRANTS
TO EMPLOYEES SUBSIDIARIES
1. MRV hereby grants 330,000 warrants to the employees of its subsidiaries
as listed on the attached exhibit A and in the quantities to each as
indicated thereon.
2. These are warrants for the purchase of MRV communications Inc. common
stock. Each warrant shall be exercisable for the purchase of one
share of MRV common stock, The terms and conditions of the warrant
form as shown in exhibit B describe the terms and conditions of this
plan with respect to these warrants.
3. The exercise price of the warrants will be as follows:
A. 110,000 warrants at an exercise price of $12.75 as determined
by the fair market value of MRV shares on the date of the
awards of these warrants, being July 1, 1995.
B. 220,000 warrants at an exercise price of $14.25 as determined
by the fair market value of MRV shares on the date of the
award of these warrants, being July 28, 1995.
4. The warrants have been issued initially in the name of Nathan Shilo as
trustee for the recipients of the warrants. The warrants will be held
by the trustee until they are vested at which time the trustee will
convey the warrant to the recipients.
The exercisability of each of these warrants shall begin on the first
day of the vesting of each of the warrants as described in paragraph 6
of this Agreement and shall continue for a period of 5 years from that
date at which time they will expire without value.
6. The warrants shall vest in three separate amounts each with their own
vesting _ period as outlined in the following schedule.
A. For the period July 1, 1995 to June 30, 1996 shall vest on
July 1, 1996 110,000 warrants at the exercise price of $12.75.
B. For the period July 1, 1995 to June 30 1997 shall vest on July
1, 1997 110,000 warrants at the exercise price of $14.25.
C. For the period July 1, 1995 to June 30, 1998 shall vest on
July 1, 1988, 110,000 warrants at the exercise price of $14.25.
<PAGE> 2
<TABLE>
<CAPTION>
EXHIBIT A
<S> <C>
Phillipe Scwarz 50,000
Guy Avidan 50,000
Danny Yelin 30,000
Yacov Sfadya 30,000
Erez Resenthal 30,000
</TABLE>
The Managing directors of Nbase communications Ltd shall provide a list of
additional employees of Nbase communications Ltd, and additional employees
including Hanoch Eldar and others by agreement to whom an additional 70,000
warrants shall be granted.
The remaining 70,000 warrants shall be held by the trustee for later grant as
determined at a later date by the managing directors or Nbase Communications
Ltd. subject to the approval of the board of directors of MRV.
<PAGE> 3
APPENDIX
In exchange for receipt of the warrants granted to me in the M. R. V. plan for
the grant of warrants dated 7.1.95, I hereby agree as follows:
1. Any taxes I incur in connection with any of the following transactions
shall be borne exclusively by me and I will hold the company harmless
from any claims arising from my failure to pay such taxes when due.
2. This plan supersedes, replaces and cancels any and all prior
commitments, written or unwritten, made to me by MRV, it's
subsidiaries and/or any of its employees, consultants or anyone else
acting on their behalf.
<PAGE> 1
EXHIBIT 10.22.1
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
Entered into in Haifa, Israel this 13th day of March, 1997 Between
1. Elbit Ltd., a company incorporated in Israel (hereinafter "Elbit")
and
2. MRV Communications, Inc., (hereinafter "MRV") a company incorporated in
the State of Delaware, U.S.A.
WHEREAS, Elbit and MRV have previously entered into an Asset Purchase Agreement
"Purchase Agreement" dated September 26, 1996; and
WHEREAS, Elbit and MRV desire to amend certain terms and conditions of the
Purchase Agreement.
NOW, THEREFORE, the parties hereby agree as follows.
Section 1. Definitions
1.1 Capitalized terms used in this First Amendment shall have the
meanings ascribed to them in the Purchase Agreement.
Section 2. LC Shares
2.1 At Closing A (as referenced in section 5.1 below), MRV shall pay
to Elbit the sum of $4,230,000 plus interest thereon from
January 1, 1997 to date of payment, being for the total sum of
$4,300,853.00, by way of deposit in Elbit's account # 18554 at
Israel Discount Bank, Ltd, Main Branch, Branch #070.
2.2 At Closing A, Elbit shall deliver to MRV the certificates for
184,381 LC shares, described in Section 2(a)(ii) of the Purchase
Agreement.
2.3 Upon Closing A, Elbit shall relinquish any claim to all payments
due under Section 2(a)(ii) to the Purchase Agreement and to the
LC Shares and in connection thereof including those arising from
the Letter of Credit it previously received from MRV according
to Section 2(a)(ii) of the Purchase Agreement, Subject to the
provisions of 3.1 below.
Section 3. Additional Shares
3.1 Upon Closing B (as referenced in Section 5.2 below) MRV shall
immediately instruct Bank of America to amend the LC with
wording in a manner acceptable to both parties to increase the
amount thereof to the amount of $6,535,682 for the purpose of
securing that Elbit shall receive from the proceeds of the sale
of the Additional Shares described in Section 2(a)(iii) of the
Purchase Agreement no less than $6,300,000 plus interest thereon
from January 1, 1997 to date of realization at the rate of .67%
per month, or pro rata for any part thereof. The amendment to
the LC shall be issued by Bank of America and shall extend the
expiration date to June 15, 1997 and shall provide as follows:
<PAGE> 2
In the event that Elbit certifies any time after May 31, 1997 and
prior to June 15, 1997 that Elbit had not realized from the sale, if
any, of the Additional Shares a minimum of $6,300,000 plus interest
thereon from January 1, 1997 to date of realization at the rate of
.67% per month, or pro rata for any part thereof, Elbit shall have
the right to draw upon the Letter of Credit in the amount which
equals the difference between (a) $6,300,000 plus interest thereon
from January 1, 1997 to the date of drawdown at the rate of .67% per
month, or pro rata for any part thereof, and (b) any lesser amount
realized, if any, by Elbit from the sale of the Additional Shares
(the "Shortfall").
3.2 Elbit shall continue to sell the 274,610 Additional Shares at least
until May 31, 1997. Sales of the Additional Shares, if made, shall
be made by Elbit in such quantities and through such brokers as may
be approved in advance and in writing, by MRV who will bear all the
fees and expenses of such brokers in connection with such sales.
Such sales of the Additional Shares shall be made at no less than
the prevailing bid price at the time of sale; provided, however,
that in no event shall Additional Shares be sold for less than $23
per share. The shares shall continue to be held by David Stone as
Trustee for Elbit until such time as they are sold or are to be
returned to MRV. Upon Closing B Elbit shall instruct David Stone to
exchange one of the certificates that is now held that is for
270,000 shares for 27 certificates of 10,000 shares each through
American Stock Transfer and Trust. In accordance with instructions
received from Elbit, David Stone will transfer all or any of the
said stock certificates to the broker/s or their nominee/s in order
to complete any sale transaction contemplated by this Agreement.
3.3 If prior to June 15 Elbit receives proceeds equal to or exceeding
$6,300,000 plus interest thereon from January 1, 1997 to date of
realization at the rate of .67% per month, or pro rata for any part
thereof, Elbit shall immediately return the LC and notice of
cancellation thereof to Bank of America at the office of issuance.
3.4 Upon receipt by Elbit of any amounts in excess of $6,300,000 plus
interest thereon from January 1, 1997 to date of realization at the
rate of .67% per month, or pro rata for any part thereof from the
sale of the Additional Shares, Elbit shall promptly return such
amounts together with any unsold Additional Shares to MRV.
3.5 This First Amendment supersedes and replaces the obligations of MRV
contained in the Purchase Agreement with respect to the Additional
Shares. Any rights or demands available to Elbit from MRV with
respect to the Additional Shares as described in the Purchase
Agreement are waived in favor of the rights with respect to such
shares described in this section 3 of this First Amendment.
Section 4. Security Shares
4.1 Until receipt of the amendment to the LC as indicated in Section 3.1
above, the MRV Shares held by Argom Trustees (1992) Ltd ("Argom")
shall secure payment of the Shortfall to Elbit. These MRV Shares
shall be held by Argom as Trustee on behalf of Buyer and Elbit and
shall be released to Elbit upon notification by Elbit to Argom, no
earlier than May 31, 1997, that it has incurred a Shortfall. The
parties will promptly instruct Argom accordingly.
4.2 Upon receipt of the amendment to the LC as indicated in Section 3.1
above, Elbit shall instruct Argom to immediately return the 137,305
shares given to Elbit as security by MRV according to Section 2(g)
of the Purchase Agreement. Any rights or demands available to Elbit
from MRV with respect to these security shares as described in the
Purchase Agreement are waived in favor of the rights given to Elbit
by MRV with respect to the LC described in Section 3 and Section 4.1
of this First Amendment.
<PAGE> 3
Section 5. Time and Place of Closing
5.1 Closing A shall be held at Elbit's Haifa office on March 13,
1997, at 12:00 noon.
5.2 Closing B shall be held at Elbit's Haifa office on March 19,
1997, at 12:00 noon.
5.3 The parties shall execute such additional documents and perform
such additional acts as may be necessary or convenient to carry
out the intent and purpose of this First Amendment.
Section 6. Continued Validity
6.1 All terms and conditions of the Purchase Agreement save those
amended by this First Amendment shall remain in full force and effect.
IN WITNESS WHEREOF, THE PARTIES HAVE HEREUNTO SET THEIR HAND UPON THE DATE
FIRST ABOVE WRITTEN.
ELBIT LTD MRV COMMUNICATIONS, INC.
By: V. BRAUCHI By: EDMUND GLAZER
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Title: Title: CHIEF FINANCIAL OFFICER
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Sig: /s/ V. BRAUCHI Sig: /s/ EDMUND GLAZER
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EXHIBIT 10.23
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes
only, October 8, 96, is made by and between Nordhoff Development, a General
Partnership ("LESSOR") and MRV Communications, Inc., a Delaware Corporation
("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
and commonly known as 20415 Nordhoff Street, Chatsworth, located in the County
of Los Angeles, State of California, and generally described as (describe
briefly the nature of the property and, if applicable, the "PROJECT", if the
property is located within a Project) an approximately 12,800 square foot
industrial building.
_______________________________________________________________________________
_______________________________________________________________________________
__________________________("PREMISES"). (See also Paragraph 2).
1.3 TERM: 2 years and 4 months and 23 days ("ORIGINAL TERM")
commencing November 8, 1996** ("COMMENCEMENT DATE") and ending March 31, 1999
("EXPIRATION DATE"). (See also Paragraph 3).
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See also
Paragraphs 3.2 and 3.3).
1.5 BASE RENT: $7,900.00* per month ("BASE RENT"), payable on the
first day of each month commencing December 1996 (See also Paragraph 4).
[ ] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted. *See Addendum Paragraph 54.
1.6 BASE RENT PAID UPON EXECUTION: $6,056.59 as Base Rent for the
period November 8, 1996 - November 30, 1996.
1.7 SECURITY DEPOSIT: $8,500.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5).
1.8 AGREED USE: office, sales, software, hardware and computer
related products and related activities thereto.
1.9 INSURING PARTY. Lessor is the "INSURING PARTY" unless
otherwise stated herein. (See also Paragraph 8).
1.10 REAL ESTATE BROKERS: (See also Paragraph 15).
(a) REPRESENTATION: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction (check applicable boxes):
[ ] ________________________ represents Lessor exclusively ("LESSOR'S BROKER");
[ ] _____________________ represents Lessee exclusively ("LESSEE'S BROKER"); or
[X] CB Commercial represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this
lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their
separate written agreement (or if there is not such agreement, the sum of 6% of
the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by N/A ("GUARANTOR"). (See also Paragraph 37).
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or
Addenda consisting of Paragraphs 50 through 60 and Exhibits "A", all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leased from lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may
have been used in calculating rental, is an approximation which the Parties
agree is reasonable and the rental based thereon is not subject to revision
whether or not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom
clean and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("START DATE"), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee within
thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation
with respect to such matter, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If, after the Start Date, Lessee does not give Lessor written
notice of any non-compliance with this warranty within: (i) one year as to the
surface of the roof and the structural portions of the roof, foundations and
bearing walls, (ii) six (6) months as to the HVAC systems, (iii) thirty (30)
days as to the remaining systems and other elements of the Building, correction
of such non-compliance shall be the obligation of Lessee at Lessee's sole cost
and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the
Premises comply with all applicable laws, covenants or restrictions of record,
building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect
on the Start Date. Said warranty does not apply to the use to which Lessee will
put the Premises or to any Alterations or Utility Installations (as defined in
Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify the same
at Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within six (6) months following the Start
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. If the Applicable Requirements are hereafter
changed (as opposed to being in existence at the Start Date, which is addressed
in Paragraph 6.2(e) below) so as to require during the term of this Lease the
construction of an addition to or an alteration of the Building, the remediation
of any Hazardous Substance, or the reinforcement or other physical modification
of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the
cost of such work as follows:
**See Paragraph 50
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BFR/mga
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(a) Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be
fully responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the
cost thereof exceeds six (6) months' Base Rent. Lessee may instead terminate
this Lease unless Lessor notifies Lessee, in writing, within ten (10) days
after receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost hereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the
specific and unique use of the Premises by Lessee (such as, governmentally
mandated seismic modifications), then Lessor and Lessee shall allocate the
obligation to pay for such costs pursuant to the provisions of Paragraph
7.1(c); provided, however, that if such Capital Expenditure is required during
the last two years of this Lease of if Lessor reasonably determines that it is
not economically feasible to pay its share thereof, Lessor shall have the
option to terminate this Lease upon ninety (90) days prior written notice to
Lessee unless Lessee notifies Lessor, in writing, within ten (10) days after
receipt of Lessor's termination notice that Lessee will pay for such Capital
Expenditure. If Lessor does not elect to terminate, and fails to tender its
share of any such Capital Expenditure, Lessee may advance such funds and deduct
same, with Interest, from Rent until Lessor's share of such costs have been
fully paid. If Lessee is unable to finance Lessor's share, or if the balance of
the Rent due and payable for the remainder of this Lease is not sufficient to
fully reimburse Lessee on an offset basis, Lessee shall have the right to
terminate this Lease upon thirty (30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning
Capital Expenditures are intended to apply only to non-voluntary, unexpected,
and new Applicable Requirements. If the Capital Expenditures are instead
triggered by Lessee as a result of an actual or proposed change in use, change
in intensity of use, or modification to the Premises then, and in that event,
Lessee shall be fully responsible for the cost thereof, and Lessee shall not
have any right to terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical, HVAC
and fire sprinkler systems, security, environmental aspects, and compliance
with Applicable Requirements), and their suitability for Lessee's intended use,
(b) Lessee has made such investigation as it deems necessary with reference to
such matters and assumes all responsibility therefor as the same relate to its
occupancy of the Premises, and (c) neither Lessor, Lessor's agents, nor any
Broker has made any oral or written representations or warranties with respect
to said matters other than as set forth in this Lease. In addition, Lessor
acknowledges that: (a) Broker has made no representations, promises or
warranties concerning Lessee's ability to honor the Lease or suitability to
occupy the Premises, and (b) it is Lessor's sole responsibility to investigate
the financial capability and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor
in Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease (including but not limited to the obligations to pay Real Property
Taxes and insurance premiums and to maintain the Premises) shall, however, be
in effect during such period. Any such early possession shall not affect the
Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease. Lessee shall not,
however, be obligated to pay Rent or perform its other obligations until it
receives possession of the Premises. If possession is not delivered within
sixty (60) days after the Commencement Date, Lessee may, at its option, by
notice in writing within ten (10) days after the end of such sixty (60) day
period, cancel this Lease, in which event the Parties shall be discharged from
all obligations hereunder. If such written notice is not received by Lessor
within said ten (10) day period, Lessee's right to cancel shall terminate.
Except as otherwise provided, if possession is not tendered to Lessee when
required and Lessee does not terminate this Lease, as aforesaid, any period of
rent abatement that Lessee would otherwise have enjoyed shall run from the date
of delivery of possession and continue for a period equal to what Lessee would
otherwise have enjoyed under the terms hereof, but minus any days of delay
caused by the acts or omissions of Lessee. If possession of the Premises is not
delivered within four (4) months after the Commencement Date, this Lease shall
terminate unless other agreements are reached between Lessor and Lessee, in
writing. See Paragraph 50 III.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor
under the terms of this Lease (except for the Security Deposit) are deemed to
be rent ("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction on or
before the day on which it is due. Rent for any period during the term hereof
which is for less than one (1) full calendar month shall be prorated based upon
the actual number of days of said month. Payment of Rent shall be made to Lessor
at its address stated herein or to such other persons or place as Lessor may
from time to time designate in writing. Acceptance of a payment which is less
than the amount then due shall not be a waiver of Lessor's rights to the balance
of such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. If the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional moneys with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the increased Base Rent
as the initial Security Deposit bore to the initial Base Rent. Should the Agreed
Use be amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or termination
of this Lease, if Lessor elects to apply the Security Deposit only to unpaid
Rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage, waste or a nuisance, or that
disturbs owners and/or occupants of, or causes damage to neighboring
properties. Lessor shall not unreasonably withhold
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or delay its consent to any written request for a modification of the Agreed
Use, so long as the same will not impair the structural integrity of the
improvements on the Premises or the mechanical or electrical systems therein,
is not significantly more burdensome to the Premises. If Lessor elects to
withhold consent, Lessor shall within five (5) business days after such request
give written notification of same, which notice shall include an explanation of
Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substances shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, and/or crude oil or any products,
by-products or fractions thereof. Lessee shall not engage in any activity in
or on the Premises which constitutes a Reportable Use of Hazardous Substances
without the express prior written consent of Lessor and timely compliance (at
Lessee's expense) with all Applicable Requirement. "REPORTABLE USE" shall mean
(i) the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority, and/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements requires
that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may use any
ordinary and customary materials reasonably required to be used in the normal
course of the Agreed Use, so long as such use is in compliance with all
Applicable Requirements, is not a Reportable Use, and does not expose the
Premises or neighboring property to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may
condition its consent to any Reportable Use upon receiving such additional
assurances as Lessor reasonably deems necessary to protect itself, the public,
the Premises and/or the environment against damage, contamination, injury
and/or liability, including, but not limited to, the installation (and removal
on or before Lease expiration or termination) of protective modifications (such
as concrete encasements) and/or increasing the Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and
provide Lessor with a copy of any report, notice, claim or other documentation
which it has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance brought onto the Premises during the term of this Lease, by
or for Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises
by or for Lessee, or any third party (provided, however, that Lessee shall have
no liability under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from adjacent properties). Lessee's
obligation shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination
of this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT ENTERED INTO
BY LESSOR AND LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE
WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR
IN WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and
assigns shall indemnify, defend, reimburse and hold Lessee, its employees and
lenders, harmless from and against any and all environmental damages which
existed as a result of Hazardous Substances on the Premises prior to the Start
Date or which are caused by the gross negligence, or intentional acts of
Lessor, its agents or employees. Lessor's obligations, as and when required by
the Applicable Requirements, shall include, but not be limited to, the cost of
investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures
required by governmental entities having jurisdiction with respect to the
existence of Hazardous Substances on the Premises prior to the Start Date.
Lessee shall cooperate fully in any such activities at the request of Lessor,
including allowing Lessor and Lessor's agents to have reasonable access to the
Premises at reasonable times in order to carry out Lessor's investigative and
remedial responsibilities.
(g) LANDLORD TERMINATION OPTION. If a Hazardous Substance
Condition occurs during the term of this Lease, unless Lessee is legally
responsible therefor (in which case Lessee shall make the investigation and
remediation thereof required by the Applicable Requirements and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either
(i) investigate and remediate such Hazardous Substance Condition, if required,
as soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) if the estimated cost to
remediate such condition exceeds twelve (12) times the then monthly Base Rent
or $100,000, whichever is greater, give written notice to Lessee, within thirty
(30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the date of such notice. In the event Lessor
elects to give a termination notice, Lessee may, within ten (10) days
thereafter, give written notice to Lessor of Lessee's commitment to pay the
amount by which the cost of the remediation of such Hazardous Substance
Condition exceeds an amount equal to twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said
funds or satisfactory assurance thereof within thirty (30) days following such
commitment. In such event, this Lease shall continue in full force and effect,
and Lessor shall proceed to make such remediation as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the time
provided, this Lease shall terminate as of the date specified in Lessor's
notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee, shall, at Lessee's sole expense,
fully, diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender and
consultants shall have the right to enter into Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease. The cost of any such inspections shall be paid by Lessor,
unless a violation of Applicable Requirements, or a contamination is found to
exist or be imminent, or the inspection is requested or ordered by a
governmental authority. In such case, Lessee shall upon request reimburse
Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep
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the Premises. Utility Installations, and Alterations in good order, condition
and repair (whether or not the portion of the Premises requiring repairs, or
the means of repairing the same, are reasonably or readily accessible to Lessee,
and whether or not the need for such repairs occurs as a result of Lessee's use,
any prior use, the elements or the age of such portion of the Premises),
including, but not limited to, all equipment or facilities, such as plumbing,
HVAC, electrical, lighting facilities, boilers, pressure vessels, fire
protection system, fixtures, walls (interior and exterior), foundations,
ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways
located in, on, or adjacent to the Premises, Lessee, in keeping the Premises in
good order, condition and repair shall exercise and perform good maintenance
practices, specifically including the procurement and maintenance of the
service contracts required by Paragraph 7.1(b) below. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order,
condition and state of repair. Lessee shall, during the term of this Lease,
keep the exterior appearance of the Building in a first-class condition
consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity, including, when necessary, the
exterior repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at lessee's sole
expense, procure and maintain contracts, with copies to Lessor, in customary
form and substance for, and with contractors specializing and experienced in
the maintenance of the following equipment and improvements. ("BASIC ELEMENTS"),
if any, as and when installed on the Premises: (i) HVAC equipment, (ii) boiler,
and pressure vessels, (iii) fire protection systems, (iv) landscaping and
irrigation systems, (v) xxxxxxxxxxxxxxxxxx and (vi) asphalt and parking lots,
(vii) clarifiers and (viii) any other equipment, if reasonably required by
Lessor, provided that lessee has not done anything ?????????? damage or needed
repairs.
(c) REPLACEMENT. Subject to Lessee's indemnification of
Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of
liability resulting from Lessee's failure to exercise and perform good
maintenance practices, if the Basic Elements described in Paragraph 7.1(b)
cannot be repaired other than at a cost which is in excess of 50% of the cost
of replacing such Basic Elements, then such Basic Elements shall be replaced by
Lessor, and the cost thereof shall be prorated between the Parties and Lessee
shall only be obligated to pay, each month during the remainder of the term of
this Lease, on the date on which Base Rent is due, an amount equal to the
product of multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is the number of months
of the useful life of such replacement as such useful life is specified
pursuant to Federal income tax regulations or guidelines for depreciation
thereof (including interest on the unamortized balance as is then commercially
reasonable in the judgment of Lessor's accountants), with Lessee reserving the
right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14
(Condemnation), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, or
the equipment therein, all of which obligations are intended to be that of the
Lessee. It is the intention of the Parties that the terms of this Lease govern
the respective obligations of the Parties as to maintenance and repair of the
Premises, and they expressly waive the benefit of any statute now or hereafter
in effect to the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems,
communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing
in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery
and equipment that can be removed without doing material damage to the Premises.
The term "ALTERATIONS" shall mean any modification of the improvements, other
than Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall
be presented to Lessor in written form with detailed plans. Consent shall be
deemed conditioned upon Lessee's: (i) acquiring all applicable governmental
permits, (ii) furnishing Lessor with copies of both the permits and the plans
and specifications prior to commencement of the work, and (iii) compliance with
all conditions of said permits and other Applicable Requirements in a prompt
and expeditious manner. Any Alterations or Utility Installations shall be
performed in a workmanlike manner with good and sufficient materials. Lessee
shall promptly upon completion furnish Lessor with as-built plans and
specifications. For work which costs an amount equal to the greater to one
month's Base Rent, or $10,000. Lessor may condition its consent upon Lessee
providing a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such Alteration or Utility Installation and/or upon
Lessee's posting an additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by an
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have
the right to post notices of non-responsibility. If Lessee shall contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof. If Lessor shall require, Lessee shall furnish a
surety bond in an amount equal to one and one-half times the amount of such
contested lien, claim or demand, indemnifying Lessor against liability for the
same. If Lessor elects to participate in any such action, Lessee shall pay
Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal
or elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all
Lease Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.
(b) Removal. By delivery to Lessee of written notice from
Lessor not later than ninety (90) days prior to the end of the term of this
Lease, Lessor may require that any or all Lessee Owned Alterations or Utility
Installations be removed by the expiration or termination of this Lease. Lessor
may require the removal at any time of all or any part of any Lessee Owned
Alterations or Utility Installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the
Premises by the Expiration Date or any earlier termination date, with all of
the improvements, parts and surfaces thereof broom clean and free of debris,
and in good operating order, condition and state of repair, ordinary wear and
tear excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice.
Lessee shall repair any damage occasioned by the installation, maintenance or
removal of Trade Fixtures, furnishings, and equipment as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or groundwater contaminated by Lessee. Trade
Fixtures shall remain the property of Lessee and shall be removed by Lessee.
The failure by Lessee to timely vacate the Premises pursuant to this Paragraph
7.4(c) without the express written consent of Lessor shall constitute a
holdover under the provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost attributable to
liability insurance carried by Lessor under Paragraph 8.2(b) in excess of
$2,000,000 per occurrence. Premiums for policy periods commencing prior to or
extending beyond the Lease term shall be prorated to correspond to the Lease
term. Payment shall be made by Lessee to Lessor within ten (10) days following
receipt of an invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
a Commercial General Liability Policy of Insurance protecting Lessee.
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and Lessor against claims for bodily injury, personal injury and property
damage based upon or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount
not less than $2,000,000 per occurrence with an "ADDITIONAL INSURED-MANAGERS OR
LESSORS OF PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION
EXCLUSION ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile
fire. The Policy shall not contain any intra-insured exclusions as between
insured persons or organizations, but shall include coverage for liability
assumed under this Lease as an "insured contract" for the performance of
Lessee's indemnity obligations under this Lease. The limits of said insurance
shall not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance carried by Lessee shall be primary to and
not contributory with any similar insurance carried by Lessor, whose insurance
shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability
insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of,
the insurance required to be maintained by Lessee. Lessee shall not be named as
an additional insured therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall
obtain and keep in force a policy or policies in the name of Lessor, with loss
payable to Lessor and to any Lender insuring loss or damage to the Premises.
The amount of such insurance shall be equal to the full replacement cost of the
Premises, as the same shall exist from time to time, or the amount required by
any Lenders, but in no event more than the commercially reasonable and
available insurable value thereof. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations, Trade Fixtures, and
Lessee's personal property shall be insured by Lessee under Paragraph 8.4
rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for debris removal and the
enforcement of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to
where the Premises are located. If such insurance coverage has a deductible
clause, the deductible amount shall not exceed $1,000 per occurrence, and
Lessee shall be liable for such deductible amount in the event of an Insured
Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep
in force a policy or policies in the name of Lessor with loss payable to Lessor
and any Lender, insuring the loss of the full Rent for one (1) year. Said
insurance shall provide that in the event the Lease is terminated by reason of
an insured loss, the period of indemnity for such coverage shall be extended
beyond the date of the completion of repairs or replacement of the Premises, to
provide for one full year's loss of Rent from the date of any such loss. Said
insurance shall contain an agreed valuation provision in lieu of any
coinsurance clause, and the amount of coverage shall be adjusted annually to
reflect the projected Rent otherwise payable by Lessee, for the next twelve
(12) month period. Lessee shall be liable for any deductible amount in the
event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to the
Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain
insurance coverage on all of Lessee's personal property, Trade Fixtures, and
Lessee Owned Alterations and Utility Installations. Such insurance shall be
full replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property, Trade Fixtures and Lessee Owned
Alterations and Utility Installations. Lessee shall provide Lessor with written
evidence that such insurance is in force.
(b) BUSINESS INTERRUPTION. If reasonably available, and if
Lessor requests Lessee to do so in writing, Lessee shall obtain and maintain
loss of income and extra expense insurance in amounts as will reimburse Lessee
for direct or indirect loss of earnings attributable to all perils commonly
insured against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders rating" of at least B+, V, as set forth in the most current issue
of "Best's Insurance Guide", or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Start Date, deliver to
Lessor certified copies of policies of such insurance or certificates
evidencing the existence and amounts of the required insurance. No such policy
shall be cancelable or subject to modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 INDEMNITY. Except for Lessor's sole negligence, Lessee shall
indemnify, protect, defend and hold harmless the Premises, Lessor and its
agents, Lessor's master or ground lessor, partners and Lenders, from and
against any and all claims, loss of rents and/or damages, liens, judgments,
penalties, attorneys' and consultants' fees, expenses and/or liabilities
arising out of, involving, or in connection with, the use and/or occupancy of
the Premises by Lessee. If any action or proceeding is brought against lessor
by reason of any of the foregoing matters, Lessee shall upon notice defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or
any other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, HVAC or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, which can reasonably be repaired in six (6) months or
less from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as
to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility Installations,
which cannot reasonably be repaired in six (6) months from the date of the
damage or destruction. Lessor shall notify Lessee in writing within thirty (30)
days from the date of the damage or destruction as to whether or not the damage
is Partial or Total.
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(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence
or discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total cost
to repair of which is $10,000 or less, and, in such event, Lessor shall make
any applicable insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was not
in force or the insurance proceeds are not sufficient to effect such repair,
the Insuring Party shall promptly contribute the shortage in proceeds (except
as to the deductible which is Lessee's responsibility) as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (i) make
such restoration and repair as is commercially reasonable with Lessor paying
any shortage in proceeds, in which case this Lease shall remain in full force
and effect, or have this Lease terminate thirty (30) days thereafter. Lessee
shall not be entitled to reimbursement of any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be
some insurance coverage, but the net proceeds of any such insurance shall be
made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee
shall have the right within ten (10) days after receipt of the termination
notice to give written notice to Lessor of Lessee's commitment to pay for the
repair of such damage without reimbursement from Lessor. Lessee shall provide
Lessor with said funds or satisfactory assurance thereof within thirty (30)
days after making such commitment. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such repairs as soon as
reasonably possible after the required funds are available. If Lessee does not
make the required commitment, this Lease shall terminate as of the date
specified in the termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right
to recover Lessor's damages from Lessee except as provided in Paragraph 8.6.
See Addendum II Item 5.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six
(6) months of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate
this Lease effective sixty (60) days following the date of occurrence of such
damage by giving a written termination notice to Lessee within thirty (30) days
after the date of occurrence of such damage. Notwithstanding the foregoing, if
Lessee at that time has an exercisable option to extend this Lease or to
purchase the Premises, then Lessee may preserve this Lease by, (a) exercising
such option and (b) providing Lessor with any shortage in insurance proceeds
(or adequate assurance thereof) needed to make the repairs on or before the
earlier of (i) the date which is ten days after Lessee's receipt of Lessor's
written notice purporting to terminate this Lease, or (ii) the day prior to the
date upon which such option expires. If Lessee duly exercises such option
during such period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
commercially reasonable expense, repair such damage as soon as reasonably
possible and this Lease shall continue in full force and effect. If Lessee
fails to exercise such option and provide such funds or assurance during such
period, then this Lease shall terminate on the date specified in the
termination notice and Lessee's option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, but not to exceed the proceeds received from the Rental Value
Insurance. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or
restore the Premises and does not commence, in a substantial and meaningful
way, such repair or restoration within ninety (90) days after such obligation
shall accrue, Lessee may, at any time prior to the commencement of such repair
or restoration, give written notice to Lessor and to any Lenders of which
Lessee has actual notice, of Lessee's election to terminate this Lease on a
date not less than sixty (60) days following the giving of such notice. If
Lessee gives such notice and such repair or restoration is not commenced within
thirty (30) days thereafter, this Lease shall terminate as of the date
specified in said notice. If the repair or restoration is commenced within said
thirty (30) days, this Lease shall continue in full force and effect.
"COMMENCE" shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions
of any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including but not limited to, a change in the ownership
of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or
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termination of this Lease, Lessee's share of such taxes shall be prorated to
cover only that portion of the tax bill applicable to the period that this Lease
is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee
shall fail to pay any required Real Property Taxes, Lessor shall have the right
to pay the same, and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge
on any Rent payment, Lessor may, at Lessor's option, estimate the current Real
Property Taxes, and require that such taxes be paid in advance to Lessor by
Lessee, either: (i) in a lump sum amount equal to the installment due, at least
twenty (20) days prior to the applicable delinquency date, or (ii) monthly in
advance with the payment of the Base Rent. If Lessor elects to require payment
monthly in advance, the monthly payment shall be an amount equal to the amount
of the estimated installment of taxes divided by the number of months remaining
before the month in which said installment becomes delinquent. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payments shall be adjusted as required to provide the funds needed to
pay the applicable taxes. If the amount collected by Lessor is insufficient to
pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand,
such additional sums as are necessary to pay such obligations. All moneys paid
to Lessor under this Paragraph may be intermingled with other moneys of Lessor
and shall not bear interest. In the event of a Breach by Lessee in the
performance of its obligations under this Lease, then any balance of funds paid
to Lessor under the provisions of this Paragraph may at the option of Lessor,
be treated as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to
delinquency, all taxes assessed against and levied upon Lessee Owned
Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and
all personal property of Lessee. When possible, Lessee shall cause such
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee's property
within ten (10) days after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT")
or sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent which Lessor shall not unreasonably
withhold.
(d) An assignment or subletting without consent shall, at
Lessor's option, be a Default durable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a noncurable
Breach, Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30)
days written notice, increase the monthly Base Rent to one hundred ten percent
(110%) of the Base Rent then in effect. Further, in the event of such Breach
and rental adjustment, (i) the purchase price of any option to purchase the
Premises held by Lessee shall be subject to similar adjustment to one hundred
ten percent (110%) of the price previously in effect, and (ii) all fixed and
non-fixed rental adjustments scheduled during the remainder of the Lease term
shall be increased to One Hundred Ten Percent (110%) of the scheduled adjusted
rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not: (i) be effective without the express written assumption
by such assignee or sublessee of the obligations of Lessee under this Lease,
(ii) release lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any
other obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises, if
any, together with a fee of $1,000 or ten percent (10%) of the current monthly
Base Rent applicable to the portion of the Premises which is the subject of the
proposed assignment or sublease, whichever is greater, as consideration for
Lessor's considering and processing said request. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed
to have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lease
during the term of said assignment or sublease, other than such obligations as
are contrary to or inconsistent with provisions of an assignment or sublease to
which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent payable on any sublease, and Lessor may collect
such Rent and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach shall occur in the performance of
Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by reason
of the foregoing or any assignment of such sublease, nor by reason of the
collection of Rent, be deemed liable to the sublessee for any failure of Lessee
to perform and comply with any of Lessee's obligations to such sublessee.
Lessee hereby irrevocably authorizes and directs any such sublessee, upon
receipt of a written notice from Lessor stating that a Breach exists in the
performance of Lessee's obligations under this Lease, to pay to Lessor all Rent
due and to become due under the sublease. Sublease shall rely upon any such
notice from Lessor and shall pay all Rents to Lessor without any obligation or
right to inquire as to whether such Breach exists, notwithstanding any claim
from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its
option, require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any prior Defaults or Breaches
of such sublessor.
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(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublease shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
rules under this Lease. A "BREACH" is defined as the occurrence of one or more
of the following Defaults, and the failure of Lessee to cure such Default
within any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or where
the coverage of the property insurance described in Paragraph 8.3 is jeopardized
as a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any
other monetary payment required to be made by Lessee hereunder, whether to
Lessor or to a third party, when due, to provide reasonable evidence of
insurance or surety bond, or to fulfill any obligation under this Lease which
endangers or threatens life or property, where such failure continues for a
period of three (3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service
contracts, (iii) the rescission of an unauthorized assignment or subletting,
(iv) a Tenancy Statement, (v) a requested subordination, (vi) evidence
concerning any guaranty and/or Guarantor, (vii) any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information
which Lessor may reasonably require of Lessee under the terms of this Lease,
where any such failure continues for a period of ten (10) days following
written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more
than thirty (30) days are reasonably required for its cure, then it shall not
be deemed to be a Breach if Lessee commences such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making of any general arrangement or assignment for the benefit of creditors;
(ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee
or receiver to take possession of substantially all of Lessee's assets located
at the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution
or other judicial seizure of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or of
any Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis, and Lessee's failure, within sixty (60) days following
written notice of any such event, to provide written alternative assurance or
security, which, when coupled with the then existing resources of Lessee,
equals or exceeds the combined financial resources of Lessee and the Guarantors
that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative
duties or obligations, within ten (10) days after written notice (or in case of
an emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses,
permits or approvals. The costs and expenses of any such performance by Lessor
shall be due and payable by Lessee upon receipt of invoice therefor. If any
check given to Lessor by Lessee shall not be honored by the bank upon which it
is drawn, Lessor, at its option, may require all future payments to be made by
Lessee to be by cashier's check. In the event of a Breach, Lessor may, with or
without further notice or demand, and without limiting Lessor in the exercise
of any right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rentals loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the
right to recover in such proceeding any unpaid Rent and damages as are
recoverable therein, or Lessor may reserve the right to recover all or any part
thereof in a separate suit. If a notice and grace period required under
Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to
perform or quit given to Lessee under the unlawful detainer statute shall also
constitute the notice required by Paragraph 13.1. In such case, the applicable
grace period required by Paragraph 13.1 and the unlawful detainer statute shall
run concurrently, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance, efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under
the laws or judicial decisions of the state wherein the Premises are located.
The expiration or termination of this Lease and/or the termination of Lessee's
right to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or
other charges, or for the giving or paying by Lessor to or for Lessee of any
cash or other bonus, inducement or consideration for Lessee's entering into this
Lease, all of which concessions are hereinafter referred to as "INDUCEMENT
PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful
performance of all of the terms, covenants and conditions of this Lease. Upon
Breach of this Lease by Lessee, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an Inducement Provision
shall be immediately due and payable by Lessee to Lessor, notwithstanding any
subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or
the cure of the Breach which initiated the operation of this paragraph shall not
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be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any
Rent shall not be received by Lessor within ten (10) days after such amount
shall be due, then, without any requirement for notice to Lessee, Lessee shall
pay to Lessor a one-time late charge equal to ten percent (10%) of each such
overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason of such
late payment. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent the exercise of any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) consecutive installments of Base Rent,
then notwithstanding any provision of this Lease to the contrary, Base Rent
shall, at Lessor's option, become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor within thirty (30) days following the date
on which it was due, shall bear interest from the thirty-first (31st) day after
it was due. The interest ("INTEREST") charged shall be equal to the prime rate
charged by the largest state chartered bank in the state in which the Premises
are located plus 4%, but shall not exceed the maximum rate allowed by law.
Interest is payable in addition to the potential late charge provided for in
Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an
obligation required to be performed by Lessor. For purposes of this Paragraph,
a reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and any Lender whose name and address shall have been furnished
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days are
reasonably required for its performance, then Lessor shall not be in breach if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event
that neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (collectively "CONDEMNATION"), this Lease shall terminate as to the part
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building, or more
than twenty-five percent (25%) of the land area not occupied by any building,
is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in
writing within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease
shall remain in full force and effect as to the portion of the Premises
remaining, except that the Base Rent shall be reduced in proportion to the
reduction in utility of the Premises caused by such Condemnation. Condemnation
awards and/or payments shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold, the
value of the part taken, or for severance damages; provided, however, that
Lessee shall be entitled to any compensation for Lessee's relocation expenses,
loss of business goodwill and/or Trade Fixtures, without regard to whether or
not this Lease is terminated pursuant to the provisions of this Paragraph. All
Alterations and Utility Installations made to the Premises by Lessee, for
purposes of Condemnation only, shall be considered the property of the Lessee
and Lessee shall be entitled to any and all compensation which is payable
therefor. In the event that this Lease is not terminated by reason of the
Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. BROKER'S FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed
pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise
agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b)
if Lessee acquires any rights to the Premises or other premises owned by Lessor
and located within the same Project, if any, within which the Premises is
located, (c) if Lessee remains in possession of the Premises, with the consent
of Lessor, after the expiration of this Lease, or (d) if Base Rent is
increased, whether by agreement or operation of an escalation clause herein,
then, Lessor shall pay Brokers a fee in accordance with the schedule of said
Brokers in effect at the time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue Interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee
and Lessor each represent and warrant to the other that it has had no dealings
with any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorney's fees reasonably incurred with respect thereto.
16. TENANCY STATEMENT/ESTOPPEL CERTIFICATE.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party an estoppel certificate in
writing, in form similar to the then most current "TENANCY STATEMENT" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises,
or any part thereof, Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the Lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor. Except as provided in
Paragraph 15, upon such transfer or assignment and delivery of the Security
Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with
respect to the obligations and/or covenants under this Lease thereafter to be
performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only
upon the Lessor as hereinabove defined. Notwithstanding the above, the original
Lessor under this Lease, and all subsequent holders of the Lessor's interest in
this Lease shall remain liable and responsible with regard to the potential
duties and liabilities of Lessor pertaining to Hazardous Substances as outlined
in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
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19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Except with respect to Lessor's fraud, gross
negligence or willful misconduct, the obligations of Lessor under this Lease
shall not constitute personal obligations of Lessor, the individual partners of
Lessor or its or their individual partners, directors, officers or
shareholders, and Lessee shall look to the Premises, and to no other assets of
Lessor, for the satisfaction of any liability of Lessor with respect to this
Lease, and shall not seek recourse against the individual partners of Lessor,
or its or their individual partners, directors, officers or shareholders, or
any of their personal assets for such satisfaction. See Addendum II Item 60.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises. Brokers
have no responsibility with respect thereto or with respect to any default or
breach hereof by either Party. The liability (including court costs and
Attorneys' fees), of any Broker with respect to negotiation, execution,
delivery or performance by either Lessor or Lessee under this Lease or any
amendment or modification hereto shall be limited to an amount up to the fee
received by such Broker pursuant to this Lease; provided, however, that the
foregoing limitation on each Broker's liability shall not be applicable to any
gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
courier) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notices. Either Party
may by written notice to the other specify a different address for notice,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice. A copy of all notices to Lessor shall
be concurrently transmitted to such party or parties at such addresses as
Lessor may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is shown, the postmark
thereon. If sent by regular mail the notice shall be deemed given forty-eight
(48) hours after the same is addressed as required herein and mailed with
postage prepaid. Notices delivered by United States Express Mail or overnight
courier that guarantee next day delivery shall be deemed given twenty-four (24)
hours after delivery of the same to the Postal Service or courier. Notices
transmitted by facsimile transmission or similar means shall be deemed
delivered upon telephone confirmation of receipt, provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday or
legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor
at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this
Lease. In the event that Lessee holds over, then the Base Rent shall be
increased to one hundred fifty percent (150%) of the Base rent applicable during
the month immediately preceding the expiration or termination. Nothing
contained herein shall be construed as consent by Lessor to any holding over by
Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. The Lease shall not be construed as if prepared by one of the
parties, but rather according to its fair meaning as a whole, as if both
parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now
or hereafter placed upon the Premises, to any and all advances made on the
security thereof, and to all renewals, modifications, and extensions thereof.
Lessee agrees that the holders of any such Security Devices shall have no
liability or obligation to perform any of the obligations of Lessor under this
Lease. Any Lender may elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device by giving written notice thereof to
Lessee, this Lease and such Options shall be deemed prior to such Security
Device, notwithstanding the relative dates of the documentation or recordation
thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership; (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or (iii)
be bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with
a sale, financing or refinancing of the Premises, Lessee and Lessor shall
execute such further writings as may be reasonably required to separately
document any subordination, attornment and/or Non-Disturbance Agreement
provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) in any such proceeding, action, or appeal thereon, shall
be entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or
Initials /s/
-----------
FORM 204N-R-6/96
PAGE 10
<PAGE> 11
judgment. The term, "PREVAILING PARTY" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorneys' fees award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. In addition,
Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises as Lessor may
deem necessary. All such activities shall be without abatement of rent or
liability to Lessee. Lessor may at any time place on the Premises any ordinary
"FOR SALE" signs and Lessor may during the last six (6) months of the term
hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any
time place on or about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, that Lessor may elect to continue any one
or all existing subtenancies. Lessor's failure within ten (10) days following
any such event to elect to the contrary by written notice to the holder of any
such lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys, engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent
shall not preclude the imposition by Lessor at the time of consent of such
further or other conditions as are then reasonable with reference to the
particular matter for which consent is being given. In the event that either
Party disagrees with any determination made by the other hereunder and
reasonably requests the reasons for such determination, the determining party
shall furnish its reasons in writing and in reasonable detail within ten (10)
business days following such request.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term thereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to
lease either the Premises or other property of Lessor; (c) the right to
purchase or the right of first refusal to purchase the Premises or other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee, and cannot be assigned
or exercised by anyone other than said original Lessee and only while the
original Lessee is in full possession of the Premises and, if requested by
Lessor, with Lessee certifying that Lessee has no intention of thereafter
assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised
unless the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option:
(i) during the period commencing with the giving of any notice of Default and
continuing until said Default is cured, (ii) during the period of time any Rent
is unpaid (without regard to whether notice thereof is given Lessee),
(iii) during the time Lessee is in Breach of this Lease, or (iv) in the event
that Lessee has been given three (3) or more notices of Default, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise
an Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term,
(i) Lessee fails to pay Rent for a period of thirty (30) days after such Rent
becomes due (without any necessity of Lessor to give notice thereof),
(ii) Lessor gives to Lessee three (3) or more notices of separate Default
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property form the acts of
third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
Initials /s/
------------
FORM 204N-R-6/96
PAGE 11
<PAGE> 12
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this lease [ ] is [X] is not attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION
OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C> <C> <C>
Executed at: 10/11/96 Westlake Village Executed at: Chatsworth, California
on: on: October 10, 1996
By LESSOR: By LESSEE:
Nordoff Development, a General Partnership MRV Communications, a Delaware Corporation
By: /s/ GERALD R. PELTON By: /s/ ZEEV RAV-NOY
Name Printed: Gerald R. Pelton Name Printed: Zeev-Rav-Noy
Title: General Partner Title: Chief Operating Officer and Director
By: By:
Name Printed: Name Printed:
Title: General Partner Title:
Address: 18344 Oxnard Street, Suite 200 Address: 8943 Fullbright Avenue
Tarzana, CA 91356 Chatsworth, CA 91311
Telephone: (818) 881-3304 Telephone: (818) 773-9044 x 238
Facsimile: (818) 881-5605 Facsimile: (818) 407-5656
Federal ID No. Federal ID No.
BROKER: BROKER:
Executed at: Westlake Village Executed at: Westlake Village
on: 10/11/96 on: 10/11/96
By: /s/ Bennett Robinson By: /s/ Bennett Robinson
Title: Vice President Title: Vice President
Address: 15301 Ventura Boulevard, #120 Address: 15301 Ventura Boulevard, #120
Sherman Oaks, CA 91403 Sherman Oaks, California 91403
Telephone: (818) 907-4608 Telephone: (818) 907-4608
Facsimile: (818) 907-4688 Facsimile: (818) 907-4688
Federal ID No. Federal ID No.
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower
Street, Suite 600, Los Angeles, California 90017. (213) 687-8777. Fax No. (213)
687-8616.
FORM 204N-R-6/96
(C) Copyright 1996 -- By American Industrial Real Estate Association. All
rights reserved. No part of these works may be reproduced in any form without
permission in writing.
<PAGE> 13
ADDENDUM TO STANDARD PROPOSAL TO LEASE DATED OCTOBER 3, 1996 BY MRV
COMMUNICATIONS, AS LESSEE, FOR THE PROPERTY COMMONLY KNOWN AS 20415 NORDHOFF
STREET, CHATSWORTH, CALIFORNIA
- -----------------------------------------------------------------------------
50. CONDITION OF PROPERTY:
---------------------
I. Tenant Improvements at Tenant's Expense
A. Lessor shall construct, at Lessee's sole cost and
expense, the following tenant improvements prior to
November 8, 1996 (See Exhibit A). Lessor will install
tenant improvements at Lessor's cost plus 15%. Lessor's
cost of these improvements is outlined below (prices
include Lessor's 15%). Lessor will attempt to reduce
these costs. However, the short time frame available has
to be taken into consideration.
1. Install ninety-four (94) 2'x 4' fluorescent light
fixtures in T-Bar ceiling -- $10,235.
2. Install a drop T-Bar ceiling in the warehouse area
-- $7330.
3. Install commercial vinyl tile on the entire ground
floor, including warehouse -- $13,710.
4. Add one (1) restroom on the ground floor consisting
of two toilets, two sinks, and two urinals in the
storage area just west of existing restrooms --
$9,200.
5. Install an additional 3 ton air-conditioning unit
for "Burn in Room" below storage mezzanine. Install
HVAC duct work throughout warehouse area -- $9,660.
6. Frame out and drywall area above storage mezzanine
-- $2,300.
B. Notwithstanding the foregoing, Lessee shall have the
right to present to Lessor alternative lower bids from
contractors for any of the foregoing tenant
improvements. Upon such presentation, Lessor and Lessee
shall mutually determine the viability of allowing the
alternative contractor to proceed with tenant
improvements, provided that acceptance of the
alternative contractor will not interfere with delivery
of the Premises to Lessee on November 8, 1996.
C. Total cost of all tenant improvements outlined above is
$52,435. Lessee shall pay the total cost to lessor in
the following manner. Lessee's prompt payment is
imperative to assure delivery of the Premises on time.
Should Lessee fail to make payments as outlined, Lessor
shall be entitled to $260 for each day Lessee is
delinquent in making payments.
1. Lessee shall pay and hand deliver by 12:00 noon,
at Lessor's notice address, to Lessor on or before
October 14, 1996 -- $15,700.
2. Lessee shall pay and hand delivery by 12:00 noon,
at Lessor's notice address, to Lessor on or before
October 25, 1996 -- $15,700.
3. Lessee shall pay and hand delivery by 12:00 noon,
at Lessor's notice address, to Lessor on or before
November 8, 1996 -- $15,700.
4. Lessee shall pay and hand delivery by 12:00 noon,
at Lessor's notice address, to Lessor on or before
November 22, 1996 -- $5,335 as final payment for
the satisfactory completion of all tenant
improvements outlined above.
II. Tenant Improvements at Lessor's Expense.
Lessor shall construct, at Lessor's sole cost and expense the following
tenant improvements prior to November 8, 1996 (see Exhibit A).
1. Remove wall as shown on Exhibit A to create one large room under
storage mezzanine.
2. Remove the cyclone fence in the warehouse area.
3. Open up the wall between the lab and the lunch room and fill in
floor gap with vinyl tile.
4. Repair kitchen cabinet doors so that they hang properly.
5. Paint downstairs offices and warehouse area.
6. Repair the stucco area which is damaged near the loading door.
7. Paint personnel door (both sides) by loading door.
Initials _______
<PAGE> 14
ADDENDUM TO STANDARD PROPOSAL TO LEASE DATED OCTOBER 3, 1996 BY MRV
COMMUNICATIONS, AS LESSEE, FOR THE PROPERTY COMMONLY KNOWN AS 20415 NORDHOFF
STREET, CHATSWORTH, CALIFORNIA
- -----------------------------------------------------------------------------
8. Paint upstairs office and clean carpet.
9. Remove all obstructions in warehouse area, including hoods,
ducting, etc.
III. Notwithstanding anything to the contrary in this Lease, if tenant
improvements are not completed by November 8, 1996 through no fault of Lessee
or force majeure then Lessee may elect not to occupy and pay rent until January
1, 1997. The delivery of the Premises by November 8, 1996 is not contingent on
the completion of the bathrooms. However, Lessor shall make its best efforts to
complete the bathrooms at the earliest possible date. It is clearly understood
that if Lessee elects to occupy any time, that the rent shall then commence.
51. TENANT IMPROVEMENTS:
All tenant improvements in Paragraph 50 shall comply with the Uniform
Building Code (UBC) and shall be completed without building permits.
52. PROPERTY TAXES:
Notwithstanding any language to the contrary in this lease document,
the Lessee shall not be responsible for any real property tax increase resulting
from the sale, transfer or conveyance of the Premises.
53. PARKING:
Lessee shall have the right to park on the site immediately upon the
execution of leases.
54. BASE RENT SCHEDULE:
Term Monthly Base Rent
November 8, 1996-November 30, 1996 $6,056,69
December 1, 1996-December 31, 1997 $7,900.00
January 1, 1998-January 31, 1998 $8,098.28
February 1, 1998-March 31, 1999 $8,156.00
55. FORCE MAJEURE:
Any prevention, delay or stoppage of work to be performed by Lessor or
Lessee which is due to strikes, labor disputes, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder,
shall excuse performance of the work by that party for a period equal to the
duration of that prevention, delay or stoppage. Nothing in this Paragraph 55
shall excuse or delay Lessee's obligation to pay rent or other charges under
this Lease.
56. OPTION TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this
Lease for one additional 36 month period commencing when the prior term expires
upon each and all of the following terms and conditions:
(i) Lessee notifies Lessor no earlier than July 1, 1998 and no later than
October 1, 1998 by certified mail of the exercise of the option to extend this
Lease for said additional 36 month period, time being of essence. If
notification of the exercise of option is not so given and received, the option
shall automatically expire.
(ii) The provisions of paragraph 39, including the provision relating to
default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease, except where
specifically modified by this option, shall apply;
(iv) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below:
<PAGE> 15
ADDENDUM TO STANDARD PROPOSAL TO LEASE DATED OCTOBER 3, 1996 BY MRV
COMMUNICATIONS, AS LESSEE, FOR THE PROPERTY COMMONLY KNOWN AS 20415 NORDHOFF
STREET, CHATSWORTH, CALIFORNIA
- -----------------------------------------------------------------------------
56. CONTINUED:
(a) On April 1, 1999, April 1, 2000 and April 1, 2001, the
monthly rent payable under paragraph 1.5 of the Lease shall be adjusted
by the increase, from the date this Lease commenced, in the Consumer
Price Index of the Bureau of Labor Statistics of the U.S. Department of
Labor for Urban Wage Earners and Clerical Workers, West Urban, Sized
(1967=100), "All terms", herein referred to as "C.P.I." In no event
shall said increase be greater than seven (7%) percent per annum nor
less than three (3%) percent per annum.
(b) The monthly base rent payable in accordance with paragraph
(a) shall be calculated as follows: the rent payable for the first full
month of the term of this Lease ($7,900), shall be multiplied by a
fraction the numerator of which shall be the C.P.I. of the calender
month during which the adjustment is to take effect and the denominator
of which shall be the C.P.I. of the calender month in which the original
Lease term commences. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall the monthly rent for
April 1999 be less than $8,374.00.
(c) Pending receipt of the required C.P.I. and the determination
of the actual adjustment, Lessee shall pay an estimated adjusted rental,
as reasonably determined by Lessor by reference to the available C.P.I.
information. Upon notification of the actual adjustment after
publication of the required C.P.I. any overpayment shall be credited
against the next installment of rent due, and any underpayment shall be
immediately due and payable by Lessee. Lessor's failure to request
payment of an estimated or actual rent adjustment shall not constitute a
waiver of the right to any adjustment provided for in the Lease or this
addendum.
(d) in the event the compilation and/or publication of the
C.P.I. shall be transferred to any other governmental department or
bureau or agency or shall be discontinued, then the index most nearly
the same as the C.P.I. shall be used to make such calculation. In the
event that Lessor and Lessee cannot agree on such alternative index,
then the matter shall be submitted for decision to the American
Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon
the parties. The cost of said Arbitrators shall be paid equally by
Lessor and Lessee.
CONSULT YOUR ATTORNEY/ADVISORS - This document has been prepared for approval
by your attorney. No representation or recommendation is made by CB Commercial
Real Estate Group, Inc. or the American Industrial Real Estate Association
(A.I.R.) or the agents or employees of this document or the transaction to
which it relates. These are questions for your attorney.
On any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
In addition, please be advised that an Owner or Tenant of real property may be
subject to the Americans with Disabilities Act (the ADA), a Federal law
codified at 42 USC Section 12101 et seq. Among other requirements of the ADA
that could apply to your property, Title III of the ADA requires Owners and
Tenants of "public accommodations" to remove barriers to access by disabled
persons and provide auxiliary aids and services for hearing, vision or speech
impaired persons by January 26, 1992. The regulations under Title III of the
ADA are codified at 28 CFR Part 36.
CB Commercial recommends that you and your attorney, engineer and/or architect
review the ADA and the regulations, and, if appropriate, your proposed lease
agreement, to determine if this law would apply to you, and the nature of the
requirement.
LESSOR: LESSEE:
By: /s/ GERALD R. PELTON By: /s/ ZEEV RAV-NOY
---------------------------- ------------------------------
Date: 10/11/96 Date: 10/10/96
-------------------------- ----------------------------
<PAGE> 16
ADDENDUM II
ADDENDUM TO STANDARD PROPOSAL TO LEASE DATED OCTOBER 3, 1996 BY MRV
COMMUNICATIONS, AS LESSEE, FOR THE PROPERTY COMMONLY KNOWN AS 20415 NORDHOFF
STREET, CHATSWORTH, CALIFORNIA
- ----------------------------------------------------------------------------
57. Lessee is not responsible for damage to the building due to earthquakes
or other force majeure provided lessee does not do anything which weakens the
structural integrity of the building.
58. The building shall be free and clear of any claims or liens or other
encumbrances that will inhibit the use of the building by the Lessee as
contemplated by this agreement.
59. Item 9.4: please note the following addition: Future monthly rent
obligations shall terminate immediately with total destruction.
60. Item 20. Limitation on Liability. Please note the following additional
sentence: Except with respect to Lessee's fraud, gross negligence or willful
misconduct, the obligations of Lessee under this Lease shall not constitute
personal obligations of the individual partners of Lessee or its or their
individual partners, directors, officers or shareholders for the satisfaction
of any liability of Lessee with respect to this Lease, and shall not seek
recourse against the individual partners of Lessee, or its or their individual
partners, directors, officers or shareholders, or any of their personal assets
for such satisfaction.
CONSULT YOUR ATTORNEY/ADVISORS -- This document has been prepared for approval
by your attorney. No representation or recommendation is made by CB Commercial
Real Estate Group, Inc. or the American Industrial Real Estate Association
(A.I.R.) or the agents or employees of this document or the transaction to
which it relates. These are questions for your attorney.
On any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person
with experience in evaluation the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
In addition, please be advised that an Owner or Tenant of real property may be
subject to the Americans with Disabilities Act (the ADA), a Federal law
codified at 42 USC Section 12101 et seq. Among other requirements of the ADA
that could apply to your property, Title III of the ADA requires Owners and
Tenants of "public accommodations" to remove barriers to access by disabled
persons and provide auxiliary aids and services for hearing, vision or speech
impaired persons by January 26, 1992. The regulations under Title III of the
ADA are codified at 28 CFR Part 36.
CB Commercial recommends that you and your attorney, engineer and/or architect
review the ADA and the regulations, and, if appropriate, your proposed lease
agreement, to determine if this law would apply to you, and the nature of the
requirement.
LESSOR: LESSEE:
By: /s/ GERALD R. PELTON By: /s/ ZEEV RAV-NOY
---------------------------- ------------------------------
Date: 10/11/96 Date: 10/10/96
-------------------------- ----------------------------
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EXHIBIT A
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[EVACUATION
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EXHIBIT A
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[EVACUATION
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[EVACUATION
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EXHIBIT 10.24
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED
FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
NO. __ $___________
5% CONVERTIBLE DEBENTURE DUE AUGUST 6, 1999
THIS CONVERTIBLE DEBENTURE ("Debenture") is one of a duly authorized
issue of Debentures of MRV Communications, Inc., a corporation duly organized
and existing under the laws of the State of Delaware and having its principal
address at 8943 Fullbright Avenue, Chatsworth, California 91311 (the
"Company"), designated as its 5% Convertible Debentures Due August 6, 1999 in
an aggregate principal amount not exceeding ____________________ Dollars (U.S.
$___________) (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to ___________________
having an address at __________________________________, the Holder hereof, or
its order (the "Holder"), the principal sum of __________________________
Dollars (U.S.$__________) on August 6, 1999 (the "Maturity Date") and to pay
interest on the principal sum outstanding under this Debenture ("Outstanding
Principal Amount"), at the rate of 5% per annum due and payable semi-annually
in arrears on the 7th day of February and August of each year (each an
"Interest Payment Date"), with the first such payment due on February 7, 1997.
Accrual of interest shall commence on the first business day to occur after the
date hereof and shall continue until payment in full of the principal sum has
been made. The interest so payable will be paid to the person in whose name
this Debenture is registered on the records of the Company regarding
registration and transfers of the Debentures (the "Debenture Register");
provided, however, that the Company's obligation to a transferee of this
Debenture arises only if such transfer, sale or other disposition is made in
accordance with the terms and conditions of the Convertible Securities
Subscription Agreement dated as of _______________, 1996 between the Company
and the Holder (the "Subscription Agreement"). The principal of and interest
on this Debenture are payable in such coin or currency of the United States of
America as of the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder hereof from time to time,
provided, however, that, in lieu of paying such interest in coin or currency,
the Company may, at its option, pay interest on this Debenture for any Interest
Payment Date by adding the amount of such interest to the Outstanding Principal
Amount due under this Debenture ("PIK Interest") pursuant to a statement in the
form of Exhibit 2 hereto ("PIK Statement") delivered by the Company to the
Holder on or prior to the applicable Interest Payment Date. If the cash
interest due hereunder is not paid to the Holder by the applicable Interest
Payment Date, then the Holder shall be entitled to the addition of PIK Interest
hereunder and to the delivery of a PIK Statement with respect thereto. Any PIK
Interest when so added to the Outstanding Principal Amount due under this
Debenture shall, for all purposes of this Debenture, be deemed to have
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<PAGE> 2
been part of the principal indebtedness originally evidenced by this Debenture
including, without limitation, for purposes of determining interest thereafter
payable hereunder and amounts thereafter convertible into Common Stock
hereunder. Subject to the conversion hereof, in whole or in part, on or before
the Maturity Date pursuant to Paragraph 5 hereof, the Company will pay the
principal of and all accrued and unpaid interest due upon this Debenture on the
Maturity Date, to the Holder of this Debenture as of the tenth (10th) day prior
to the Maturity Date and addressed to such Holder at the last address appearing
on the Debenture Register.
The payment of the principal of, interest on or any other amounts due on this
Debenture will be subordinate in right of payment to the prior payment in full
of any existing bank or institutional debt of the Company or any of its
subsidiaries ( collectively, the "Senior Credit Facility"); provided that the
Senior Credit Facility shall at no time exceed $6,000,000 in the aggregate. No
payment on account of principal of, redemption of, interest on or any other
amounts due on the Debenture, and no redemption, purchase or other acquisition
of the Debenture may be made unless (I) full payment of amounts then due under
the Senior Credit Facility have been made or duly provided for pursuant to the
terms thereof, or (ii) at the time for, or immediately after giving effect to,
any such payment, redemption, purchase or other acquisition, there shall not
exist under the Senior Credit Facility any default by the Company in the
payment of principal and interest due to such thereunder. The obligation of
the Company to effect the conversion of this Debenture and to pay interest in
the form of PIK Interest shall not be limited by the provisions of this
paragraph.
This Debenture is subject to the following additional provisions:
1. Exchange. The Debentures are exchangeable for an equal
aggregate principal amount of Debentures of different denominations, of not
less than $100,000 each as requested by the Holder surrendering the same. No
service charge will be made for such registration or transfer or exchange.
2. Transfers. This Debenture has been issued subject to
investment representations of the original purchaser hereof and may be
transferred or exchanged in the United States only in compliance with the
Securities Act of 1933, as amended (the "Act") and applicable state securities
laws and in accordance with other applicable provisions hereof. Prior to due
presentment for transfer of this Debenture, the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and all other purposes, whether or not this Debenture be overdue, and
the Company shall not be affected by notice to the contrary.
3. Definitions. For purposes hereof the following definitions
shall apply:
"Acquisition Period" shall mean any period beginning on the
date when there shall first be announced publicly a Paragraph 4 Transaction or
any other transaction involving an Equity Offering issued or to be issued in
consideration for the acquisition of one or more other businesses or business
entities by purchase or sale, merger, consolidation or like transaction (an
"Acquisition") and ending 30 trading days after consummation of the
Acquisition.
"Closing Date" shall mean the date of original issuance of the
Debenture.
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"Common Stock" shall mean the Common Stock, par value $0.0034
per share, of the Company.
"Conversion Date Market Price" shall mean, (as set forth in
the schedule below,) an amount that is equal to X%, as set forth in the
schedule below, (the "X Percentage") of the average of the Market Price for
Shares of Common Stock on each of the five trading days immediately preceding
the Holder Conversion Date, subject to adjustment from time to time as set
forth in Paragraph 7 hereof and in Section 6 of the Registration Rights
Agreement.
<TABLE>
<CAPTION>
Conversion Date
(Days from Closing Date) X
------------------------
<S> <C>
0 to 53 100%
54 to 83 88%
83 to 113 87%
114 to 143 86%
144 to 173 85%
174 to 203 84%
204 to 233 83%
234 to 263 82%
264 to 293 81%
294 to Maturity Date 80%
</TABLE>
"Conversion Deficiency" shall have the meaning set forth in
Paragraph 9(b).
"Conversion Notice" shall have the meaning set forth in
Paragraph 5(c).
"Conversion Rate" shall have the meaning set forth in
Paragraph 5(b).
"Equity Offerings" shall mean the issuance or sale by the
Company of any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for the
purchase of its Common Stock or any such convertible securities (other than
shares or options issued or which may be issued pursuant to the Company's
employee or director option plans or shares issued upon exercise of options,
warrants or rights outstanding on the Closing Date and listed in the Exchange
Act Reports).
"Forced Conversion Notice" shall have the meaning set forth in
Paragraph 5(a)(iii).
"Holder Conversion Date" shall have the meaning set forth in
Paragraph 5(c).
"Market Price for Shares of Common Stock" shall mean, except
as hereinafter provided when a Forced Conversion Notice is in effect, the price
of one share of Common Stock determined as follows:
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(I) If the Common Stock is listed on the Exchange
(as defined in the Subscription Agreement), the closing bid price on the date
of valuation;
(ii) If the Common Stock is listed on a national
securities exchange, the closing sales price on the date of valuation;
(iii) If neither (I) nor (ii) apply but the Common
stock is quoted in the over-the-counter market on the pink sheets or bulletin
board, the last reported "bid" price on the date of valuation; and
(iv) If neither clause (I), (ii) or (iii) above
applies, the market value as determined by a nationally recognized investment
banking firm or other nationally recognized financial advisor retained by the
Company for such purpose, taking into consideration, among other factors, the
earnings history, book value and prospects for the Company, and the prices at
which shares of Common Stock recently have been traded. Such determination
shall be conclusive and binding on all persons.
When a Forced Conversion Notice shall be in effect, references
in clauses (I), (ii) and (iii) above to closing or last reported bid or sales
prices shall, in each case, be changed to refer to the lowest sales prices on
the respective dates of valuation.
"Paragraph 4 Transaction" shall mean a merger, consolidation,
or other transaction referred to in Paragraph 4.
"Post-Deficiency Conversion" shall have the meaning set forth
in Paragraph 9(b).
"Redemption Date" shall have the meaning set forth in
Paragraph 6(c).
"Subscription Agreement" shall mean the Convertible Securities
Subscription Agreement dated _______________, 1996, between the Company and the
Subscriber or Subscribers to the original issue of the Debentures and the
Warrants.
"Warrants" shall have the meaning provided in the Subscription
Agreement.
" , 1996 Debentures" shall mean the 5%
Convertible Debentures issued by the Company on ______________, 1996 in the
aggregate principal amount of _______________ Dollars (U.S. $__________).
" , 1996 Debentures" shall mean the 5%
Convertible Debentures issued by the Company on ______________, 1996 in the
aggregate amount of ________________ Dollars (U.S. $___________).
" , 1996 Debentures" shall mean the 5%
Convertible Debentures issued by the Company dated as of ____________ , 1996,
1996 in the aggregate principal amount of _______________________ Dollars (U.S.
$_________).
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<PAGE> 5
Other terms defined in the Subscription Agreement or in the
Warrant or Registration Rights Agreement referred to therein and not otherwise
defined herein shall have the same meaning herein as they do in such other
instrument.
4. Merger, Consolidation. If at any time there occurs any
consolidation or merger of the Company with or into any other corporation or
other entity or person (whether or not the Company is the surviving
corporation) or any other corporate reorganization or transaction or series of
related transactions, in any of which in excess of 50% of the Company's voting
power is transferred (a "Paragraph 4 Transaction"), the Holders of this
Debenture, to the extent then outstanding and notwithstanding anything in
Paragraph 5(a) to the contrary, shall participate in any such transaction as a
class with common stockholders of the Company on the same basis as if this
Debenture had been converted one day prior the record date or effective date of
such transaction, as applicable, provided, however, that if a Paragraph 4
Transaction or the record date for determination of the Company's stockholders
entitled to participate in such Transaction shall occur at any time before the
first anniversary of the effectiveness of the Registration Statement
contemplated by the Registration Rights Agreement, both of which are referred
to in the Subscription Agreement, then, at the option of the Holder of this
Debenture, such Holder may treat the effective date of such Paragraph 4
Transaction as a Redemption Date and shall be entitled to receive the
redemption price with respect to such Redemption Date as is provided in
Paragraph 9(b). Such Holder shall be entitled to make such election at any
time up to ten (10) trading days after the effective date of the Paragraph 4
Transaction. Nothing in this Section 4 shall prohibit the Holder from
converting any part or all of this Debenture in accordance with the terms
hereof, up to and including the effective time and date of the Paragraph 4
Transaction.
5. Conversion. This Debenture is subject to conversion as
follows:
(a) (I) Holder's Right to Convert. This Debenture shall
be convertible at any time and from time to time, in whole or in part, at the
option of the Holder hereof, into fully paid, validly issued and nonassessable
shares of Common Stock.
(ii) Automatic Conversion. At maturity of this
Debenture, the principal indebtedness then outstanding hereunder (including
without limitation all PIK Interest then included therein) shall automatically
be converted into fully paid, validly issued and nonassessable shares of Common
Stock and, except for the Holder's right to receive the Common Stock into which
this Debenture is automatically so converted and except for any portion of this
Debenture which cannot be so converted by reason of the limitations provided or
referred to in Paragraphs 5(d) and 9(b) hereof, this Debenture shall be deemed
to have been canceled whether or not surrendered upon such automatic
conversion.
(iii) Forced Conversion. From and after the business
day following the conversion of the August 7, 1996 Debentures in their
entirety, but only for so long as the Registration Statement remains effective,
subject to section 5 (d) hereof, the Company may require the Holder to convert
any part or all of the principal indebtedness then outstanding hereunder into
fully paid, validly issued and nonassessable shares of Common Stock. The
Company shall notify the Holder of each such requirement by written notice (a
"Forced Conversion Notice") given to and received by the Holder at least 30
business days prior to the
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date of such Forced Conversion specified in such notice. Prior to such date of
Forced Conversion, the Holder may, pursuant to Section 5(a)(I) hereof, convert
the principal indebtedness covered by such Forced Conversion Notice and/or any
part or all of any other principal indebtedness then outstanding hereunder.
Notwithstanding anything herein to the contrary, during any Acquisition Period,
the Company may not issue a Forced Conversion Notice or require a Forced
Conversion, and any Forced Notice pending and outstanding at the beginning of
an Acquisition Period shall be null and void and without further force or
effect.
(iv) Accrued But Unpaid Interest. Notwithstanding
anything in this Debenture to the contrary, the conversion of any part or all
of the Outstanding Principal Amount of this Debenture shall include, without
limitation, the conversion of all the accrued but unpaid interest on the
Outstanding Principal Amount so converted.
(b) Conversion Price for Holder Converted Shares. The
Outstanding Principal Amount of this Debenture that is converted into shares of
Common Stock shall be convertible into the number of shares of Common Stock
which results from application of the following formula:
P + I
----------------------------
Conversion Date Market Price
P = principal amount of this Debenture submitted for conversion
I = accrued but unpaid interest on P as of the Holder Conversion Date
The number of shares of Common Stock into which the
Outstanding Principal Amount of this Debenture, and interest accrued thereon,
may be converted pursuant to this paragraph is hereafter referred to the
"Conversion Rate."
(C) Mechanics of Conversion. In order to convert this
Debenture (in whole or in part) into full shares of Common Stock, the Holder
shall surrender this Debenture, duly endorsed, by either overnight courier or
2-day courier, to the principal office of the Company, and, in case of such
conversion pursuant to Section 5(a)(I), shall give written notice in the form
of Exhibit 1 hereto (the "Conversion Notice") by facsimile (with the original
of such notice forwarded with the foregoing courier) to the Company at such
office that the Holder elects to convert the principal amount specified
therein, which such notice and election shall be irrevocable by the Holder;
provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of the Common Stock issuable upon such
conversion unless either the Debenture evidencing the principal amount is
delivered to the Company as provided above, or the Holder notifies the Company
that such Debenture(s) have been lost, stolen or destroyed and promptly
executes an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by its connection with such Debentures; and
provided further that each Conversion Notice shall provide for the Holder's
election to convert either (I) at least $100,000 of the Outstanding Principal
Amount of the Debenture or Debentures so to be converted, or (ii) if such
Outstanding Principal Amount shall then be less than $100,000, the entire
amount thereof.
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<PAGE> 7
Upon receipt of such Conversion Notice, the Company
shall immediately verify the Holder's calculation of the Conversion Rate. In
the case of such Conversion Notice given by the Holder or in the case of
automatic conversion or Forced Conversion pursuant to Paragraph 5(a)(ii) or
(iii), as the case may be, the Company shall use its best efforts to issue and
deliver within two (2) business days after delivery to the Company of such
Debenture(s), or after receipt of such agreement and indemnification, to such
Holder of Debenture(s) at the address of the Holder, or to its designee, a
certificate or certificates for the number of shares of Common Stock to which
the Holder shall be entitled as aforesaid, together with a Debenture or
Debentures for the principal amount of Debentures not submitted for conversion.
The date on which the Conversion Notice or the Forced Conversion Notice is
given (the "Holder Conversion Date") shall be deemed to be the date the Company
received by facsimile the Conversion Notice or gave the Forced Conversion
Notice, as the case may be. The person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Holder Conversion Date or on the Maturity Date, as the case may be.
(d) Limitation in Conversion. Notwithstanding anything
herein contained to the contrary, the number of shares of Common Stock to be
issued pursuant to a Conversion Notice, pursuant to the automatic conversion
provided in Paragraph 5(a)(ii) hereof or pursuant to Forced Conversion Notice
duly given in accordance with Paragraph 5(a)(iii) hereof shall not exceed the
number of such shares which, together with the Common Stock (I) theretofore
issued upon conversion of Debentures and exercise of the Warrants and (ii)
reserved for issuance pursuant to then unexpired and unexercised Warrants,
would exceed 3,943,003 shares of Common Stock, as theretofore adjusted pursuant
to the provisions hereof. If Conversion Notices or Forced Conversion Notices
issued on the same Holder Conversion Date by or to Holders of this and other
Debentures or if the automatic conversion of this and other Debentures would,
in the aggregate, result in the issuance of Common Stock exceeding the
limitation provided in this Paragraph 5(d), then the conversion that would then
be permitted within such limitation shall be made pro rata according to the
number of shares which, but for such limitation, would be issued pursuant to
such Conversion Notices or Forced Conversion Notices or upon such automatic
conversion, as the case may be, or in the case of Forced Conversion Notices,
the Holder may at its option notify the Company of the suspension of the Forced
Conversion pursuant to such Forced Conversion Notice unless and until the same
would no longer so exceed such limitation.
6. Redemption. The Company shall have the following redemption
obligations.
(a) Company's Obligation To Redeem. Any portion of this
Debenture which, at any time on or before the Maturity Date, by reason of the
limitation provided in Paragraph 5(d), cannot be converted shall, at the
Holder's option expressed by notification to the Company (a "Redemption
Notice"), be redeemed by the Company for cash consideration to be paid by the
Company to each Holder of the Debentures being redeemed; provided however, that
if such Redemption Notice, given by the Holder shall not be included in or
accompanied by a Conversion Notice covering all of the Common Stock into which
this Debenture can then be converted, the Company may, by notice to the Holder,
suspend such requested redemption pursuant to this Paragraph 6(a) for a period
of up to 60 calendar days if the Company (I) decides to seek approval of its
stockholders of the issuance pursuant to the conversion of the Debentures of
such
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<PAGE> 8
3,943,003 shares and of such number of shares of its Common Stock in excess
thereof as well as enable their full conversion of all of the Debentures into
Common Stock at all times on or before the Maturity Date in accordance with the
terms thereof other than the limitation provided in Paragraph 6(d), (ii)
pursues such approval with all due diligence during such suspension and (iii)
obtains such approval within such 60 days, and if such approval shall be so
obtained, such Redemption Notice and such limitation shall be of no further
force or effect. In the event at any time less than all the outstanding
Debentures are redeemed, the Company shall redeem from each Holder a pro rata
amount of Debentures based upon the Outstanding Principal Amount of Debentures
held by such Holder in relationship to the aggregate Outstanding Principal
Amount of all Debentures.
(b) Redemption Price. The redemption price for the
portion of this Debenture being redeemed pursuant to Paragraph 6(a) hereof
shall equal the greater of (I) the redemption price determined pursuant to
Paragraph 9(b), and (ii) 110% of the Outstanding Principal Amount of this
Debenture being so redeemed, plus accrued but unpaid interest on such Amount.
(C) Mechanics of Redemption. In the event the Company
shall be required to redeem any part or all of the Outstanding Principal Amount
of the Debentures, the Company shall send by either overnight courier or 2-day
courier (with a copy sent by facsimile) notice of such determination to the
record Holders of the Debentures being redeemed (the "Redemption Debentures").
If the Company shall be required so to redeem less then the Outstanding
Principal Amount of all Debentures, such redemption shall be made from each
Holder, pro rata according to the portion of the total Outstanding Principal
Amount of all Debentures then held by each Holder. The notice shall provide
that the redemption shall occur on a date (the "Redemption Date") that is no
later than 5 business days after the date such notice was sent by confirmed
facsimile to such record Holders. On the Redemption Date the Redemption
Debentures shall be redeemed automatically without any further action by the
Holders of such Debentures and whether or not the Debentures are surrendered to
the Company; provided, that the Company shall be obligated to pay the cash
consideration due to a Holder of such Debentures upon redemption when such
Debentures are either delivered to the principal office of the Company or the
Holder notifies the Company that such Debentures have been lost, stolen or
destroyed and executes an agreement reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection with such
Debenture. Thereupon, there shall be promptly issued and delivered to such
Holder, within three business days after the Redemption Date and delivery to
the Company of such Debentures, or after receipt of such agreement and
indemnification, at the address of such Holder on the books of the Company,
payment in immediately available funds to the name as shown on such surrendered
Debenture in the amount of the redemption price as calculated as set forth in
Paragraph 6(b).
7. Stock Splits: Dividends, Adjustments, Reorganizations.
(a) Stock Splits and Combinations. The Company shall not
effect or fix a record date for any stock split, subdivision or combination
with an effective date within five (5) trading days of a Redemption Date, the
giving of a Conversion or Forced Conversion Notice, or the effective date of a
Paragraph 4 Transaction.
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<PAGE> 9
(b) Certain Dividends and Distribution. The Company
shall not make, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, with an effective date within five (5)
trading days of a Redemption Date, the giving of a Conversion or Forced
Conversion Notice, or the effective date of a Paragraph 4 Transaction.
(C) Adjustment for Other Dividends and Distributions. In
the event the Company at any time or from time to time after the Closing Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company other than shares of Common Stock (including, without limitation,
rights to acquire Common Stock or such other securities), then and in each such
event provision shall be made so that the Holders of Debentures shall receive
upon conversion thereof pursuant to Paragraph 5 hereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount of such other
securities of the Company to which a Holder on the relevant record or payment
date, as applicable, of the number of shares of Common Stock so receivable upon
conversion would have been entitled, plus any dividends or other distributions
which would have been received with respect to such securities had such Holder
thereafter, during the period from the date of such event to and including the
Holder Conversion Date, retained such securities, subject to all other
adjustments called for during such period under this Paragraph 7 with respect
to the rights of the Holders of the Debentures. For purposes of this Paragraph
7(c), the number of shares of Common Stock so receivable upon conversion by the
Holder shall be deemed to be that number which the Holder would have received
upon conversion of the entire Outstanding Principal Amount hereof if the Holder
Conversion Date had been the day preceding the date upon which the Company
announced the making of such dividend or other distribution.
(d) Adjustment for Reclassification, Exchange and
Substitution. In the event that at any time or from time to time after the
Closing Date, the Common Stock issuable upon the conversion of the Debentures
is changed into the same or a different number of shares of any class or
classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend or
reorganization provided for elsewhere in this Paragraph 7 or a merger or
consolidation, provided for in Paragraph 4), then and in each such event each
Holder of Debentures shall have the right thereafter to convert such Debenture
into the kind of stock receivable upon such recapitalization, reclassification
or other change by holders of shares of Common Stock all subject to further
adjustment as provided herein. In such event, the formulae set forth herein
for conversion and redemption shall be equitably adjusted to reflect such
change in number of shares or, if shares of a new class of stock are issued, to
reflect the market price of the class or classes of stock (applying the same
factors used in determining the Market Price for Shares of Common Stock) issued
in connection with the above described transaction.
(e) Reorganizations. If at any time or from time to time
after the Closing Date there is a capital reorganization of the Common Stock
(other than a recapitalization, subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Paragraph 7) then, as a part
of such reorganization, provision shall be made so that the Holders of the
Debentures shall thereafter be entitled to receive upon conversion of the
Debentures the number of shares of stock or other securities or property to
which a holder of the number of shares of
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<PAGE> 10
Common Stock deliverable upon conversion would have been entitled on such
capital reorganization. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Paragraph 7 with respect to the
rights of the Holders of the Debentures after the reorganization to the end
that the provisions of this Paragraph 7 shall be applicable after that event
and be as nearly equivalent as may be practicable, including, by way of
illustration and not limitation, by equitably adjusting the formulae set forth
herein for conversion and redemption to reflect the market price of the
securities or property (applying the same factors used in determining the
Market Price for Shares of Common Stock) issued in connection with the above
described transaction.
(f) Conversion Price Adjustment. In the event that the
Company issues or sells any Common Stock or securities which are convertible
into or exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for the
purchase of its Common Stock or any such convertible securities (other than
issuance of the Warrants and shares of Common Stock pursuant to the exercise
thereof, shares or options issued or which may be issued pursuant to the
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the Closing Date and listed in the
Exchange Act Reports but including, without limitation, any such issuance in a
Paragraph 4 Transaction or other Acquisition) at an effective purchase price
(or for consideration in a Paragraph 4 Transaction, Acquisition or other
transaction) per Common Share which is less than the Conversion Date Market
Price then in effect or the then Market Price For Common Shares, in each such
case each of the X percentages under the definition Conversion Date Market
Price in effect under the Debentures immediately prior to such issue or sale
shall be reduced effective concurrently with such issue or sale to percentages
determined by multiplying each such percentage then in effect by a fraction,
(x) the numerator of which shall be the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issue, including, without
duplication, those deemed to have been issued under any provision of the
Debentures plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would purchase
at such Market Price For Common Shares or Conversion Date Market Price, as the
case may be, then in effect; and (y) the denominator of which shall be the
number of shares of Common Stock of the Company outstanding immediately after
such issue or sale including, without duplication those deemed to have been
issued under any provision of the Debentures. For purposes of the foregoing ,
the amount of consideration received by the Company for any such issuance or
sale, other than Cash, shall be the fair market value thereof as determined by
the Company's Board of Directors , or at the option of the Holder of Debentures
evidencing 50% or more of the principal indebtedness then evidenced thereby, by
an investment banker or other appraiser selected by such Holders and reasonably
acceptable to the Company.
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<PAGE> 11
In the event of any such issuance for a consideration
which is less than the Market Price For Common Shares and also less than the
Conversion Price Market Date then in effect, then there shall be only one such
adjustment to each such X percentage by reason of such issuance, such
adjustment to be that which results in the greatest reduction of each X
percentage computed as aforesaid.
(g) In the event of a reasonable, good faith dispute
between a Holder of Debentures and the Company with respect to the adjustment
required by Paragraph 7(d), 7(e) or 7(f) then, at the option of either the
Holder or the Company, the dispute shall be submitted to the American
Arbitration Association for resolution according to the then applicable rules
thereof. The cost of such proceeding shall be shared 50% by the Holder or
Holders involved in the dispute and 50% by the Company, except that each party
shall bear its own legal and other expenses.
8. Fractional Shares. No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock shall be issuable
hereunder. The number of shares of Common Stock that are issuable upon any
conversion shall be rounded up or down to the nearest whole share.
9. Reservation of Stock Issuable Upon Conversion.
(a) Reservation Requirement. The Company has reserved
and the Company shall continue to reserve and keep available at all times, free
of preemptive rights, shares of Common Stock for the purpose of enabling the
Company to satisfy any obligation to issue shares of its Common Stock upon
conversion of the Debentures or upon exercise of Warrants; provided, however,
that the number of shares so reserved shall at all times be at least 3,943,003
shares, of which _________ shares shall be so reserved, first, for issuance
upon the exercise of any Warrants issued hereunder and any Warrants issued in
connection with the August 7, 1996, Debentures, the August 29, 1996 Debentures
and the September 13, 1996 Debentures second, for issuance upon the conversion
of these Debentures, the August 7, 1996 Debentures, the August 29, 1996
Debentures and the September 13, 1996 Debentures, if and to the extent none or
less than all of the Warrants are so issued or, if issued, expire without
exercise. The number of shares so reserved may be reduced by the number of
shares actually delivered pursuant to conversion of Debentures and exercise of
Warrants (provided that, in no event shall the number of shares so reserved be
less than the maximum number required to satisfy remaining conversion rights on
the unconverted Debentures and remaining exercise rights under any Warrants
issued hereunder) and the number of shares so reserved shall be increased or
decreased proportionally to reflect stock splits, stock dividends,
distributions or subdivisions or combinations of the Company's Common Stock.
(b) Conversion Deficiency. If the Company does not have
a sufficient number of shares of Common Stock available to satisfy the
Company's obligations to a Holder of Debentures upon receipt of a Conversion
Notice, Forced Conversion Notice or automatic conversion on the Maturity Date
or if one or more Debentures cannot be fully converted pursuant to Paragraphs
5(a)(I), (ii) or (iii) by reason of the limitation provided in Section 5(d) (in
either case, a "Conversion Deficiency"), from and after the fifth (5th) day
following a Conversion Deficiency (which for all purposes shall be deemed to
have occurred upon the Company's receipt
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<PAGE> 12
of the applicable Conversion Notice), each Holder of the Debentures shall have
the right to demand from the Company immediate redemption of any portion of the
Debentures with respect to which the Company does not have a sufficient number
of shares available so to satisfy such obligations of the Company or with
respect to which conversion is limited by Paragraph 5(d), as the case may be,
in either case in cash at a redemption price per Debenture equal to the dollar
amount which is the product of (x) the Conversion Rate then applicable to the
Debentures so to be redeemed pursuant to this Paragraph 9(b) and (y) the Market
Price for Shares of Common Stock on the Exchange of the Company's Common Stock
on the date on which the Conversion Notice or Forced Conversion Notice was
delivered or the Maturity Date (in the case of an automatic conversion) occurs;
provided however, that no notice of redemption may be delivered by a Holder
subsequent to receipt by such Holder of notice from the Company (sent by
overnight or 2-day courier with a copy sent by facsimile) of availability of
sufficient shares of Common Stock (within the limitation of Paragraph 5(d)) to
perfect conversion (a "Post Deficiency Conversion") of all the Debentures;
provided further that such right shall be reinstated if the Company shall
thereafter fail to perfect such Post-Deficiency Conversion by delivery of
Common Stock certificates in accordance with the applicable provisions of
Paragraph 5(b) hereof and, to the extent not so converted, payment of all
accrued and unpaid interest in cash with respect thereto within five business
days of delivery of the notice of Post-Deficiency Conversion. In addition to
the foregoing, upon a Conversion Deficiency, the rate of interest on all of the
Debentures shall, to the maximum extent permitted by applicable law, be
increased by two percent (2%) (i.e. from 5% to 7%) commencing on the first day
of the thirty (30) day periods (or part thereof) following a Conversion
Deficiency, an additional three percent (3%) commencing on the first day of
each of the second and third such thirty (30) day period (or part thereof), and
an additional one percent (1%) on the first day of each consecutive thirty (30)
day period (or part thereof) thereafter until such securities have been duly
converted or redeemed as herein provided. Any such interest which is not paid
when due shall, to the maximum extent permitted by law, accrue interest until
paid at the rate from time to time applicable to interest on the Debentures as
to which the Conversion Deficiency has occurred.
10. No Impairing. The Company shall not intentionally take any
action which would impair the contractual rights and privileges of the
Debentures set forth herein or of the Holders thereof.
11. Holders' Rights if Shares are Delisted or if Trading in Common
Stock is Suspended. In the event that at anytime on or after the date hereof
and prior to the third anniversary of the Closing Date, trading in the shares
of the Company's Common Stock is suspended on the Exchange for such shares for
a period of five consecutive trading days, other than as a result of the
suspension of trading in securities in general, or if such Shares are delisted
and not relisted within ten (10) days thereafter, then, at a Holder's option,
the Company shall redeem such Holder's Debentures at a Redemption Date
designated by such Holder, and at the redemption price provided in Paragraph
6(b)(I) or Paragraph 9(b), whichever is greater.
12. Limitations on Holder's Right to Convert and on Forced
Conversion. Notwithstanding anything to the contrary contained herein, each
Conversion Notice shall contain a representation that, and a Forced Conversion
shall not require a Holder to convert any part of this Debenture in excess of
the portion then convertible into that number of shares of the
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<PAGE> 13
Company's Common Stock specified in the Holder's representation to the Company
that, after giving effect to the shares of the Company's Common Stock to be
issued pursuant to such Conversion Notice or in such Forced Conversion, the
total number of shares of the Company's Common Stock deemed beneficially owned
by the Holder, together with all shares of the Company's Common Stock deemed
beneficially owned by the Holder's "affiliates" as defined in Rule 144 of the
Act, will not exceed 4.9% of the total issued and outstanding shares of the
Company's Common Stock.
13. Rights of First Refusal. The Holders shall have a right of
first refusal pro rata according to the Holders' ownership of Debentures on the
date on which the Company's notice pursuant to this Paragraph 13 is given on
any Equity Offerings for a period of one (1) year from the date hereof, so long
as the Holders still hold any Debentures and provided such Equity Offerings are
made pursuant to an exemption from the registration requirements of the
Securities Act of 1933, as amended, including without limitation Regulations D
and S thereunder. The Company shall give the Holders written notice of its
proposal to make such an Equity Offering and shall provide with such notice
copies of the documentation, with the economic terms of the transaction
specified, pursuant to which the Equity Offering is to be effected. Such
Holders shall have ten (10) business days from receipt of such notice to
deliver a written notice to the Company that such Holders wish to exercise
their right of first refusal with respect to the entire Equity Offering or a
part thereof. Failure by such Holders to respond within such period shall be
deemed an irrevocable waiver of their right of first refusal with respect to
such Equity Offering, provided that such offering is completed upon such terms
and with such documentation within thirty (30) calendar days after said ten
(10) day period. If such Holders exercise their right of first refusal with
respect to any Equity Offering, they must close the transactions contemplated
by the proposed issuance within ten (10) business days of the exercise of their
right hereunder on the same economic terms and using the same documentation
provided in the Company's notice to the Holders. If the Holders fail to close
the transaction for any reason other than a breach by the Company of its
obligations hereunder, such Holders' right of first refusal shall irrevocably
terminate with respect to such Equity Offering.
14. Obligations Absolute. No provision of this Debenture, other
than conversion as provided herein, shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the manner,
herein prescribed.
15. Waivers of Demand, Etc. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, notice of intent to accelerate, prior notice of
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and will be directly and primarily liable for the payments of all
sums owing and to be owing hereon, regardless of and without any notice (except
as required by law), diligence, act or omission as or with respect to the
collection of any amount called for hereunder.
16. Replacement Debentures. In the event that any Holder notifies
the Company that its Debenture(s) have been lost, stolen or destroyed,
replacement Debenture(s) identical in all respects to the original Debenture(s)
(except for registration number and Outstanding Principal
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<PAGE> 14
Amount, if different than that shown on the original Debenture(s)) shall be
issued to the Holder, provided that the Holder executes and delivers to the
Company an agreement reasonably satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such Debenture(s).
17. Payment of Expenses. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees, which may be incurred by the
Holder in enforcing the provisions of this Debenture and/or collecting any
amount due under this Debenture, the Subscription Agreement or the Registration
Rights Agreement dated August 29, 1996, among the Company and Holders of
Debentures; provided however, that if a court of competent jurisdiction shall
enter a final judgment, with no further right of appeal therefrom, to the
effect that the Holder is not entitled to have such debts and expenses of
enforcement paid by the Company, the Company shall have no further obligation
hereunder and shall be entitled to be reimbursed for any such debts and
expenses theretofore paid by it pursuant to this Paragraph 17.
18. Defaults. If one or more of the following described "Events
of Default" shall occur:
(a) The Company shall default in the
payment of (I) interest on this Debenture, and such
default shall continue for five (5) business days
after the due date thereof, or (ii) the principal of
this Debenture; or
(b) Any of the representations or
warranties made by the Company herein, in the
Subscription Agreement, or in any certificate or
financial or other written statements of the Company
heretofore or hereafter furnished by or on behalf of
the Company in connection with the execution and
delivery of this Debenture or the Subscription
Agreement shall be false or (when taken together with
other information furnished by or on behalf of the
Company, including Exchange Act Reports) misleading
in any material respect at the time made; or
(C) The Company shall fail to perform or
observe any covenant or agreement in the Subscription
Agreement, or any other covenant, term, provision,
condition, agreement or obligation of the Company
under this Debenture and such failure shall continue
uncured for a period of ten (10) business days after
notice from the Holder of such failure; or
(d) The Company shall (1) become
insolvent; (2) admit in writing its inability to pay
its debts generally as they mature; (3) make a
general assignment for the benefit of creditors or
commence proceedings for its dissolution; or (4)
apply for or consent to the appointment of a trustee,
liquidator or receiver for it or for a substantial
part of its property or business; or
(e) A trustee, liquidator or receiver
shall be appointed for the Company or for a
substantial part of its property or business without
its
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<PAGE> 15
consent and shall not be discharged within forty-five
(45) days after such appointment; or
(f) Any governmental agency or any court
of competent jurisdiction at the instance of any
governmental agency shall assume custody or control
of the whole or any substantial portion of the
properties or assets of the Company and shall not be
dismissed within forty-five (45) days thereafter, or
(g) Any money judgment, writ or warrant
of attachment, or similar process in excess of Five
Hundred Thousand Dollars ($500,000) in the aggregate
shall be entered or filed against the Company or any
of its properties or other assets and shall remain
unpaid, unvacated, unbonded and unstayed for a period
of forty-five (45) days or in any event later than
ten (10) days prior to the date of any proposed sale
thereunder; or
(h) Bankruptcy, reorganization,
insolvency or liquidation proceedings or other
proceedings, or relief under any bankruptcy law or
any law for the relief of debt shall be instituted by
or against the Company and, if instituted against the
Company, shall not be dismissed within forty-five
(45) days after such institution or the Company shall
by any action or answer approve of, consent to, or
acquiesce in any such proceedings or admit to any
material allegations of, or default in answering a
petition filed in, any such proceeding;
then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may, by notice to
the Company declare the Debenture immediately due and payable, and the Holder
may immediately, and without expiration of any period of grace, enforce any and
all of the Holder's rights and remedies provided herein or any other rights or
remedies afforded by law. In such event, the Debenture shall be redeemed at a
redemption price per Debenture equal to the redemption price provided in
Paragraph 6(b).
19. Savings Clause. In case any provision of this Debenture is
held by a court of competent jurisdiction to be excessive in scope or otherwise
invalid or unenforceable, such provision shall be adjusted rather than voided,
if possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
20. Entire Agreement. This Debenture and the agreements referred
to in this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and a
majority-in-interest of the Holders.
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<PAGE> 16
21. Assignment, Etc. The Holder may, subject to compliance with
the Subscription Agreement, without notice, transfer or assign this Debenture
or any interest herein and may mortgage, encumber or transfer any of its rights
or interest in and to this Debenture or any part hereof and, without
limitation, each assignee, transferee and mortgagee (which may include any
affiliate of the Holder) shall have the right to transfer or assign its
interest; provided, however, that before the Registration Statement
contemplated by the Registration Rights Agreement becomes effective, (I) each
such assignee, transferee and mortgagee shall be a sophisticated investor as
contemplated by Section 2.3 of the Subscription Agreement and each such
assignment, transfer, mortgagee or other encumbrance shall comply with
Regulation D under the Securities Act as though such transaction has been a
part of the original offer and sale of the Debentures by the Company and
Regulation D was applicable thereto, or (ii) the holder will furnish the
Company with an opinion of counsel to the effect that such assignment,
transfer, mortgage or other encumbrance is otherwise exempt from the
registration requirements under the Securities Act. Each such assignee,
transferee and mortgagee shall have all of the rights and obligations of the
Holder under this Debenture. The Company agrees that, subject to compliance
with the Subscription Agreement, after receipt by the Company of written notice
of assignment from the Holder or from the Holders' assignee, all principal,
interest, and other amounts which are then due and thereafter become due under
this Debenture shall be paid to such assignee at the place of payment
designated in such notice. This Debenture shall be binding upon the Company
and its successors and shall inure to the benefit of the Holder and its
successors and assigns.
22. No Waiver. No failure on the part of the Holder to exercise,
and no delay in exercising any right, remedy or power hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise by the Holder of
any right, remedy or power hereunder preclude any other or future exercise of
any other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
23. Miscellaneous. Unless otherwise provided herein, any notice
or other communication to a party hereunder shall be sufficiently given if in
writing and personally delivered or mailed to said party by certified mail,
return receipt requested, at its address set forth herein or such other address
as either may designate for itself in such notice to the other and
communications shall be deemed to have been received when delivered personally
or, if sent by mail or facsimile, then when actually received by the party to
whom it is addressed. Whenever the sense of this Debenture requires, words in
the singular shall be deemed to include the plural and words in the plural
shall be deemed to include the singular. If more than one Company is named
herein, the liability of each shall be joint and several. Paragraph headings
are for convenience only and shall not affect the meaning of this document.
24. Choice of Law and Venue: Waiver of Jury Trial. THIS
DEBENTURE SHALL BE CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW. The Company hereby
agrees that all actions or proceedings arising directly or indirectly from or
in connection with this Debenture shall, at the Holder's sole option, be
litigated only in the United States District Court for the Southern District of
New York located in New York County, New York. The Company consents to the
jurisdiction and venue of the foregoing courts and consents
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<PAGE> 17
that any process or notice of motion or other application to either of said
courts or a judge thereof may be served inside or outside the State of New York
or the Southern District of New York by registered mail, return receipt
requested, directed to the Company at its address set forth in this Debenture
(and service so made shall be deemed complete five (5) days after the same has
been posted as aforesaid) or by personal service or in such other manner as may
be permissible under the rules of said courts.
17
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: As of _________________
MRV COMMUNICATIONS, INC.
By:____________________________
Print Name:____________________
Print Title:___________________
Print Address:_________________
ATTEST
_____________________________
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<PAGE> 1
EXHIBIT 10.25
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED
FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Right to Purchase Shares of Common Stock
of MRV Communications, Inc.
_________________________
Common Stock Purchase Warrant
MRV Communications, Inc., a Delaware corporation having an address at
8943 Fullbright Avenue, Chatsworth, California 91311, (the "Company"), hereby
certifies that for $10.00 and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, ___________________,
having an address at ________________________ ("Purchaser"), or any other
Warrant Holder is entitled, on the terms and conditions set forth below, to
purchase from the Company at any time after ______________, 1996 and ending
thirty-six (36) months after _____________, 1996, _________ fully paid and
nonassessable shares of Common Stock, $0.0034 par value, of the Company (the
"Common Stock") at the Purchase Price (hereinafter defined), as the same may be
adjusted pursuant to Section 5 herein.
1. Definitions.
(a) the term "Warrant Holder" shall mean the
Purchaser or any assignee of all or any portion of
this Warrant at any given time who, at the time of
assignment, acquired the right to purchase at least
1000 Warrant Shares, (such number being subject to
adjustment after the date hereof pursuant to Section
5 herein.)
(b) the term "Warrant Shares" shall mean the Shares
of Common Stock or other securities issuable upon
exercise of this Warrant.
(c) the term "Purchase Price" shall mean $26.75.
(d) other terms used herein which are defined in the
Convertible Securities Subscription Agreement (the
"Agreement") or the Registration Rights Agreement
(the "Registration Rights Agreement"), both of even
date and delivery between the Company and the
Purchaser, or in the Debentures issued by the Company
to the Purchaser pursuant to the Agreement (the
"Debentures"), shall have the same meanings herein as
therein.
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<PAGE> 2
2. Exercise of Warrant.
This Warrant may be exercised by the Warrant Holder, in whole or in
part, at any time and from time to time by surrender of this Warrant, together
with the form of subscription at the end hereof duly executed by Warrant
Holder, to the Company at its principal office. In the event that the Warrant
is not exercised in full, the number of Warrant Shares shall be reduced by the
number of such Warrant Shares for which this Warrant is exercised, and the
Company, at its expense, shall forthwith issue and deliver to or upon the order
of Warrant Holder a new Warrant of like tenor in the name of Warrant Holder or
as Warrant Holder (upon payment by Warrant Holder of any applicable transfer
taxes) may request, reflecting such adjusted Warrant Shares.
3. Delivery of Stock Certificates.
(a) Subject to the terms and conditions of this
Warrant, as soon as practicable after the exercise of this Warrant in full or
in part, and in any event within two (2) days thereafter, the Company at its
expense (including, without limitation, the payment by it of any applicable
issue taxes) will cause to be issued in the name of and delivered to Warrant
Holder, or as Warrant Holder (upon payment by Warrant Holder of any applicable
transfer taxes) may lawfully direct, a certificate or certificates for the
number of fully paid and non-assessable shares of Common Stock to which Warrant
Holder shall be entitled on such exercise, together with any other stock or
other securities or property (including cash, where applicable) to which
Warrant Holder is entitled upon such exercise.
(b) This Warrant may not be exercised as to
fractional shares of Common Stock. In the event that the exercise of this
Warrant, in full or in part, would result in the issuance of any fractional
share of Common Stock, then in such event Warrant Holder shall be entitled to
cash equal to the fair market value of such fractional share. For purposes of
this Warrant, fair market value shall equal the closing trading price of the
Common Stock on the Nasdaq Stock Market, the American Stock Exchange or the New
York Stock Exchange, whichever is the principal trading exchange or market for
the Common Stock (the "Principal Market") on the date of determination or, if
the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted in the Nasdaq Stock Market, the average of the
closing bid and asked prices on the over-the-counter market as furnished by any
New York Stock Exchange member firm reasonably selected from time to time by
the Company for that purpose, or, if the Common Stock is not listed or admitted
to trading on any national securities exchange or quoted on the Nasdaq Stock
Market or traded over-the-counter and the average price cannot be determined a
contemplated above, the fair market value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors.
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<PAGE> 3
4. Covenants Of the Company.
(a) The Company shall use its reasonable best
efforts to insure that a Registration Statement under the Act covering the
issuance of the Warrant Shares and the resale or other disposition thereof by
Warrant Holder is effective as provided in the Registration Rights Agreement.
(b) The Company shall take all necessary action
and proceedings as may be required and permitted by applicable law, rule and
regulation, including, without limitation the notification of the Nasdaq Stock
Market, for the legal and valid issuance of this Warrant and the Warrant Shares
to the Warrant Holder under this Warrant.
(c) From the date hereof through the last date on
which this Warrant is exercisable, the Company shall take all steps reasonably
necessary and within its control to insure that the Common Stock remains listed
on the Principal Market and shall not amend its Certificate of Incorporation or
Bylaws so as to adversely affect any rights of the Warrant Holder under this
Warrant.
(d) The Company shall at all times reserve and
keep available, solely for issuance and delivery as Warrant Shares hereunder,
such shares of Common Stock as shall from time to time be issuable as Warrant
Shares.
(e) The Warrant Shares, when issued in accordance
with the terms hereof, will be duly authorized and, when paid for or issued in
accordance with the terms hereof, shall be validly issued, fully paid and
non-assessable. The Company has authorized and reserved for issuance to
Warrant Holder the requisite number of shares of Common Stock to be issued
pursuant to this Warrant.
(f) With a view to making available to Warrant
Holder the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit Warrant Holder to sell
securities of the Company to the public without registration, the Company
agrees to use its reasonable best efforts to:
(i) make and keep public information available,
as those terms are understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner
all reports and other documents required of the Company under the Act
and the Exchange Act; and
(iii) furnish to any Warrant Holder
forthwith upon request a written statement by the Company that it has
complied with the reporting requirements of Rule 144 and of the Act
and the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed
by the Company as may be reasonably requested to permit any such
Warrant Holder to take advantage of any rule or regulation of the SEC
permitting the selling of any such securities without registration.
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<PAGE> 4
5. Adjustment of Exercise Price and Number of Shares.
The number of and kind of securities purchasable upon exercise of this Warrant
and the Purchase Price shall be subject to adjustment from time to time as
follows:
(a) Subdivisions, Combinations and Other
Issuances. If the Company shall at any time after the date hereof but prior to
the expiration of this Warrant subdivide its outstanding securities as to which
purchase rights under this Warrant exist, by split-up, spin-off, or otherwise,
or combine its outstanding securities as to which purchase rights under this
Warrant exist, the number of Warrant Shares as to which this Warrant is
exercisable as of the date of such subdivision, split-up, spin-off or
combination shall forthwith be proportionately increased in the case of a
subdivision, or proportionately decreased in the case of a combination.
Appropriate adjustments shall also be made to the purchase price payable per
share, but the aggregate purchase price payable for the total number of Warrant
Shares purchasable under this Warrant as of such date shall remain the same.
(b) Stock Dividend. If at any time after the
date hereof the Company declares a dividend or other distribution on Common
Stock payable in Common Stock or other securities or rights convertible into
Common Stock ("Common Stock Equivalents") without payment of any consideration
by holders of Common Stock for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon exercise or conversion thereof), then the number of shares of
Common Stock for which this Warrant may be exercised shall be increased as of
the record date (or the date of such dividend distribution if no record date is
set) for determining which holders of Common Stock shall be entitled to receive
such dividends, in proportion to the increase in the number of outstanding
shares (and shares of Common Stock issuable upon conversion of all such
securities convertible into Common Stock) of Common Stock as a result of such
dividend, and the Purchase Price shall be adjusted so that the aggregate amount
payable for the purchase of all the Warrant Shares issuable hereunder
immediately after the record date (or on the date of such distribution, if
applicable), for such dividend shall equal the aggregate amount so payable
immediately before such record date (or on the date of such distribution, if
applicable).
(c) Other Distributions. If at any time after
the date hereof the Company distributes to holders of its Common Stock, other
than as part of its dissolution, liquidation or the winding up of its affairs,
any shares of its capital stock, any evidence of indebtedness or any of its
assets (other than cash, Common Stock or securities convertible into Common
Stock), then the Company shall decrease the per share Purchase Price of this
Warrant by an appropriate amount based upon the value distributed on each share
of Common Stock as determined in good faith by the Company's Board of
Directors.
(d) Merger, etc. If at any time after the date
hereof there shall be a merger or consolidation of the Company with or into or
a transfer of all or substantially all of the assets of the Company to another
entity, then the Warrant Holder shall be entitled to receive upon such
transfer, merger or consolidation becoming effective, and upon payment of the
aggregate Purchase Price then in effect, the number of shares or other
securities or property of the Company or of the successor corporation resulting
from such merger or consolidation, which would have been received by Warrant
Holder for the shares of stock subject to this Warrant had this Warrant
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<PAGE> 5
been exercised just prior to such transfer, merger or consolidation becoming
effective or to the applicable record date thereof, as the case may be.
(e) Reclassification, Etc. If at any time after
the date hereof there shall be a reorganization or reclassification of the
securities as to which purchase rights under this Warrant exist into the same
or a different number of securities of any other class or classes, then the
Warrant Holder shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified herein and upon payment of the Purchase
Price then in effect, the number of shares or other securities or property
resulting from such reorganization or reclassification, which would have been
received by the Warrant Holder for the shares of stock subject to this Warrant
had this Warrant at such time been exercised.
(f) Purchase Price Adjustment. In the event that
the Company issues or sells any Common Stock or securities which are
convertible into or exchangeable for its Common Stock or any convertible
securities, or any warrants or other rights to subscribe for or to purchase or
any options for the purchase of its Common Stock or any such convertible
securities (other than issuance of Debentures or of shares of Common Stock upon
conversion thereof, shares or options issued or which may be issued pursuant to
the Company's employee or director option plans or shares issued upon exercise
of options, warrants or rights outstanding on the date of the Agreement and
listed in the Exchange Act Reports) at an effective purchase price per share
which is less than the Purchase Price then in effect or the fair market value
(as hereinabove defined) of the Common Stock on the trading day next preceding
such issue or sale, then in each such case, the Purchase Price in effect
immediately prior to such issue or sale shall be reduced effective concurrently
with such issue or sale to an amount determined by multiplying the Purchase
Price then in effect by a fraction, (x) the numerator of which shall be the sum
of (1) the number of shares of Common Stock outstanding immediately prior to
such issue or sale, including, without duplication, those deemed to have been
issued under any provision of the Debentures and the Warrants plus (2) the
number of shares of Common Stock which the aggregate consideration received by
the Company for such additional shares would purchase at such fair market value
or Purchase Price, as the case may be, then in effect; and (y) the denominator
of which shall be the number of shares of Common Stock of the Company
outstanding immediately after such issue or sale including, without
duplication, those deemed to have been issued under any provision of the
Debentures and Warrants. For purposes of the foregoing fraction, Common Stock
outstanding shall include, without limitation, any Equity Offerings (as defined
in the Debentures) then outstanding, whether or not they are exercisable or
convertible when such fraction is to be determined.
In the event of any such issuance for a consideration which is less
than such fair market value and also less than the Purchase Price then in
effect, then there shall be only one such adjustment by reason of such
issuance, such adjustment to be that which results in the greatest reduction of
the Purchase Price computed as aforesaid. The number of shares which may be
purchased hereunder shall be increased proportionately to any reduction in
Purchase Price pursuant to this paragraph 5(f), so that after such adjustments
the aggregate Purchase Price payable hereunder for the increased number of
shares shall be the same as the aggregate Purchase Price in effect just prior
to such adjustments.
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6. No Impairment. The Company will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Warrant
Holder against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any Warrant Shares above the
amount payable therefor on such exercise, and (b) will take all such action as
may be reasonably necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares on the
exercise of this Warrant.
7. Notice of Adjustments; Notices. Whenever the
Purchase Price or number of Shares purchasable hereunder shall be adjusted
pursuant to Section 5 hereof, the Company shall execute and deliver to the
Warrant Holder a certificate setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which
such adjustment was calculated and the Purchase Price and number of shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the Warrant Holder.
8. Rights As Stockholder. Prior to exercise of this
Warrant, the Warrant Holder shall not be entitled to any rights as a
stockholder of the Company with respect to the Warrant Shares, including
(without limitation) the right to vote such shares, receive dividends or other
distributions thereon or be notified of stockholder meetings. However, in the
event of any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each Warrant Holder, at least 10 days prior to the
date specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
9. Replacement of Warrant. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of the Warrant and, in the case of any such loss, theft or
destruction of the Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of
any such mutilation, on surrender and cancellation of such Warrant, the Company
at its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
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10. Specific Enforcement; Consent to Jurisdiction.
(a) The Company and the Warrant Holder
acknowledge and agree that irreparable damage would occur in the event that any
of the provisions of this Warrant were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Warrant and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to
which either of them may be entitled by law or equity.
(b) Each of the Company and the Warrant
Holder (i) hereby irrevocably submits to the exclusive jurisdiction of the
United States District Court for the Southern District of New York for the
purposes of any suit, action or proceeding arising out of or relating to this
Warrant and (ii) hereby waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in
an inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Warrant Holder consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for notices to it under this Warrant and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other manner permitted by law.
11. Entire Agreement; Amendments. This Warrant, the
Exhibits hereto and the provisions contained in the Agreement, the Registration
Rights Agreement or the Debentures and incorporated into this Warrant and the
Warrant Shares contain the entire understanding of the parties with respect to
the matters covered hereby and thereby and, except as specifically set forth
herein and therein, neither the Company nor the Warrant Holder makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the party against whom enforcement of any such amendment
or waiver is sought.
12. Restricted Securities. Sections 4.5, 5.1, 5.2 and
5.3 of the Agreement are incorporated herein by reference and hereby made a
part hereof.
13. Notices. Any notice or other communication required
or permitted to be given hereunder shall be in writing and shall be effective
(a) upon hand delivery or delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated below (if
delivered on a business day during normal business hours where such notice is
to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
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to the Company:
MRV Communications, Inc.
8943 Fullbright Avenue
Chatsworth, California 91311
Attn: Edmund Glazer
Fax: (818) 407-5656
with copies to:
Freshman, Marantz, Orlanski, Cooper & Klein
9100 Wilshire Boulevard
Eighth Floor, East Tower
Beverly Hills, California 90212-3480
Attn: Mark Klein
Fax: (310) 274-8293
to the Warrant Holder:
Attn:
Fax:
with copies to:
Promethean Investment Group, L.L.C.
40 West 57th Street
Suite 1520
New York, New York 10019
Attn:
Fax:
Either party hereto may from time to time change its address for notices under
this Section 13 by giving at least 10 days prior written notice of such changed
address to the other party hereto.
14. Miscellaneous. This Warrant and any term hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York. The
headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
15. Expiration. The right to exercise this Warrant shall
expire thirty-six (36)
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months after _____________, 1996.
[Signatures on next page.]
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<PAGE> 10
Dated: As of _____________, 1996 MRV COMMUNICATIONS, INC.
By: __________________________
Name:
Title:
[CORPORATE SEAL]
Attest:
By:_______________________
Name:
Its:
By: __________________________
Name:
Title:
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<PAGE> 11
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _________
shares of Common Stock of MRV Communications, Inc., a Delaware corporation (the
"Company"), and herewith makes payment of $__________ therefor, and requests
that the certificates for such shares be issued in the name of, and delivered
to _________________, whose address is __________________.
Dated: _________________________________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
_________________________________________
(Address)
Tax Identification Number:_______________
_____________________
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
_________________ the right represented by the within Warrant to purchase
_____________ shares of Common stock of MRV Communications, Inc., a __________
corporation, to which the within Warrant relates, and appoints
_________________ Attorney to transfer such right on the books of MRV
Communications, Inc., a Delaware corporation, with full power of substitution
the premises.
Dated: _________________________________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
_________________________________________
(Address)
Signed in the presence of:
____________________________
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<PAGE> 1
EXHIBIT 10.26
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Registration Rights Agreement"),
entered into as of ________________, 1996, between _________________, with
offices at ______________________ (the "Purchaser"), and MRV Communications,
Inc., a Delaware corporation with offices at 8943 Fullbright Avenue,
Chatsworth, California 91311 (the "Company").
W I T N E S S E T H:
WHEREAS, pursuant to a Convertible Securities Subscription Agreement,
dated as of ________________, 1996 (the "Agreement"), by and between the
Company and the Purchaser, the Company has agreed to sell and the Purchaser has
agreed to purchase __________________ Dollars (U.S. $____________) of the
Company's 5% Convertible Debentures due August 6, 1999 (the "Debentures")
convertible into shares of the Company's Common Stock, $0.0034 par value. The
Company has further agreed, pursuant to the Agreement and under the
circumstances provided therein, to issue Warrants to purchase additional shares
of such Common Stock. The shares of such Common Stock issuable upon conversion
of the Debentures and exercise of such Warrants are collectively referred to
herein as the "Shares".
WHEREAS, pursuant to the terms of, and in partial consideration for,
the Purchaser's agreement to enter into the Agreement, the Company has agreed
to provide the Purchaser with certain registration rights with respect to the
Shares under certain circumstances set forth in the Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the
Agreement and this Registration Rights Agreement, the Company and the Purchaser
agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings. Other terms used herein which
are defined in the Agreement, the Debentures or the Warrants shall have the
same meanings herein as they do in such other documents.
"Commission" or "SEC" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Registrable Securities" shall mean: (i) Shares issued to Purchaser
or its designee upon conversion of the Debentures, upon exercise of the
Warrants or upon any stock split, stock dividend, recapitalization or similar
event with respect to such Shares; and (ii) any securities issued or issuable
to Purchaser or any Holder upon the conversion or exercise or exchange of any
Debentures, Warrants or Shares.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and
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<PAGE> 2
applicable rules and regulations thereunder, and the declaration or ordering of
the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with Purchaser's exercise of its registration rights
under this Agreement, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, blue sky fees and expenses, reasonable fees and disbursements of
counsel to Holder for a "due diligence" examination of the Company, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which
shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions, if any, applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for Holder not included within "Registration
Expenses."
"Holder" shall include the Purchaser and any transferee of Debentures,
Warrants, Shares or Registrable Securities which have not been sold to the
public to whom the registration rights conferred by this Agreement have been
transferred in compliance with Section 10 of this Agreement.
"Registration Statement" shall have the meaning set forth in Section
2(a) herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" shall mean the Securities Act of 1933, as amended.
2. The Registration Requirements. The Company shall file and use its
best efforts to cause to become effective, as promptly as possible and in any
event by the fifty-third (53rd) calendar day after the Closing Date, a
registration statement on Form S-3 under the Securities Act or, if Form S-3 is
not then available, another appropriate form covering the resale of the
Underlying Stock issuable on conversion of the Debentures and covering the
resale of the Warrant Stock issuable upon the exercise of the Warrants, and
shall take all action necessary to qualify the Underlying Stock and the Warrant
Stock under state "blue sky" laws as hereinafter provided. The Company shall
use its diligent best efforts to effect the registrations contemplated by the
foregoing (including, without limitation, the execution of an undertaking to
file amendments and post-effective amendments, appropriate qualification under
and compliance with applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act) and as would permit or facilitate the sale and distribution of all the
Registrable Securities in all states reasonably requested by the Holder for
purposes of maximizing the proceeds realizable by the Holder from such sale and
distribution. Such best efforts by the Company shall include, without
limitation, the following:
(a) The Company shall file (i) registration statements
with the Commission pursuant to Rule 415 under the Securities
Act on Form S-3 under the Securities Act and the Company shall
use its best efforts to qualify for the use of such Form (or
in the event that the
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<PAGE> 3
Company is ineligible to use such form, such other form as the
Company is eligible to use under the Securities Act) covering
the Registrable Securities so to be registered (each, a
"Registration Statement"); (ii) such blue sky filings as shall
be reasonably requested to permit such sales provided,
however, that the Company shall not be required to register
the Registrable Securities in any jurisdiction that would
subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the
Company to any tax in any such jurisdiction where it is not
then so subject or require the Company to qualify to do
business in any jurisdiction where it is not then so
qualified; and (iii) any required filings with the National
Association of Securities Dealers, Inc. ("NASD") or exchange
where the Shares are traded; all as soon as practicable after
the date hereof. The Company shall use its best efforts to
have the Registration Statements and other filings declared
effective as soon thereafter as may be practicable.
(b) The Company shall enter into such customary
agreements (including a customary underwriting agreement with
the underwriter or underwriters, if any) and take all such
other reasonable actions in connection therewith in order to
expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not the
Registrable Securities are to be sold in an underwritten
offering, the Company shall:
(i) make such representations
and warranties to the Holder and the underwriter or
underwriters, if any, in form and substance and scope
as are customarily made by issuers to underwriters in
secondary underwritten offerings:
(ii) cause to be delivered to
the sellers of Registrable Securities and the
underwriter or underwriters, if any, opinions of
counsel to the Company, dated the effective day (or in
the case of an underwritten offering, dated the date
of delivery of any Registrable Securities sold
pursuant thereto) of the applicable registration
statement (which counsel, and opinions (in form, scope
and substance), shall be reasonably satisfactory to
the managing underwriter or underwriters, if any, and
the appointed representative or counsel of the Holder,
addressed to the Holder and each underwriter, if any,
covering the matters customarily covered in opinions
requested in secondary underwritten offerings and, in
the case of any underwritten offering, such other
matters as may be reasonably requested by the Holder;
(iii) cause to be delivered,
immediately prior to the effectiveness of the
applicable Registration Statement (and, in the case of
an underwritten offering, at the time of delivery of
any Registrable Securities sold pursuant thereto),
letters from the Company's independent certified
public accountants addressed to the Holder and each
underwriter, if any, stating that such accountants are
independent public accountants within the meaning of
the Securities Act and the applicable published rules
and regulations thereunder, and otherwise in customary
form and covering such financial and accounting
matters as are customarily covered by letters of the
independent certified public accountants delivered in
connection with secondary underwritten public
offerings;
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(iv) if an underwriting
agreement is entered into, cause the same to set forth
indemnification and contribution provisions and
procedures which are no less favorable to the Holder
and the Company than those contemplated by sections 9
and 10 with respect to all parties to be indemnified
pursuant to such sections;
(v) deliver such documents and
certificates as may be reasonably requested by the
Holder of the Registrable Securities being sold or the
managing underwriter or underwriters, if any, to
evidence compliance with clause (i) above and with any
customary conditions contained in the underwriting
agreement, if any, or other agreement entered into by
the Company;
the foregoing in this paragraph 2(b) shall be done at each closing under any
such underwriting or similar agreement or as and to the extent required
thereunder; provided, however, the foregoing in paragraph 2(b) shall not be
required on more than two (2) occasions.
(c) At least ten (10) business days prior to the anticipated filing
thereof with the SEC, the Company shall make available for inspection and
review by the Holder, a representative or representatives of the Holder, any
underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney or accountant retained by such Holder or
underwriter, any such registration statement or amendment or supplement or any
blue sky, NASD or other filing, all financial and other records, pertinent
corporate documents and properties of the Company as they may reasonably
request for the purpose, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement; provided, however, that the Holder shall first agree in
writing with the Company that any information that is reasonably and in good
faith designated by the Company in writing as confidential at the time of
delivery of such information shall be kept confidential by the Holder and that
the Holder will use reasonable efforts to cause its representatives and such
other persons so to keep such information confidential, unless (i) disclosure
of such information is required by court or administrative order or is
necessary to respond to inquiries of regulatory authorities, (ii) disclosure of
such information is required by law (including any disclosure requirements
pursuant to Federal securities laws in connection with the filing of any
Registration Statement or the use of any prospectus referred to in this
Agreement), (iii) such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard by any such
person, (iv) such information becomes available to any such person from a
source other than the Company and such source, to the knowledge of such
persons, is not bound by a confidentiality agreement with the Company, or (v)
such information was known to or is developed by such persons without reference
to such confidential information of the Company.
3. Underwritten Distribution. If the Holder intends to distribute the
Registrable Securities covered by a Registration Statement by means of an
underwriting, the Holder shall so advise the Company and, within 30 days of the
date thereof and without limiting the generality of other provisions hereof,
the Company will prepare and file such amendment or amendments to the
Registration Statement and make such other filings as may be necessary or
appropriate to effect any such underwritten distribution.
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4. Multiple Holders. If there is more than one Holder, such Holders
shall act with respect to their rights under this Agreement according to the
vote of a majority-in-interest.
5. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses shall be
borne by the Holder.
6. Registration Delay or Failure. The Company acknowledges that its
failure to register the Registrable Securities in accordance with the Agreement
and this Registration Rights Agreement will cause the Holder to suffer damages
and undertake risks in amounts that will be difficult to ascertain and were not
anticipated in negotiating the terms hereof or of the Agreement, the Debentures
or the Warrants. Accordingly the parties agree that it is appropriate to
include herein a provision for liquidated damages and to compensate the Holder
fairly for the additional risk undertaken by the Holder resulting from the
Company's delay or failure to effect such registrations. The parties
acknowledge and agree that the provisions hereinafter set forth in this
Paragraph 6 represent the parties' good faith effort to quantify such damages
and to compensate for such additional risk and, as such, agree that the form
and amount of damages and risk compensation are reasonable and will not
constitute a penalty.
(a) If the Registration Statement covering the resale of the
Underlying Stock and the Warrant Stock is not effective by the fifty- third
(53rd) calender day after the Closing, then each of the X%s (as defined in the
Debentures) used in determining the Conversion Date Market Price (as defined in
the Debentures) shall be reduced by one (1) percentage point, and the X%s as so
reduced shall then and thereafter be applicable to and upon the conversion of
such Debentures, in lieu and in place of the X%s provided in the Debentures but
subject to further reduction as hereinafter provided in this Paragraph 6.
(b) If such Registration Statement still has not become effective
by the eighty-third (83rd) calendar day after the Closing, then each of such
X%s, as theretofore reduced pursuant to Paragraph 6(a) hereof, shall be further
reduced by one and one-half (1.5) percentage points and, as further so reduced,
shall then and thereafter be applicable to and upon conversion of the
Debentures, but subject to further reduction as hereinafter provided in this
Paragraph 6.
(c) If such Registration Statement still has not become effective
by the one hundred thirteenth (113th) calendar day after the Closing, then each
of such X%s, as theretofore reduced pursuant to Paragraphs 6(a) and (b) hereof,
shall be further reduced by another one and one-half (1.5) percentage points on
such 113th calendar day, and the X%s applicable to the Debentures, as so
reduced, shall then and thereafter be applicable to and upon the conversion of
such Debentures.
(d) If such Registration Statement still has not become effective
by the one hundred forty-third (143rd) calendar day after the Closing, then
there shall be paid to each Holder by the Company, in cash, on such 143rd day
and on each succeeding 30th day thereafter upon which such Registration
Statement still has not become effective, an amount equal to one and one-half
percent (1.5%) of the Outstanding Principal Amount of the Debentures held by
the Holder on such 158th day or succeeding 30th day, as the case may be, (each
such payment, a "30 Day Delay Payment") and if such Registration Statement
shall become effective after the one hundred
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<PAGE> 6
thirteenth (113th) calendar day after the Closing but before such 143rd day or
any such succeeding 30th day, there shall also be paid to the Holder, in cash,
on the effective date of the Registration Statement a 30 Day Delay Payment
pro-rated according to the portion of the then current 30 day period ending on
such effective date.
(e) If such Registration Statement still has not become effective
by the first anniversary of the Closing, then, at the Holder's option exercised
at any time thereafter, the Company shall redeem the Holder's Debentures at a
Redemption Date designated by such Holder, and at the redemption price provided
in Paragraph 6(b) of the Debentures.
7. Registration Procedures. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will keep the Holder
advised in writing as to initiation of each registration and as to the
completion thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for the period ending (i)
thirty-six (36) months after initial issuance of the Debentures, (ii) when the
Holder has completed the distribution of the Registrable Securities described
in the registration statement relating thereto, or (iii) the date on which the
Registrable Securities are distributed to the public pursuant to Rule 144(k) or
are saleable pursuant to Rule 144(k) promulgated under the Securities Act,
whichever first occurs.
(b) Furnish such number of prospectuses and other documents
incident thereto as the Holder from time to time may reasonably request.
8. Suspension of Use of Registration Statement. The Holder agrees that,
upon receipt of any notice from the Company of (A) the happening of any event
which makes any statements made in the registration statement(s) or related
prospectus(es) filed pursuant to this Registration Rights Agreement, or any
document incorporated or deemed to be incorporated therein by reference, untrue
in any material respect or which requires the making of any changes in such
registration statement(s) or prospectus(es) so that, in the case of such
registration statement(s), it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstance under
which they were made, not misleading or (B) that, in the judgment of the
Company's Board of Directors, it is advisable to suspend use of the
prospectus(es) for a discrete period of time due to pending corporate
developments which are or may be material to the Company but have not been
disclosed in the Registration Statement(s) or in relevant public filings with
the SEC, or (C) the SEC has issued a stop order suspending the effectiveness of
the Registration Statement(s), the Holder will forthwith discontinue
disposition of such Shares covered by such Registration Statement(s) or
prospectus(es) until it is advised in writing by the Company that use of the
applicable prospectus may be resumed, and has received copies of any additional
or supplemented filings that are incorporated or deemed to be incorporated by
reference in such prospectus(es). The Company shall use all reasonable best
efforts to insure that the use of the prospectus(es) may be resumed as soon as
practicable, and in any event shall not be entitled to require the Holder to
suspend use of the prospectus(es) for more than fifteen (15) consecutive days
on any one occasion, more than twenty-five (25) consecutive days in the
aggregate on two occasions which are not at least 90 days apart or more than an
aggregate of thirty (30) days in any twelve month
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period. Notwithstanding anything herein or in the Debentures to the contrary,
no Forced Conversion Notice (as defined in the Debentures) may be given and no
Forced Conversion (as defined in the Debentures) may occur during any such
suspension or discontinuance or within 30 trading days following such
resumption.
9. Indemnification.
(a) Company Indemnity. The Company will indemnify the Holder,
each of its officers, directors and partners, and each person controlling
Holder within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls, within the meaning of Section 15 of the
Securities Act and the rules and regulations thereunder, any underwriter,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any state
securities law or in either case, any rule or regulation thereunder applicable
to the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse the Holder, each of its officers, directors and partners, and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission (or
alleged untrue statement or omission) based upon written information furnished
to the Company by Holder or the underwriter and stated to be specifically for
use therein. The Indemnity agreement contained in this Section 9(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent will not be unreasonably withheld).
(b) Holder Indemnity. The Holder will, if Registrable Securities
held by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of Section 15 of
the Securities Act and the rules and regulations thereunder, each other Holder
(if any), and each of their officers, directors and partners, and each person
controlling such other Holder against all claims, losses, damages and
liabilities (or actions in respect thereof arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statement therein
not misleading, and will reimburse the Company and such other Holders and their
directors, officers and partners, underwriters or control persons for any legal
or any other expenses reasonably
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incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by Holder and stated to be
specifically for use therein; provided, however, that the obligations of Holder
shall not apply to amounts paid in settlement of any such claims, losses,
damages or liabilities if such settlement is effected without the consent of
Holder (which consent shall not be unreasonably withheld).
(c) Procedure. Each party entitled to indemnification under this
Article (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim in any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not be unreasonably withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Article
except to the extent that the Indemnifying Party is actually prejudiced by such
failure to provide notice. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
10. Contribution. If the indemnification provided for in Section 9 herein
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein, then each such Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such losses, claims,
damages or liabilities (i) as between the Company on the one hand and the
Indemnified Parties on the other, in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Indemnified Parties, as the case may be, on the other from the offering of the
Registrable Securities, or (ii) if such allocation is not permitted by
applicable law, in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand
and of the Indemnified Parties, as the case may be, on the other, in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Indemnified Parties, as the case may be, on the other shall be deemed to be in
the same proportion as the proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company from the initial sale of the Debentures by the Company pursuant to the
Agreement bear to the gain realized by the Holder or the total underwriting
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<PAGE> 9
discounts and commissions received by the underwriters as set forth in the
table on the cover page of the prospectus, as the case may be. The relative
fault of the Company on the one hand and of the Holder or underwriters, as the
case may be, on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission to state a material fact relates to information supplied by the
Company, by the Holder or by the underwriters.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 10 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 9(a) or 9(b) hereof had been
available under the circumstances.
The Company and the Holder agree that it would not be just and
equitable if contribution pursuant to this Section 10 were determined by pro
rata allocation (even if the Indemnified Parties were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages and liabilities referred to in the immediately
preceding paragraphs shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this section, no Indemnified Party
shall be required to contribute any amount in excess of the amount by which (i)
in the case of the Holder, the net proceeds received by the Holder from the
sale of Registrable Securities or (ii) in the case of an underwriter, the total
price at which the Registrable Securities purchased by it and distributed to
the public were offered to the public exceeds, in any such case, the amount of
any damages that the Holder or underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. 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.
11. Survival. The indemnity and contribution agreements contained
in Sections 9 and 10 and the representations and warranties of the Company
referred to in Section 2(b)(i) shall remain operative and in full force and
effect regardless of (i) any termination of the Agreement or any underwriting
agreement, (ii) any investigation made by or on behalf of any Indemnified Party
or by or on behalf of the Company and (iii) the consummation of the sale or
successive resales of the Registrable Securities.
12. Information By Holder and Any Underwriters. The Holder and the
underwriters, if any, shall furnish to the Company, within 20 business days of
the Company's request therefor, such information regarding such Holder or
underwriters, as the case may be, and the distribution proposed by such Holder
or underwriters as the Company may reasonably request in writing and as shall
be reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
13. Transfer of Assignment of Registration Rights. The rights, granted to
Holder by the Company under this Registration Rights Agreement, to cause the
Company to register Registrable
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Securities, may be transferred or assigned to a transferee or assignee of any
of not less than $100,000 in principal amount of Debentures and any Warrants,
provided that the Company is given written notice by Holder at the time of or
within a reasonable time after said transfer or assignment, stating the name
and address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned,
and provided further that the transferee or assignee of such rights is not
deemed by the board of directors of the Company, in its reasonable judgment, to
be a competitor of the Company; and provided further that the transferee or
assignee of such rights agrees to be bound by this Registration Rights
Agreement.
14. Miscellaneous.
(a) Entire Agreement. This Registration Rights Agreement contains
the entire understanding and agreement of the parties with respect to the
subject matter hereof, and may not be modified or terminated except by a
written agreement signed by both parties.
(b) Notices. Any notice or other communication given or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given if personally delivered or sent by registered or certified mail, return
receipt requested, postage prepaid with a copy in each case sent on the same
day to the addressee by facsimile, Federal Express or other such expedited
means, (a) if to Purchaser, at its address hereinabove set forth, (b) if to the
Company, at its address hereinabove set forth, (c) if, to a Holder other than
the Purchaser, at the address thereof furnished by like notice to the Company,
or (d) to any such addressee at such other address or addresses as shall be so
furnished to the other parties hereto by like notice.
(c) Gender of Terms. All terms used herein shall be deemed to
include the feminine and the neuter, and the singular and the plural, as the
context required.
(d) Governing Law. Consent of Jurisdiction. This Registration
Rights Agreement and the validity and performance of the terms hereof shall be
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the law of the state of the Company's incorporation
regulates the Company's issuance of securities. The parties hereto hereby
consent to, and waive any objection to the exercise of, personal jurisdiction
in the State of New York with respect to any action or proceeding arising out
of this Registration Rights Agreement.
(e) Title. The titles used in this Registration Rights Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
[The remainder of this page has intentionally been left blank.]
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IN WITNESS WHEREOF, the parties hereto have cause this Registration
Rights Agreement to be duly executed as of the date first above written.
By:_________________________
Name:
Its:
MRV COMMUNICATIONS, INC.
a Delaware Corporation
By:_________________________
Name:
Title:
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<PAGE> 1
EXHIBIT 10.27
MRV COMMUNICATIONS, INC.
COMMON STOCK
PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of November 26, 1996 by and between MRV COMMUNICATIONS, INC., a
Delaware corporation (the "COMPANY"), and INTEL CORPORATION, a Delaware
corporation (the "Investor").
RECITAL:
A. The Company desires to sell to the Investor; and the Investor
desires to purchase from the Company, shares of the Company's Common Stock, par
value $.0034 per share (the "Common Stock") on the terms and conditions set
forth in this Agreement:
NOW, THEREFORE, in consideration of the foregoing recital, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Agreement To Purchase and Sell Stock and To Issue Warrants.
1.1 Agreement To Purchase and Sell Common Stock. The
Company hereby agrees to sell to the Investor at the Closing (as defined in
Section 2.1), and the Investor agrees to purchase from the Company at the
Closing, 200,000 shares of Common Stock at the aggregate purchase price of Four
Million Dollars ($4,000,000). The shares of Common Stock purchased and sold
pursuant to this Agreement will be hereinafter referred to as the "Purchased
Shares."
1.2 Agreement To Issue Warrants. The Company hereby also
agrees, if and only if the Closing occurs, to issue to the Investor at the
Closing three stock purchase warrants (collectively, the "Warrants") in the
forms attached hereto as Exhibit A-1, A-2 and A-3. The shares of Common Stock
purchasable upon exercise of the Warrants will be collectively hereinafter
referred to as the "Warrant Shares."
1.3 Use of Proceeds. The Company shall use the proceeds
of the sale of the Purchased Shares for general corporate purposes.
2. Closing.
2.1 The Closing. The purchase and sale of the Purchased
Shares and the issuance of the Warrants will take place at the offices of
Gibson, Dunn & Crutcher LLP, 525 University Avenue, Palo Alto, California, at
10:00 a.m. California time, on a date designated by the Company by at least two
(2) days' prior written notice to the Investor, but not later than November 26,
1996, or at such other time and place as the Company and the Investor mutually
agree upon (which time and place are referred to in this Agreement as the
"Closing"). At the Closing, the Company will deliver to the Investor a
certificate representing the Purchased Shares and the Warrants, against
delivery to the Company by the Investor of the full purchase price of the
<PAGE> 2
Purchased Shares, paid by a certified or cashiers check payable to the
Company's order, or wire transfer of funds to the Company, or by any
combination of the foregoing.
3. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Investor that the statements in this
Section 3 are true and correct as of the date hereof and as of the date of
Closing, except as set forth in the Schedule of Exceptions (the "Schedule of
Exceptions") attached to this Agreement as Schedule 1:
3.1 Organization, Good Standing and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all corporate power and
authority required to (a) carry on its business as presently conducted, and (b)
enter into this Agreement, the Investor Agreement (as defined in Section 5.8),
the License Agreement (as defined in Section 5.9) and the Warrants and to
consummate the transactions contemplated hereby and thereby. The Company is
qualified to do business and is in good standing in each jurisdiction in which
the failure to so qualify would have a Material Adverse Effect. As used in
this Agreement, "Material Adverse Effect" means a material adverse effect on,
or a material adverse change in, or a group of such effects on or changes in,
the operations, financial condition, results of operations, prospects, assets
or liabilities of the Company.
3.2 Capitalization. As of the date of this Agreement the
capitalization of the Company is as follows:
(a) Preferred Stock. A total of 1,000,000
authorized shares of Preferred Stock, $0.01 par value per share
(the "Preferred Stock"), none of which are issued or outstanding.
(b) Common Stock. A total of 40,000,000
authorized shares of Common Stock, $0.0034 par value per share, of
which 20,656,746 shares are issued and outstanding as of a date within
two days prior to the date hereof, and any shares of Common Stock
which may have been issued between such date and the date hereof have
been issued solely as a result of the exercise of options, warrants or
other rights reflected in Section 3.2(c) of the Schedule of
Exceptions. All of such outstanding shares are validly issued, fully
paid and non-assessable. No such outstanding shares were issued in
violation of any preemptive right.
(c) Options, Warrants, Reserved Shares. Section
3.2(c) of the Schedule of Exceptions sets forth a summary description
of all outstanding options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from
the Company of any shares of its capital stock or any securities
convertible into or ultimately exchangeable or exercisable for any
shares of the securities Company's capital stock. No shares of the
Company's outstanding capital stock, or stock issuable upon exercise,
conversion or exchange of any outstanding options, warrants or rights,
or other stock issuable by the Company, are subject to any rights of
first refusal or other rights to purchase such stock (whether in favor
of the Company or any other person), pursuant to any agreement or
commitment of the Company.
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3.3 Subsidiaries . The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association or other entity.
3.4 Due Authorization. All corporate action on the part
of the Company, its officers, directors and shareholders necessary for the
authorization, execution, delivery of, and the performance of all obligations
of the Company under, this Agreement, the Investor Agreement, the License
Agreement and the Warrants and the authorization, issuance, reservation for
issuance and delivery of the Purchased Shares and of the Warrant Shares has
been taken or will be taken prior to the Closing, and this Agreement
constitutes, and the Investor Agreement, the License Agreement and the Warrants
when executed and delivered, will constitute, valid and legally binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as may be limited by (a) applicable bankruptcy,
insolvency, reorganization or others laws of general application relating to or
affecting the enforcement of creditors' rights generally, (b) the effect of
rules of law governing the availability of equitable remedies and (c)
applicable law affecting the indemnification provisions of the Investors
Agreement.
3.5 Valid Issuance of Stock.
(a) The Purchased Shares, when issued, sold and
delivered in accordance with the terms of this Agreement for the
consideration provided for herein, will be duly and validly issued,
fully paid and nonassessable. The Warrant Shares have been duly and
validly reserved for issuance and, upon issuance, sale and delivery in
accordance with the terms of the Warrants for the consideration
provided for therein, will be duly and validly issued, fully paid and
nonassessable.
(b) Based in part on the representations made by
the Investor in Section 4 hereof, the Purchased Shares, the Warrants
and (assuming no change in applicable law and no unlawful distribution
of Purchased Shares or the Warrants by the Investor or other parties)
the Warrant Shares will be issued in full compliance with the
registration and prospectus delivery requirements of the Securities
Act, or in compliance with applicable exemptions therefrom, and the
registration and qualification requirements of all applicable
securities laws of the states of the United States (provided that,
with respect to the Warrant Shares, no commission or other
remuneration is paid or given, directly or indirectly, for soliciting
the issuance of the Warrant Shares upon the exercise of the Warrants).
3.6 Governmental Consents. No consent, approval, order
or authorization of, or registration, qualification, designation, declaration
or filing with, any federal, state or local governmental authority on the part
of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement, except for the listing of the
Purchased Shares and the Warrant Shares with Nasdaq, the filing of such
qualifications or filings under the Securities Act and the regulations
thereunder and all applicable state securities laws as may be required in
connection with the transactions contemplated by this Agreement. All such
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qualifications and filings will, in the case of qualifications, be effective on
the Closing and will, in the case of filings, be made within the time
prescribed by law.
3.7 Non-Contravention. The execution, delivery and
performance of this Agreement, the Investor Agreement, the License Agreement
and the Warrants by the Company, and the consummation by the Company of the
transactions contemplated hereby and thereby, do not and will not (a)
contravene or conflict with the Certificate of Incorporation or Bylaws of the
Company; (b) constitute a material violation of any provision of any federal,
state, local or foreign law binding upon or applicable to the Company; or (c)
constitute a default under, give rise to any right of termination, cancellation
or acceleration of, or to a loss of any material benefit to which the Company
is entitled under, or result in the creation or imposition of any lien, claim
or encumbrance on any material assets of the Company under any material
contract to which the Company is a party or any material permit, license or
similar right relating to the Company or by which the Company may be bound or
materially affected.
3.8 Litigation. There is no action, suit, proceeding,
claim, arbitration or investigation pending or threatened that seeks to
prevent, enjoin, alter or delay the transactions contemplated by this
Agreement, the Investor Agreement, the License Agreement or the Warrants.
3.9 Compliance with Law and Charter Documents. The
Company is not in violation or default of any provisions of its Certificate of
Incorporation or Bylaws, both as amended, and except for any violations that
would not, either individually or in the aggregate, have a Material Adverse
Effect, (a) the Company has complied and is in compliance with all applicable
statutes, laws, regulations and executive orders of the United States of
America and all states, foreign countries or other governmental bodies and
agencies having jurisdiction over the Company's business or properties, (b) no
default exists under any contract or agreement to which the Company is a
party.
3.10 Title to Property and Assets. The properties and
assets the Company owns are owned by the Company free and clear of all
mortgages, deeds of trust, liens, encumbrances and security interests except
for statutory liens for the payment of current taxes that are not yet
delinquent and liens, encumbrances and security interests which arise in the
ordinary course of business and which do not affect material properties and
assets of the Company. With respect to the property and assets it leases, the
Company is in compliance with such leases in all material respects.
3.11 Intellectual Property. The Company and its
Subsidiaries own or otherwise have the right to use all patents, licenses,
trademarks, trade names, trade secrets, service marks, copyrights and all
rights with respect thereto which are material to the conduct of the Company's
business (the "Intellectual Property"). To the best of the Company's
knowledge, no third party has any ownership right in, title to, or lien on any
Intellectual Property belonging to the Company. The Company represents and
warrants that it will use reasonable business efforts to seek appropriate legal
protection of the Company's ownership of and rights in the Intellectual
Property.
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3.12 SEC Documents.
(a) The Company has furnished to the Investor
prior to the date hereof copies of its 1995 Form 10-K filed with the
Securities and Exchange Commission on June 17, 1996, and all
registration statements, reports and proxy statements filed by the
Company with the Commission on or after January 1, 1995, (such Form
10-K, and such other registration statements, reports and proxy
statements, are collectively referred to herein as the "SEC
Documents"). Each of the SEC Documents, as of the respective date
thereof, does not, and each of the registration statements, reports
and proxy statements filed by the Company with the Commission after
the date hereof and prior to the Closing will not, as of the date
thereof, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. The Company is not a party to any material contract,
agreement or other arrangement required to be filed as an exhibit to
the SEC Documents that is not so filed.
(b) The Company has provided the Investor with
its audited financial statements (the "Audited Financial Statements")
for the fiscal year ended December 31, 1995 and its unaudited
financial statements (the "Unaudited Financial Statements") for the
nine months ended September 30, 1996 (the "Balance Sheet Date").
Since December 31, 1995, the Company has duly filed with the
Commission all registration statements, reports and proxy statements
required to be filed by it under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the Securities Act of 1933 (the
"Securities Act"). The audited and unaudited consolidated financial
statements of the Company included in the SEC Documents filed prior to
the date hereof fairly present, in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis the
consolidated financial position of the Company and its consolidated
subsidiaries as at the date thereof and the consolidated results of
their operations and cash flows for the periods then ended, provided,
however, that the unaudited financial statements are subject to normal
year end audit adjustments and may not include all footnote
disclosures required under GAAP and may be condensed or summary
statements.
(c) Except as and to the extent reflected or
reserved against in the Company's Audited Financial Statements
(including the notes thereto) or the Unaudited Financial Statements,
to the best knowledge of the Company, the Company has no material
liabilities (whether accrued or unaccrued, liquidated or unliquidated,
secured or unsecured, joint or several, due or to become due, vested
or unvested, executory, determined or determinable) other than: (i)
liabilities incurred in the ordinary course of business since the
Balance Sheet Date that are consistent with the Company's past
practices, (ii) liabilities with respect to agreements to which the
Investor is a party, and (iii) other liabilities that either
individually or in the aggregate would not result in a Material
Adverse Effect.
3.13 Absence of Certain Changes Since Balance Sheet Date.
Since the Balance Sheet Date, the business and operations of the Company have
been conducted in the ordinary course consistent with past practice, and there
has not been:
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(a) any declaration setting aside or payment of
any dividend or other distribution of the assets of the Company with
respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any
subsidiary of the Company of any outstanding shares of the Company's
capital stock;
(b) any damage, destruction or loss, whether or
not covered by insurance, except for such occurrences that have not
resulted, and are not expected to result, in a Material Adverse
Effect;
(c) any waiver by the Company of a valuable right
or of a material debt owed to it, except for such waivers that have
not resulted, and are not expected to result, in a Material Adverse
Effect;
(d) any material change or amendment to, or any
waiver of any material rights under, a material contract or
arrangement by which the Company or any of its assets or properties is
bound or subject, except for changes, amendments or waivers which are
expressly provided for or disclosed in this Agreement or that have not
resulted, and are not expected to result, in a Material Adverse
Effect;
(e) any change by the Company in its accounting
principles, methods or practices or in the manner it keeps its
accounting books and records, except any such change required by a
change in GAAP; and
(f) to the Company's knowledge, any other event
or condition of any character, except for such events and conditions
that have not resulted, and are not expected to result, in a Material
Adverse Effect.
3.14 Full Disclosure. The information contained in this
Agreement and the Schedule of Exceptions with respect to the assets, results of
operations, and financial condition of the Company and the transactions
contemplated by this Agreement, the Investor Agreement and the Warrants are
true and complete in all material respects and do not omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4. Representations, Warranties and Certain Agreements of the
Investor. The Investor hereby represents and warrants to the Company, and
agrees that:
4.1 Authorization. All corporate action on the part of
the Investor, its officers, directors and shareholders necessary for the
authorization, execution, delivery of and the performance of all obligations of
the Company under, this Agreement, the License Agreement and the Investor
Agreement has been taken or will be taken prior to the Closing. This
Agreement constitutes and, when executed and delivered, the Investor Agreement
and the License Agreement will constitute, the Investor's valid and legally
binding obligations, enforceable in accordance with the terms except as may be
limited by (a) applicable bankruptcy, insolvency, reorganization or other laws
of general application relating to or affecting the enforcement of creditors'
rights generally and (b) the effect of rules of law governing the availability
of equitable remedies. The
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Investor has full corporate power and authority to enter into this Agreement,
the License Agreement and the Investor Agreement.
4.2 Purchase for Own Account. The Purchased Shares and
the Warrants to be acquired by the Investor hereunder will be acquired for
investment for the Investor's own account, not as a nominee or agent, and not
with a view to the public resale or distribution thereof within the meaning of
the Securities Act, and the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. The
Investor also represents that it has not been formed for the specific purpose
of acquiring the Purchased Shares and the Warrants.
4.3 Disclosure of Information. The Investor has received or
has had full access to all the information it considers necessary or
appropriate to make an informed investment decision with respect to the
Purchased Shares and the Warrants to be purchased by the Investor under this
Agreement. The Investor further has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Purchased Shares, the Warrants and the Warrant Shares and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify any information furnished to the Investor or to which the
Investor had access. The foregoing, however, does not in any way limit or
modify the representations and warranties made by the Company in Section 3.
4.4 Investment Experience. The Investor understands that
the acquisition of the Purchased Shares and the Warrants involves substantial
risk. The Investor has experience as an investor in securities of companies
and acknowledges that it is able to fend for itself, can bear the economic risk
of its investment in the Purchased Shares and the Warrants and has such
knowledge and experience in financial or business matters that it is capable of
evaluating the merits and risks of this investment in the Purchased Shares and
the Warrants and protecting its own interests in connection with this
investment.
4.5 Accredited Investor Status. The Investor is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act.
4.6 Restricted Securities. The Investor understands that
the Purchased Shares and the Warrants to be purchased by the Investor
hereunder, and any Warrant Shares to be purchased by the Investor upon exercise
of the Warrants, are characterized as "restricted securities" under the
Securities Act inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under the Securities Act
and applicable regulations thereunder such securities may be resold without
registration under the Securities Act only in certain limited circumstances.
The Investor is familiar with Rule 144 of the SEC, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
The Investor understands that the Company is under no obligation to register
any of the securities sold hereunder except as provided in the Investor
Agreement.
4.7 Further Limitations on Disposition. Without in any
way limiting the representations set forth above, the Investor further agrees
not to make any disposition of all or
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<PAGE> 8
any portion of the Purchased Shares, the Warrants or the Warrant Shares at any
time prior to February 25, 1997, and unless and until:
(a) there is then in effect a registration
statement under the Securities Act covering such proposed disposition
and such disposition is made in accordance with such registration
statement; or
(b) the Investor has notified the Company of the
proposed disposition and has furnished the Company with a statement of
the circumstances surrounding the proposed disposition, and the
Investor has furnished the Company, at the expense of the Investor or
its transferee, with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of
such securities under the Securities Act.
Notwithstanding the provisions of paragraphs (a) and (b) of this Section 4.7,
no such registration statement or opinion of counsel will be required for any
transfer of any Purchased Shares, the Warrants or any Warrant Shares in
compliance with SEC Rule 144, Rule 144A or Rule 145(d), or any successor or
additional similar rule, or if such transfer otherwise is exempt, in the view
of the Company's legal counsel, from the registration requirements of the
Securities Act, provided that, in the case of any transfer that is otherwise
exempt, the transferee agrees in writing to be subject to the terms of this
Section 4 to the same extent as if the transferee were the original Investor
hereunder.
4.8 Legends. Certificates evidencing the Purchased
Shares and the Warrant Shares, when issued, will bear each of the legends set
forth below and the Warrants will bear the legends set forth in (a) and (b)
below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE
AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. TRANSFER IS FURTHER PROHIBITED UNTIL FEBRUARY
25,1997 PURSUANT TO THE PROVISIONS OF THE AGREEMENT UNDER WHICH THESE
SECURITIES WERE ISSUED. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(b) Any legends required by any applicable state
securities laws.
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The legend set forth in Section 4.8(a) hereof will be removed by the Company
from any certificate evidencing Purchased Shares or the Warrant Shares upon the
effectiveness of a registration statement under the Securities Act or upon
delivery to the Company of an opinion by counsel, reasonably satisfactory to
the Company, that such security may be freely transferred in a public sale
without such a registration statement being in effect and that such transfer
will not jeopardize the exemption or exemptions from registration pursuant to
which the Company issued the Purchased Shares, the Warrants or the Warrant
Shares.
5. Conditions to the Investor's Obligations at Closing. The
obligations of the Investor under Sections 1 and 2 of this Agreement are
subject to the fulfillment or waiver, on or before the Closing, of each of the
following conditions:
5.1 Representations and Warranties True. Each of the
representations and warranties of the Company contained in Section 3 will be
true and correct on and as of the Closing, except as set forth in the Schedule
of Exceptions, with the same effect as though such representations and
warranties had been made as of the Closing.
5.2 Performance. The Company will have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing and will have obtained all approvals, consents and qualifications
necessary to complete the purchase and sale described herein.
5.3 Compliance Certificate. The Company will have
delivered to the Investor at the Closing a certificate signed on its behalf by
its Chief Executive Officer or Chief Financial Officer certifying that the
conditions specified in Sections 5.1 and 5.2 hereof have been fulfilled.
5.4 Securities Exemptions. The offer and sale of the
Purchased Shares and the Warrants to the Investor pursuant to this Agreement
will be exempt from the registration requirements of the Securities Act and the
registration and/or qualification requirements of all applicable state
securities laws.
5.5 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto will be reasonably satisfactory in form and
substance to the Investor and to the Investor's legal counsel and the Investor
will have received all such counterpart originals and certified or other copies
of such documents as it may reasonably request. Such documents shall include
(but not be limited to) the following:
(a) Certified Organizational Documents. A copy
of (i) the Certificate of Incorporation certified as of a recent date
by the Secretary of State of Delaware as a complete and correct copy
thereof, and (ii) the Bylaws of the Company (as amended through the
date of the Closing) certified by the Secretary of the Company as true
and correct copies thereof as of the Closing.
(b) Board Resolutions. A copy, certified by the
Secretary of the Company, of the resolutions of the Board of
Directors of the Company providing for the
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<PAGE> 10
approval of this Agreement, the License Agreement and the Investor
Agreement and the issuance of the Purchased Shares of the Warrants and
the Warrant Shares and the other matters contemplated hereby.
5.6 Opinion of Company Counsel. The Investor will have
received an opinion of Company counsel, dated as of the date of the Closing,
substantially in the form attached hereto as Exhibit B.
5.7 Warrants. The Company will have issued the Warrants
to the Investor.
5.8 Investor Agreement. The Company will have executed
and delivered a counterpart of an Investor Agreement between the Investor and
the Company substantially in the form attached to this Agreement as Exhibit C
(the "Investor Agreement").
5.9 License Agreement. The Company will have executed
and delivered a counterpart of a Resale and Manufacturing License Agreement
between the Investor and the Company substantially in the form attached to this
Agreement as Exhibit D (the "License Agreement").
5.10 No Material Adverse Effect. Between the date hereof
and the Closing, there shall not have occurred any Material Adverse Effect.
6. Conditions to the Company's Obligation at Closing. The
obligations of the Company to the Investor under this Agreement are subject to
the fulfillment or waiver on or before the Closing, of each of the following
conditions:
6.1 Representations and Warranties True. The
representations and warranties of the Investor contained in Section 4 will be
true and correct on the date of the Closing with the same effect as though such
representations and warranties had been made as of the Closing.
6.2 Payment of Purchase Price. The Investor will have
delivered to the Company the full purchase price of the Purchased Shares as
specified in Section 1.1 in accordance with the provisions of Section 2.
6.3 Securities Exemptions. The offer and sale of the
Purchased Shares and the Warrants to the Investor pursuant to this Agreement
will be exempt from the registration requirements of the Securities Act and the
registration and/or qualification requirements of all applicable state
securities laws.
6.4 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto will be reasonably satisfactory in form and
substance to the Company and to the Company's legal counsel and the Company
will have received all Such counterpart originals and certified or other copies
of such documents as it may reasonably request.
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<PAGE> 11
6.5 Investor Agreement. The Investor will have executed
and delivered to the Company a counterpart of the Investor Agreement.
6.6 License Agreement. The Investor will have executed
and delivered to the Company a counterpart of the License Agreement.
7. Miscellaneous.
7.1 Successors and Assigns. This Agreement may not be
assigned by either party, nor may either party delegate its duties hereunder,
without the prior written consent of the other party hereto. Subject to the
foregoing, the terms and conditions of this Agreement will inure to the benefit
of and be binding upon the respective successors and assigns of the parties.
7.2 Governing Law. This Agreement will be governed by
and construed under the internal laws of the State of Delaware as applied to
agreements among Delaware residents entered into and to be performed entirely
within Delaware, without reference to principles of conflict of laws or choice
of laws.
7.3 Counterparts. This Agreement may be executed in two
or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
7.4 Headings. The headings and captions used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. All references in this Agreement to
sections, paragraphs, exhibits and schedules will, unless otherwise provided,
refer to sections and paragraphs hereof and exhibits and schedules attached
hereto, all of which exhibits and schedules are incorporated herein by this
reference.
7.5 Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given (a) upon personal
delivery to the party notified, (b) three days after deposit with the United
States Post Office, by registered or certified mail, postage prepaid, return
receipt requested, (e) one day after deposit with a nationally recognized air
courier service such as DHL or Federal Express for next day delivery, or (d) on
the day of facsimile transmission, with confirmed transmission, to the
facsimile number shown below (or to such other facsimile number as the party to
be notified may indicate by ten (10) days' advance written notice to the other
party in the manner herein provided), provided that notice is also given under
clauses (a), (b) or (c) above; in any such case addressed to the party to be
notified at the address indicated below for that party, or at such other
address as that party may indicate by ten (10) days' advance written notice to
the other party in the manner herein provided.
If to the Investor: Intel Corporation
2200 Mission College Boulevard
Santa Clara, CA 95052-8114
Facsimile: (408) 765-7636
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<PAGE> 12
If to the Company: MRV Communications, Inc.
8943 Fullbright Avenue
Chatsworth, CA 91311
Facsimile: (818) 407-5656
7.6 No Finder's Fees. Each party represents that it
neither is nor will be obligated for any finder's or broker's fee or commission
in connection with this transaction. The Investor will indemnify and hold
harmless the Company from any liability for any commission or compensation in
the nature of a finders' or broker's fee for which the Investor or any of its
officers, partners, employees or consultants, or representatives is responsible.
The Company will indemnify and hold harmless the Investor from any liability for
any commission or compensation in the nature of a finder's or broker's fee for
which the Company or any of its officers, employees or consultants or
representatives is responsible.
7.7 Amendments and Waivers. This Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of Purchased Shares
and/or Warrant Shares representing at least a majority of the total aggregate
number of Purchased Shares and Warrant Shares then outstanding (excluding any of
such shares that have been sold to the public or pursuant to SEC Rule 144). Any
amendment or waiver effected in accordance with this Section 7.7 will be binding
upon the Investor, the Company and their respective successors and assigns.
7.8 Severability. If any provision of this Agreement is
held to be unenforceable under applicable law, such provision will be excluded
from this Agreement and the balance of the Agreement will be interpreted as if
such provision were so excluded and will be enforceable in accordance with its
terms.
7.9 Entire Agreement. This Agreement, together with all
Exhibits and schedules hereto, constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings, duties or obligations between the parties with respect to the
subject matter hereof.
7.10 Further Assurances. From and after the date of this
Agreement, upon the request of the Investor or the Company, the Company and the
Investor will execute and deliver such instruments, documents or other writings
as may be reasonably necessary or desirable to confirm and carry out and to
effectuate fully the intent and purposes of this Agreement.
7.11 Fees, Costs and Expenses. All fees, costs and
expenses (including, without limitation, attorneys' fees and expenses) incurred
by either party hereto in connection with the preparation, negotiation and
execution of this Agreement, the Investor Agreement and the Warrants, and the
consummation of the transactions contemplated hereby and thereby, shall be the
sole and exclusive responsibility of such party.
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7.12 Confidentiality, Press Releases. The Company shall
not use the Investor's name or refer to the Investor directly or indirectly in
connection with the Investor's relationship with the Company in any
advertisement, news release or professional or trade publication, or in any
other manner, unless otherwise required by law or with the Investor's prior
written consent. The parties acknowledge that the Company may be required to
disclose in a press release and/or a registration statement certain information
relating to the transactions contemplated by this Agreement following
consummation hereof. Notwithstanding the foregoing, the provisions of this
Section 7.12 shall apply to any such disclosure and the Company shall provide
the Investor a reasonably adequate opportunity to review and comment on such
disclosure and shall not make any such disclosure without the Investor's prior
written consent. The parties agree that at no time will there be any press
release or other public statement issued by either party relating to this
Agreement or the transactions contemplated hereby unless agreed to in advance by
both parties in writing.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MRV COMMUNICATIONS, INC. INTEL CORPORATION
By: [SIG] By:
-------------------------- --------------------------------
Name: [SIG] Name:
------------------------ ------------------------------
Title: President & CEO Title:
----------------------- ----------------------------
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
By: By: /s/ DIANE R. LABRADOR
-------------------------- --------------------------------
Name: Name: Diane R. Labrador
------------------------ ------------------------------
Title: Title: Assistant Treasurer
----------------------- ----------------------------
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EXHIBIT 10.28
MRV COMMUNICATIONS, INC.
INTEL CORPORATION
------------------------
INVESTOR AGREEMENT
THIS INVESTOR AGREEMENT (this "Agreement") is made and entered into as
of November 26, 1996, by and among MRV COMMUNICATIONS, INC. a Delaware
corporation (the "Company"), and INTEL CORPORATION, a Delaware corporation (the
"Investor").
RECITALS:
A. Contemporaneously with the execution and delivery hereof, the
Investor is purchasing from the Company, and the Company is selling to the
Investor, two hundred thousand (200,000) shares of the Company's Common Stock
(as defined in Section 1 below) pursuant to the Common Stock Purchase Agreement
(as defined in Section 1 below), and the Company is at the same time issuing
the Warrants (as defined in Section 1 below) to the Investor.
B. In connection with the Investor's acquisition of Common Stock
and the Warrants, the Investor and the Company are entering into this Investor
Agreement to provide for certain rights and obligations with respect thereto.
SECTION 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Affiliate" shall have the meaning specified in Rule
12b-2 under the Exchange Act, as such rule is currently in effect.
(b) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(c) "Common Stock" shall mean the Common Stock, par value
$.0034 per share, of the Company.
(d) "Common Stock Purchase Agreement" shall mean that
certain Common Stock Purchase Agreement dated as of November 26, 1996 by and
between the Company and the Investor.
<PAGE> 2
(e) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(f) "Holder" shall mean the Investor, so long as the Investor
holds Registrable Securities, and any holder of Registrable Securities to whom
the registration rights conferred by this Agreement have been transferred in
compliance with Section 3 hereof.
(g) "Other Shareholders" shall mean persons other than Holders
who, by virtue of agreements with the Company, are entitled to include their
securities in certain registrations.
(h) "Registrable Securities" shall mean (i) shares of Common Stock
purchased by the Investor from the Company pursuant to the Common Stock
Purchase Agreement, (ii) any shares of Common Stock issued or then issuable
upon complete or partial exercise of the Warrants, and (iii) any shares of
Common Stock issued as a dividend or other distribution with respect to or in
exchange for or in replacement of the shares referenced in (i) and (ii) above,
provided, however, that Registrable Securities shall not include any shares of
Common Stock which have previously been registered or which have been sold to
the public.
(i) The terms "register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
(j) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and expenses of any regular or special audits incident to or
required by any such registration, but shall not include Selling Expenses and
fees and disbursements of counsel for the Holders (but excluding the
compensation of regular employees of the company, which shall be paid in any
event by the Company).
(k) "Rule 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(l) "Rule 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(m) "Rule 415" shall mean Rule 415 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
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<PAGE> 3
(o) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and fees
and disbursements of counsel for the Holder (other than the fees and
disbursements of counsel included in Registration Expenses).
(p) "Subsidiary" of any party shall mean any corporation
partnership, joint venture, association or other business entity of which such
party now or hereafter owns, directly or indirectly, securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other governing body thereof.
(q) "Voting Securities" shall mean any securities of the Company
(unless the context specifically contemplates another issuer) having the
ordinary power to vote, in the absence of contingencies, in the election of
directors of the Company and any securities convertible, exchangeable or
exercisable for such securities (whether or not presently so convertible,
exchangeable or exercisable).
(r) "Warrants" shall mean the Warrants (as defined in the Common
Stock Purchase Agreement) dated the date hereof issued by the Company to the
Investor.
SECTION 2
REGISTRATION RIGHTS
2.1 Demand Registration.
(a) Demand for Registration. If the Company shall
receive from the Holders of at least 50% of the Registrable Securities at any
time (the "Demand Date") not earlier than December 31, 1996 a written request
that the Company effect any registration with respect to all or a part of the
Registrable Securities then, if the Commission has not prior to the Demand Date
declared effective a shelf registration statement pursuant to Rule 415 with
respect to all of the Registrable Securities (a "Shelf Registration Statement")
which is effective as of the Demand Date, the Company will, as soon as
practicable, use its best efforts to effect such registration (including,
without limitation, filing post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
appropriate compliance with the Securities Act) and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request. The Company shall not be
obligated to effect, or to take any action to effect, any such registration
pursuant to this Section 2.1(a):
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to
service of process in effecting such registration,
qualification, or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be
required by the Securities Act;
(B) Subject to the proviso in clause (A)(y) of
Section 2.3 hereof, after the Holder has initiated one such
registration pursuant to this Section 2.1(a);
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<PAGE> 4
(C) During the period starting with the date
sixty (60) days prior to the Company's good faith estimate of
the date of filing of, and ending on a date one hundred eighty
(180) days after the effective date of, a Company-initiated
registration; provided that the Company is actively employing
in good faith all reasonable efforts to cause such
registration statement to become effective;
(D) If the Holders do not request that such
offering be firmly underwritten by one or more underwriters
selected by the Holder (subject to the consent of the Company,
which consent will not be unreasonably withheld);
(E) If the Company and the Holder are unable to
obtain the commitment of the underwriter described in clause
(D) above to firmly underwrite the offer; or
(F) If (1) the Demand Date is prior to March 31,
1997, and (2) on or prior to December 10, 1996, the Company
has filed with the Commission a Shelf Registration Statement
on Form S-3 covering the Registrable Securities which is being
diligently pursued by the Company with the Commission as of
the Demand Date.
(b) Deferral. Subject to the foregoing clauses (i)
through (vi) of subsection 2.1(a) above, the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders; provided, however, that if (i) in the good faith judgment of the
Board of Directors of the Company, such registration would be seriously
detrimental to the Company and the Board of Directors of the Company concludes,
as a result, that it is essential to defer the filing of such registration
statement at such time, and (ii) the Company shall furnish to the Holder a
certificate signed by the President of the Company stating that in the good
faith judgment of the board of Directors of the Company, it would be seriously
detrimental to the Company for such registration statement to be filed in the
near future and that it is, therefore, essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing for the period during which such disclosure would be seriously
detrimental, provided that (except, as provided in clause (iii) of subsection
2.1(a) above) the Company may not defer the filing for a period of more than
one hundred eighty (180) days after receipt of the request of the Holder, and,
provided further, that the Company shall not defer its obligation in this
manner more than once in any twelve-month period. The registration statement
filed pursuant to the request of the Holder may, subject to the provisions of
Section 2.3 hereof, include other securities of the Company.
(c) Procedures and Cutbacks. If the Company shall
request inclusion of other securities in any registration or underwriting
pursuant to Section 2.1(a), such securities shall be included in such
registration and underwriting, subject to the terms and conditions hereof. In
such event the Company shall (together with the Holder and other persons
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the
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<PAGE> 5
Holder, which underwriter or underwriters are reasonably acceptable to the
Company. If a person who has requested inclusion in such registration as
provided above does not agree to the terms of any such underwriting agreement,
such person shall be excluded therefrom by written notice from the Company, the
underwriter or the Holders. The securities so excluded shall also be withdrawn
from registration. Notwithstanding any other provision of this Section 2. 1,
if the representative of the underwriters advises the Holder in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 2.3 hereof.
2.2 Piggyback Registration. If the Company shall propose, at any
time to register any of its securities under the Securities Act for sale for
cash for its own account or for the account of investors exercising their
respective registration rights (otherwise than in connection with the
registration of securities issuable pursuant to an employee stock option, stock
purchase or similar plan or pursuant to a merger, exchange offer or a
transaction of the type specified in Rule 145(a) under the Securities Act), or
a registration is requested by other holders of securities issued by the
Company exercising their respective registration rights, the Company shall give
the Holder notice of such proposed registration at least 20 days prior to, the
filing of a registration statement. At the written request of the Holder
delivered to the Company within 15 days after the receipt of the notice from
the Company, which request shall state the number of Registrable Securities
that the Holder wishes to sell or distribute publicly under the registration
statement proposed to be filed by the Company, the Company shall use its best
efforts, subject to Section 2.3 hereof, to register under the Securities Act
such Registrable Securities (the "Piggyback Registration"). The Company shall
not be obligated to so use its best efforts more than two (2) times.
(b) Procedures and Cutbacks. If a Piggyback Registration
is to be an underwritten offering, the Company shall so advise the Holders as a
part of the written notice given pursuant to Section 2.2(a). In such event, the
right of the Holder to registration pursuant to Section 2.2(a) shall be
conditioned upon the Holder's participation in such underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided herein. If the Holder intends to distribute its securities
through such underwriting, the Holder shall (together with the Company and the
other holders of securities of the Company with registration rights to
participate therein distributing their securities though such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the Company. Notwithstanding
any other provision of this Section 2.1, if the representative of the
underwriters advises the Holder in writing that marketing factors require a
limitation on the number of shares to be underwritten, the number of shares to
be included in the underwriting or registration shall be allocated as set forth
in Section 2.3 hereof
2.3 Allocation of Registration Opportunities.
(a) If a registration is to be an underwritten registration and
the managing underwriters thereof advise the Company in writing that in their
opinion the number of securities requested to be included in the registration
(including all shares desired to be included by the Company or by any other
party holding demand or piggyback registration rights) exceeds the number which
can be sold in the offering, then:
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<PAGE> 6
(1) if the registration is initiated by the Holder under
Section 2.1(a) hereof, then the Company shall include in the
registration (x) first, any securities the Company proposes to sell;
and (y) second, the Registrable Securities the Holder proposes to sell,
together as one group with any securities proposed to be sold by any
other party then having piggyback registration rights but not any
demand registration rights, pro rata according to the total number of
Voting Securities owned by each such party (provided, however, that if
as a result of the Company's registration of any securities the Company
proposes to sell, the Holder is unable to register all of the
Registrable Securities the Holder, proposes to sell pursuant to the
notice by which such registration was initiated, then the Holder shall
have the right to initiate an additional registration under Section
2.1(a) hereof); and (z) third, the shares proposed to be sold by any
other party having piggyback registration rights, together as one group
pro rata according to the total Voting Securities owned by each; or
(2) if the registration is initiated by the Company, then
the Company shall include in the registration (y) first, the
securities the Company proposes to sell and (z) second, the shares
proposed to be sold by the Holder and any other party having piggyback
registration rights, together as one group pro rata according to the
total Voting Securities owned by each; or
(3) if the registration is initiated by a party other
than the Holder or the Company, then the Company shall include in the
registration (x) first, any securities the Company proposes to sell,
and (y) second, the shares proposed to be sold by the party exercising
its demand registration right, together as one group with any shares
proposed to be sold by any party then having piggyback registration
rights but not any demand registration rights, pro rata according to
the total number of Voting Securities owned by each such party, and
(z) third, any shares proposed to be sold by the Holder and any other
party having registration rights, pro rata according to the total
number of Voting Securities owned by each such party.
(b) For purposes of this Section 2.3, any executive officer of
the Company who owns any capital stock of the Company as of the date hereof
shall be deemed to have piggyback registration rights but no demand
registration rights.
(c) Notwithstanding any other provision of this Section 2.3, if
any underwritten registration to which Sections 2.2 and 2.3 apply is being made
prior to June 1, 1997 (and such registration is not initiated by the Holder
under Section 2.1(a)), then the Holder agrees that the securities it proposes
to sell in such registration shall be cut back (if required by the managing
underwriters) prior to any cutback of the securities proposed to be sold in
such registration by the executive officers of the Company.
(d) Registrable Securities not included in a registration pursuant
to the foregoing provisions of this Section 2.3 shall be withdrawn therefrom,
and the Company shall have no obligation to register such Registrable
Securities.
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<PAGE> 7
2.4 Expenses of Registration. All Registration expenses incurred
in connection with any registration, qualification or compliance pursuant to
Sections 2.1, 2.2 and 2.5 hereof, and the reasonable fees of one counsel for
the selling shareholders in the case of a registration pursuant to Section 2.1
shall be borne by the Company.
2.5 Shelf Registration. The Company shall use its best efforts to
qualify for registration on Form S-3 or any comparable or successor form or
forms. Promptly after the Company has qualified for the use of Form S-3, but in
no event to be later than December 31, 1996, the Company shall use its best
efforts to file with the Commission and make and keep effective until all
Registrable Securities have been sold by the Holder a shelf registration
statement pursuant to Rule 415 with respect to all of the Registrable
Securities. Unless otherwise requested in writing by the Holder, the Company
shall include the Registrable Securities in the first registration statement on
Form S-3 filed by the Company with the Commission following the date hereof. If
and to the extent any shares of Common Stock become Registrable Securities upon
the vesting of the Warrants, the Company shall use its best efforts to include
such shares of Common Stock in a shelf registration statement within sixty (60)
days after such shares become Registrable Securities.
2.6 Registration Procedures. In the case of a registration
effected by the Company pursuant to Section 2.1, 2.2 or 2.5, the Company will
keep the Holder advised in writing as, to the initiation of the registration
and as to the completion thereof. At its expense, the Company will use its best
efforts to:
(a) Keep such registration effective for a period of one
hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs; provided, however, that (i) such 120-day period shall
be extended for a period of time equal to the period the Holder refrains from,
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 145 or any
successor rule under the Securities Act, permits an offering on a continuous or
delayed basis, and provided further that applicable rules under the Securities
Act governing the obligation to file a post effective amendment permit, in lieu
of filing a post-effective amendment that (I) includes any prospectus required
by Section 10(a)(3) of the Securities Act or (II) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of, information
required to be included in (I) and (II) above to be contained in periodic
sports filed pursuant to Section 13 or 15(d) of the Exchange Act in the
registration statement;
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement 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;
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<PAGE> 8
(c) Furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as the Holder from time to time may reasonably request;
(d) Notify the Holder at any time when a prospectus
relating to Registrable Securities being sold is required to be delivered under
the Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or incomplete in the light of the circumstances then existing, and
at the request of the Holder, prepare and furnish to the Holder a reasonable
number of copies of a supplement to or an amendment of such prospectus as may
be necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or incomplete in the light of the
circumstances then existing;
(e) Cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange one which similar
securities issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such registration statement and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration; and
(g) In connection with any underwritten offering pursuant
to a registration statement filed pursuant to Section 2.1 or 2.2 hereof, the
Company will enter into an underwriting agreement reasonably necessary to
effect the offer and sale of Common Stock, provided such underwriting agreement
contains customary underwriting provisions and provided further that if the
underwriter so requests the underwriting agreement will contain customary
contribution provisions.
2.7 Indemnification.
(a) The Company will indemnify the Holder, each of its
officers, directors and partners, legal counsel, and accountants and each
person controlling the Holder within the within the meaning of Section 15 of
the Securities Act, with respect to which registration, qualification, or
compliance has been effected pursuant to this Section 2, and each underwriter,
if any, and each person who controls within the meaning of Section 15 of the
Securities Act any underwriter, against all expenses, claims, losses, damages,
and liabilities (or actions, proceedings, or settlements in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any prospectus, offering circular, or other
document including any related registration statement, notification, or the
like) incident to any such registration, qualification, or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act, the
Securities Exchange Act of 1934 or any rule or regulation thereunder applicable
to the Company and relating to action
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<PAGE> 9
or inaction required of the Company in connection with any such registration,
qualification, or compliance, and will reimburse the Holder, each of its
officers, directors, partners, legal counsel, and accountants and each person
controlling the Holder, each such underwriter, and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability, or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by the Holder or underwriter
and stated to be specifically for use therein, It is agreed that the indemnity
agreement contained in this Section 2.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent has
not been unreasonably withheld).
(b) The Holder will, if, Registrable Securities are
included in the securities as to which such registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each Other Shareholder, and each of their
officers, directors, and partners, and each person controlling such Other
Shareholder, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular, or other document, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and such other Shareholders, directors, officers,
partners, legal counsel, and accountants, persons, underwriters, or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability, or
action, in each case to the extent, but only to the extent, that such-untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular, or other
document in reliance upon and in conformity with written information furnished
to the Company by the Holder and stated to be specifically for use therein;
provided, however, that the obligations of the Holder hereunder shall not apply
to amounts paid in settlement of any such claims, losses,.damages, or
liabilities (or actions in respect thereof) if such settlement is effected
without the consent of the Holder (which consent shall not be unreasonably
withheld).
(c) Each party entitled to indemnification under this
Section 2.7 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
2.7, to the extent such failure is not
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<PAGE> 10
prejudicial. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by the claimant, or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
(d) If the Indemnification provided for in this Section
2.7 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the Party
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the Indemnifying Party or by the
Indemnified Party and the parties relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control as among the parties to the underwriting agreement.
2.8 Information by Holder. The Holder shall furnish to the
Company such information regarding the Holder and the distribution proposed by
the Holder as the Company may reasonably request in writing and as shall be,
reasonably required in connection with any registration, qualification, or
compliance referred to in this Section 2.
2.9 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission that may permit the
sale of the Restricted Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information regarding the
Company available as those terms are understood and defined in Rule 144 under
the Securities Act, at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act filed by the
Company for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act at any time after it has become subject to such reporting
requirements;
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<PAGE> 11
(c) So long as the Holder owns any Restricted Securities,
the Holder upon written request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an off erring of its securities to the
general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as the Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing the Holder to sell any such
securities without registration.
2.10 Delay of Registration, The Holder shall not have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation
or implementation of this Section 2.
2.11 Expiration of Rights. All rights of the Investor under this
Section 2 shall expire on the earlier of (a) the tenth anniversary of the date
hereof or (b) when all of the Registrable Securities held by the Holder could
be sold under Rule 144 within a three-month period.
SECTION 3
TRANSFER OF SHARES
If prior to the expiration of the period provided in Section 2 hereof,
the Holder transfers shares of Common Stock to a Subsidiary as provided
therein, the Holder may transfer or assign to such subsidiary the rights to
cause the Company to register Registrable Securities under Section 2 hereof,
provided that the Company is given written notice at the time of or within a
reasonable time after such transfer or assignment, stating the name and address
of the transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned, and,
provided further, that the transferee or assignee of such rights assumes all of
the obligations of the Holder under this Agreement and no such assignment or
transfer shall operate to release the Holder from any of its obligations or
liabilities hereunder, If, at any time, the Holder sells or otherwise transfers
the Warrants, or if, after the expiration of the Period provided in Section 2
hereof, the Holder sells or otherwise transfers shares of Common Stock, then,
in connection therewith, the Holder may also transfer or assign the rights to
cause the Company to register securities under Section 2 hereof, provided that
the Company is given written notice at the time of, or within a reasonable time
after such transfer or assignment, stating the name and address of the
transferee or assignee and identifying the securities with respect to which
such registration rights are being transferred or assigned, and, provided
further, that the transferee or assignee of such rights assumes the obligations
of the Holder under this Agreement.
SECTION 4
MISCELLANEOUS
4.1 Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Delaware,
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4.2 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
4.3 Entire Agreement, Amendment, Waiver. This Agreement
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and the holders of all of the
Registrable Securities and any such amendment, waiver, discharge or termination
shall be binding on all such holders, but in no event shall the obligation of
any such holder hereunder be materially increased except upon the written
consent of such holder.
4.4 Notices, etc. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given (a) upon personal
delivery to the party notified, (b) three days after deposit with the United
States Post Office, by registered or certified mail, postage prepaid, return
receipt requested, (c) one day after deposit with a nationally recognized air
courier service such as DHL or Federal Express for next day delivery, or (d) on
the day of facsimile transmission, with confirmed transmission, to the
facsimile number shown below (or to such other facsimile number as the party to
be notified may indicate by ten (10) days advance written notice to the other
party in the manner herein provided), provided that notice is also given under
clauses (a), (b) or (c) above, in any such case addressed to the party to be
notified at the address indicated below for that party, or at such other
address as that party may indicate by ten (10) days advance written notice to
the other party in the manner herein provided.
If to Investor: Intel Corporation
2200 Mission College Boulevard
Santa Clara, California 95052-8119
Facsimile: (408) 765-7636
If to the Company: MRV Communications, Inc.
8943 Fullbright Avenue
Chatsworth, CA 91311
Facsimile:. (818) 407-5656
4.5 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to the Holder, upon any breach or default of
the Company under this Agreement shall impair any such right, power or remedy
of the Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar 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 therefore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of the Holder of any breach or default under this Agreement or any
waiver on the part of the Holder of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to the Holder, shall be cumulative
and not alternative.
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4.6 Rights; Separability. Unless otherwise expressly provided
herein, the Holder's rights hereunder are several rights, not rights jointly
held with any of the other Holders. In case any provision of the Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining-provisions shall not in any way be affected or
impaired thereby.
4.7 Information Rights. The Company shall, so long as the
Investor holds shares of Common Stock purchased pursuant to the Common Stock
Purchase Agreement dated as of the date hereof by and between the Company and
the Investor, or the Warrants, or shares issued pursuant to the exercise of the
Warrants, furnish the Investor with a copy of all reports (including annual
reports on Form 10-K and quarterly reports on Form 10-Q) filed under the
Exchange Act or otherwise mailed to shareholders generally.
4.8 Information Confidential. The Holder and the Company each
acknowledge to the other that the Information received from the other party
pursuant hereto may be confidential and for the use of the recipient only.
Unless and until such information is made available to the public generally,
the recipient will not use such confidential 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
exercise of rights under this Agreement, disclosure of such information is
required by law or legal process, in which event the party required to disclose
such information shall notify the other party in advance of such disclosure and
shall cooperate to give the other party a reasonable opportunity to seek a
protective order or a designation of "confidential treatment" or other action
or designation whereby such information will not be disclosed to the public
generally.
4.9 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
4.10 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 instruments.
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IN WITNESS WHEREOF, the parties hereto have executed this Investor
Agreement effective as of the day and year first above written.
MRV COMMUNICATIONS, INC.
By:
----------------------------
Title:
-------------------------
INTEL CORPORATION
By: /s/ DIANE R. LABRADOR
----------------------------
Title: Assistant Treasurer
-------------------------
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IN WITNESS WHEREOF, the parties hereto have executed this Investor
Agreement effective as of the day and year first above written.
MRV COMMUNICATIONS, INC.
By:
----------------------------
Title:
-------------------------
INTEL CORPORATION
By:
----------------------------
Diane R. Labrador
Title: Assistant Treasurer
-------------------------
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<PAGE> 1
EXHIBIT 10.29
EXHIBIT A-1
No. W-_____________________ Warrant to Purchase 300,000
Shares of Common Stock
of MRV Communications, Inc.
WARRANT TO PURCHASE COMMON STOCK
OF
MRV COMMUNICATIONS, MC.
VOID AFTER NOVEMBER 26, 1999
This certifies that, for value received, INTEL CORPORATION, or
registered assigns (the "Holder") is entitled, subject to the terms set forth
below, to purchase from MRV COMMUNICATIONS, INC. (the "Company"), a Delaware
corporation, 300,000 shares of the Common Stock, par value $.0034 per share
("Common Stock") of the Company, as constituted on the date hereof (the
"Warrant Issue Date"), upon surrender hereof, at the principal office of the
Company referred to below, with the subscription form attached hereto duly
executed, and simultaneous payment therefor in lawful money of the United
States or otherwise as hereinafter provided, at the Exercise Price as set forth
in Section 2 below. The number, character and Exercise Price of such shares of
Common Stock are subject to adjustment as provided below. The term "Warrant"
as used herein shall include this Warrant, and any warrants delivered in
substitution or exchange therefor as provided herein.
1. Exerciseability of Warrant. Subject to the terms and
conditions set forth herein, this Warrant may be exercised, in whole or in part,
during the period commencing on February 25, 1997 and ending at 5:00 P.M.,
Pacific time, on November 26, 1999.
2. Exercise Price. The Exercise Price at which this Warrant may
be exercised shall be $20.00 per share of Common Stock, as adjusted from time
to time pursuant to Section 11 hereof
3. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are
exercisable by the Holder in whole or in part, at any time, or from time to
time, during the term hereof as described in Section I above, by the surrender
of this Warrant and the Notice of Exercise annexed hereto duly completed and
executed on behalf of the Holder, at the office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company),
upon payment in cash or by check of the purchase price of the shares to be
purchased.
(b) In lieu of exercising this Warrant pursuant to
Section 3(a) above, when permitted by law and applicable regulations (including
Nasdaq and NASD rules), the Holder may pay Exercise Price through a "same day
sale" commitment from the Holder (and if applicable a broker-dealer that is a
member of the National Association of Securities Dealers (a "NASD
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<PAGE> 2
Dealer")), whereby the Holder irrevocably elects to exercise this Warrant and to
sell a portion of the Shares so purchased to pay for the Exercise Price and the
Holder (or, if applicable, the NASD Dealer) commits upon sale (or, in the case
of the NASD Dealer, upon receipt) of such Shares to forward the exercise price
directly to the Company.
(c) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date.
As promptly as practicable on or after such date and in any event within ten
(10) days thereafter, the Company at its expense shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates
for the number of shares issuable upon such exercise. In the event that this
Warrant is exercised in part, the Company at its expense will execute and
deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise
be entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor and amount.
6. Rights of Stockholders. Subject to Sections 9 and 11 of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock for any purpose, nor shall anything contained
herein be construed to confer upon the Holder, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action or to receive notice of meetings,
or to receive dividends or subscription rights or otherwise until the Warrant
shall have been exercised as provided herein.
7. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change his
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the
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<PAGE> 3
Holder as shown on the Warrant Register as the absolute owner of this Warrant
for all purposes, notwithstanding any notice to the contrary.
(b) Warrant Agent. The Company may, by written notice to
the Holder, appoint an agent for the purpose of maintaining the Warrant
Register referred to in Section 7(a) above, issuing the Common Stock or other
securities then issuable upon the exercise of this Warrant, exchanging this
Warrant, replacing this Warrant, or any or all of the foregoing. Thereafter,
any such registration, issuance, exchange, or replacement, as the case may be,
shall be made at the office of such agent.
(c) Transferability and Non-negotiability of Warrant.
Neither this Warrant, nor any shares of Common Stock issuable upon exercise of
this Warrant, shall be transferable prior to February 25, 1997. This Warrant
may not be transferred or assigned in whole or in part without compliance with
all applicable federal and state securities laws by the transferor and the
transferee. Subject to compliance with such laws, title to this Warrant may be
transferred by endorsement (by the Holder executing the Assignment Form annexed
hereto) and delivery in the same manner as a negotiable instrument transferable
by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of
this Warrant for exchange, properly endorsed on the Assignment Form and subject
to the provisions of this Warrant with respect to compliance with applicable
securities laws and with the limitations on assignments and transfers and
contained in this Section 7, the Company at its expense shall issue to or on
the order of the Holder a new warrant or warrants of like tenor, in the name of
the Holder or as the Holder (on payment by the Holder of any applicable
transfer taxes) may direct, for the number of shares issuable upon exercise
hereof
(e) Compliance with Securities Laws. The Holder of this
Warrant, by acceptance hereof, agrees that the Holder will not offer, sell or
otherwise dispose of this Warrant or any shares of Common Stock to be issued
upon exercise hereof except under circumstances that will not result in a
violation of the federal or any state securities laws.
8. Reservation of Stock. The Company covenants that during the
term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and, from time to
time, will take all steps necessary to amend its Certificate of Incorporation
to provide sufficient reserves of shares of Common Stock issuable upon exercise
of the Warrant. The Company further covenants that all shares that may be
issued upon the exercise of rights represented by this Warrant, upon exercise
of the rights represented by this Warrant and payment of the Exercise Price,
all as set forth herein, will be free from all taxes, liens and charges in
respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously or otherwise specified herein). The Company agrees
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock upon
the exercise of this Warrant.
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<PAGE> 4
9. Notices.
(a) Whenever the Exercise Price or number of shares
purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Exercise Price and number of shares purchasable hereunder after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed to
the Holder of this Warrant.
(b) In case:
(i) the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time receivable
upon the exercise of this Warrant) for the purpose of entitling them to
receive any dividend or other distribution, or any right to subscribe
for or purchase any shares of stock of any class or any other
securities, or to receive any other right, or
(ii) of any capital reorganization of the Company,
any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder or Holders a notice specifying, as the case may be, (A) the date on
which a record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (B) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such stock or securities at the time receivable upon
the exercise of this Warrant) shall be entitled to exchange their shares of
Common Stock (or such other stock or securities) for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up. Such notice shall
be mailed at least 15 days prior to the date therein specified.
(c) All such notices, advises and communications shall be
given in accordance with Section 12(c) hereof
10. Amendments.
(a) Any term of this Warrant may be amended with the
written consent of the Company and the holders of warrants representing not
less than a majority of the shares of Common Stock issuable upon exercise
hereof, even without the consent of the Holder. Any amendment effected in
accordance with this Section 10 shall be binding upon each future Holder and on
the Company; provided, however, that no special consideration or inducement may
be
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<PAGE> 5
given to any Holder in connection with such consent that is not given ratably
to all Holders, and that such amendment must apply to all Holders equally and
ratably in accordance with the number of shares of Common Stock issuable to
such Holders upon exercise of this Warrant. The Company shall promptly give
notice to all Holders of any amendment effected in accordance with this Section
10.
(b) No waivers of, or exceptions to, any term, condition
or provision of this Warrant, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
11. Adjustments. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
(a) Merger, Sale of Assets, etc. If at any time while
this Warrant, or any portion thereof, is outstanding and unexpired there shall
be (i) a reorganization (other than a combination, reclassification, exchange
or subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which
the Company is the surviving entity but the shares of the Company's capital
stock outstanding immediately prior to the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled
to receive upon exercise of this Warrant, during the period specified herein
and upon payment of the Exercise Price then in effect, the number of shares of
stock or other securities or property of the successor corporation resulting
from such reorganization, merger, consolidation, sale or transfer that a holder
of the shares deliverable upon exercise of this Warrant would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Warrant had been exercised immediately before such
reorganization, merger, consolidation, sale or transfer, all subject to further
adjustment as provided in this Section 11. The foregoing provisions of this
paragraph (a) shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to the holder hereof for
shares in connection with any such transaction is in a form other than cash or
marketable securities, then the value of such consideration shall be determined
in good faith by the Company's Board of Directors. In all events, appropriate
adjustment (as determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant with respect
to the rights and interests of the Holder after the transaction, to the end
that the provisions of this Warrant shall be applicable after that event, as
near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant.
(b) Reclassification, etc. If the Company, at any time
while this Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change its Common Stock into
the same or a different number of securities of any other class or classes, this
Warrant shall thereafter represent the right to acquire such number and
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<PAGE> 6
kind of securities as would have been issuable as the result of such change
with respect to the Common Stock immediately prior to such reclassification or
other change and the Exercise Price therefor shall be appropriately adjusted,
all subject to further adjustment as provided in this Section 11.
(c) Split, Subdivision or Combination of Shares. If the
Company, at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired shall split, subdivide or combine its Common Stock,
into a different number of shares, the number of shares of Common Stock subject
to this Warrant shall be proportionately adjusted. Such adjustment shall be
made without change in the aggregate Exercise Price applicable to this Warrant,
but with an appropriate adjustment in the Exercise Price per share.
(d) Adjustments for Dividends in Stock or Other
Securities or Property. If while this Warrant, or any portion hereof, remains
outstanding and unexpired the holders of Common Stock shall have received, or,
on or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Company by way of dividend, then and in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of Common
Stock, and without payment of any additional consideration therefor, the amount
of such other or additional stock or other securities or property (other than
cash) of the Company that such holder would hold on the date of such exercise
had it been a holder of record of Common Stock on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period, giving effect to all adjustments called
for during such period by the provisions of this Section 11.
(e) Certificate as to Adjustments. Upon the occurrence
of each adjustment or readjustment pursuant to this Section 11, the Company at
its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each Holder of this Warrant a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request, at any time, of any such Holder, furnish or
cause to be furnished to such Holder a like certificate setting forth: (i) such
adjustments and readjustments; (ii) the Exercise Price at the time in effect;
and (iii) the number of shares and the amount, if any, of other property that
at the time would be received upon the exercise of the Warrant.
(f) No Impairment. The Company will not, by any
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Company, but will at
all times in good faith assist in the carrying out of all the provisions of
this Section 11 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holders of this Warrant
against impairment.
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<PAGE> 7
12. Miscellaneous.
(a) Governing Law. This Warrant shall be governed in all
respects by the laws of the State of Delaware, as if entered into by and between
Delaware residents exclusively for performance entirely within Delaware.
(b) Successors and Assigns. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the successors and permitted assigns of the Company and
the Holder. Nothing in this Warrant is intended to confer upon any party other
than the Company and the Holder or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Warrant, except as expressly provided in this Warrant.
(c) Notices. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given (i) upon personal delivery
to the party notified, (ii) three days after deposit with the United States Post
Office, by registered or certified mail, postage prepaid, return receipt
requested, (iii) one day after deposit with a nationally recognized air courier
service such as DHL or Federal Express for next day delivery, or (iv) on the day
of facsimile transmission, with confirmed transmission, to the facsimile number
shown below (or to such other facsimile number as the party to be notified may
indicate by ten (10) days' advance written notice to the other party in the
manner herein provided), provided that notice is also given under clauses (i),
(ii) or (iii) above; in any such case addressed to the party to be notified at
the address indicated below for that party, or at such other address as that
party may indicate by ten (10) days' advance written notice to the other party
in the manner herein provided.
If to Investor: Intel Corporation
2200 Mission College Boulevard
Santa Clara, California 95052-8119
Facsimile: (408) 765-7636
If to the Company: MRV Communications, Inc.
8943 Fullbright Avenue
Chatsworth, CA 91311
Facsimile: (818) 407-5656
(d) Entire Agreement. This Warrant constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements or understandings, written or
oral, between the parties with respect thereto.
(e) Attorneys' Fees. In the event that any dispute between the
Company and the Holder should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Warrant, including without limitation, such reasonable fees and expenses
of attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
7
<PAGE> 8
(f) Section Headings. Section captions are inserted for
convenience only and are not to be construed to define, limit or affect the
construction or interpretation hereof
8
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated: November 26, 1996.
MRV COMMUNICATIONS, INC.
By: /s/ NOAM LOTAN
-------------------------------
Title: PRESIDENT & CEO
----------------------------
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<PAGE> 10
NOTICE OF EXERCISE
To: MRV COMMUNICATIONS, INC.
The undersigned hereby irrevocably elects to exercise the right,
represented by the attached Warrant, to purchase shares of Common Stock
issuable upon exercise thereof, and (check one):
[ ] herewith tenders payment for of such shares to the order
of MRV Communications, Inc., in the amount of $ in
accordance with the terms of the attached Warrant; or
[ ] herewith tenders the attached Warrant as payment for such shares
pursuant to the provisions of Section 3(b) thereof.
The undersigned requests that a certificate (or certificates) for such
shares be registered in the name of the undersigned and that such certificate
(or certificates) be delivered to the undersigned's address below.
In exercising the attached Warrant, the undersigned hereby confirms and
acknowledges that such shares are being acquired solely for the account of the
undersigned and not as a nominee for any other party, or for investment, and
that the undersigned will not offer, sell or otherwise dispose of any such
shares except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws.
Dated:
--------------------
Signature
---------------------------------
---------------------------------
(Print Name)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under
the attached Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
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<PAGE> 11
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
<TABLE>
<CAPTION>
<S> <C> <C>
Number of
Name of Assignee Address Shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
and does hereby irrevocably constitute and appoint as Attorney _________________
to make such transfer on the books of MRV COMMUNICATIONS, INC., maintained for
the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof are being acquired for investment and that the Assignee will not
offer, sell or otherwise dispose of this Warrant or such shares except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws. Further, the Assignee has
acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company confirm in writing, in a form satisfactory to the
Company, that the shares of stock so purchased are being acquired for investment
and not with a view toward distribution or resale.
Dated:
------------------
------------------------------
Signature of Holder
11
<PAGE> 1
EXHIBIT 10.30
EXHIBIT A-2
No. W- Warrant to Purchase 100,000
----------- Shares of Common Stock
of MRV Communications, Inc.
WARRANT TO PURCHASE COMMON STOCK
OF
MRV COMMUNICATIONS, INC.
VOID AFTER NOVEMBER 26, 1999
This certifies that, for value received, INTEL CORPORATION, or registered
assigns (the "Holder") is entitled, subject to the terms set forth below, to
purchase from MRV COMMUNICATIONS, INC. (the "Company"), a Delaware corporation,
100,000 shares of the Common Stock, par value $.0034 per share ("Common Stock")
of the Company, as constituted on the date hereof (the "Warrant Issue Date"),
upon surrender hereof, at the principal office of the Company referred to below,
with the subscription form attached hereto duly executed, and simultaneous
payment therefor in lawful money of the United States or otherwise as
hereinafter provided, at the Exercise Price as set forth in Section 2 below. The
number, character and Exercise Price of such shares of Common Stock are subject
to adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant, and any warrants delivered in substitution or exchange therefor as
provided herein.
1. Exerciseability of Warrant. Subject to the terms and conditions set
forth herein, this Warrant shall be exercisable if, and only if, royalty
payments paid by the Holder to the Company pursuant to Section 4.1 of that
certain Resale and Manufacturing License Agreement, dated as of the Warrant
Issue Date, for the period beginning on January 1, 1997 and ending on
December 31, 1997 are equal to or greater than $1,750,000. Immediately upon the
satisfaction of the condition set forth in the preceding sentence, this Warrant
may be exercised, in whole or in part, during the period commencing immediately
upon such satisfaction and ending at 5:00 P.M., Pacific time, on November 26,
1999, and shall be void thereafter. Notwithstanding the foregoing, this Warrant
shall not be exercisable prior to February 25, 1997.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be $20.00 per share of Common Stock, as adjusted from time to
time pursuant to Section 11 hereof.
3. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are exercisable
by the Holder in whole or in part, at any time, or from time to time, during the
term hereof as described in Section 1 above, by the surrender of this Warrant
and the Notice of Exercise annexed hereto duly completed and executed on behalf
of the Holder, at the office of the Company (or such other
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<PAGE> 2
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company), upon
payment in cash or by check of the purchase price of the shares to be purchased.
(b) In lieu of exercising this Warrant pursuant to Section 3(a)
above, when permitted by law and applicable regulations (including Nasdaq and
NASD rules), the Holder may pay Exercise Price through a "same day sale"
commitment from the Holder (and if applicable a broker-dealer that is a member
of the National Association of Securities Dealers (a "NASD Dealer")), whereby
the Holder irrevocably elects to exercise this Warrant and to sell a portion of
the Shares so purchased to pay for the Exercise Price and the Holder (or, if
applicable, the NASD Dealer) commits upon sale (or, in the case of the NASD
Dealer, upon receipt) of such Shares to forward the exercise price directly to
the Company.
(c) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and substance to the Company or, in
the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor and amount.
6. Rights of Stockholders. Subject to Sections 9 and 11 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock for any purpose, nor shall anything contained herein be
construed to confer upon the Holder, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised as provided herein.
2
<PAGE> 3
7. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change his address as
shown on the Warrant Register by written notice to the Company requesting such
change. Any notice or written communication required or permitted to be given to
the Holder may be delivered or given by mail to such Holder as shown on the
Warrant Register and at the address shown on the Warrant Register. Until this
Warrant is transferred on the Warrant Register of the Company, the Company may
treat the Holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
(b) Warrant Agent. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant, or any or all of the foregoing. Thereafter, any such registration,
issuance, exchange, or replacement, as the case may be, shall be made at the
office of such agent.
(c) Transferability and Non-negotiability of Warrant. Neither this
Warrant, nor any shares of Common Stock issuable upon exercise of this Warrant,
shall be transferable prior to February 25, 1997. This Warrant may not be
transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee. Subject to compliance with such laws, title to this Warrant may be
transferred by endorsement (by the Holder executing the Assignment Form annexed
hereto) and delivery in the same manner as a negotiable instrument transferable
by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of this Warrant
for exchange, properly endorsed on the Assignment Form and subject to the
provisions of this Warrant with respect to compliance with applicable securities
laws and with the limitations on assignments and transfers and contained in this
Section 7, the Company at its expense shall issue to or on the order of the
Holder a new warrant or warrants of like tenor, in the name of the Holder or as
the Holder (on payment by the Holder of any applicable transfer taxes) may
direct, for the number of shares issuable upon exercise hereof.
(e) Compliance with Securities Laws. The Holder of this Warrant, by
acceptance hereof, agrees that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of Common Stock to be issued upon exercise
hereof except under circumstances that will not result in a violation of the
federal or any state securities laws.
8. Reservation of Stock. The Company covenants that during the term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Certificate of Incorporation to provide
sufficient reserves of shares of Common Stock issuable upon exercise of the
Warrant. The Company further covenants that all shares that may be issued upon
the exercise
3
<PAGE> 4
of rights represented by this Warrant, upon exercise of the rights represented
by this Warrant and payment of the Exercise Price, all as set forth herein, will
be free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein). The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant.
9. Notices.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed to the
Holder of this Warrant.
(b) In case:
(i) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or
purchase any shares of stock of any class or any other securities, or
to receive any other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another
corporation, or any conveyance of all or substantially all of the
assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up of
the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder or Holders a notice specifying, as the case may be, (A) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or such stock or securities at the time receivable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the date therein specified.
4
<PAGE> 5
(c) All such notices, advises and communications shall be given in
accordance with Section 12(c) hereof.
10. Amendments.
(a) Any term of this Warrant may be amended with the written consent
of the Company and the holders of warrants representing not less than a majority
of the shares of Common Stock issuable upon exercise hereof, even without the
consent of the Holder. Any amendment effected in accordance with this Section 10
shall be binding upon each future Holder and on the Company; provided, however,
that no special consideration or inducement may be given to any Holder in
connection with such consent that is not given ratably to all Holders, and that
such amendment must apply to all Holders equally and ratably in accordance with
the number of shares of Common Stock issuable to such Holders upon exercise of
this Warrant. The Company shall promptly give notice to all Holders of any
amendment effected in accordance with this Section 10.
(b) No waivers of, or exceptions to, any term, condition or provision
of this Warrant, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
11. Adjustments. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
(a) Merger, Sale of Assets, etc. If at any time while this Warrant,
or any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which
the Company is the surviving entity but the shares of the Company's capital
stock outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this paragraph (a) shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as
5
<PAGE> 6
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect to the rights and
interests of the Holder after the transaction, to the end that the provisions of
this Warrant shall be applicable after that event, as near as reasonably may be,
in relation to any shares or other property deliverable after that event upon
exercise of this Warrant.
(b) Reclassification, etc. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change its Common Stock into
the same or a different number of securities of any other class or classes, this
Warrant shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the Common Stock immediately prior to such reclassification or other change
and the Exercise Price therefor shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 11.
(c) Split, Subdivision or Combination of Shares. If the Company, at
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine its Common Stock, into a different
number of shares, the number of shares of Common Stock subject to this Warrant
shall be proportionately adjusted. Such adjustment shall be made without change
in the aggregate Exercise Price applicable to this Warrant, but with an
appropriate adjustment in the Exercise Price per share.
(d) Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of Common Stock shall have received, or, on or after the
record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor, other or additional stock
or other securities or property (other than cash) of the Company by way of
dividend, then and in each case, this Warrant shall represent the right to
acquire, in addition to the number of shares of Common Stock, and without
payment of any additional consideration therefor, the amount of such other or
additional stock or other securities or property (other than cash) of the
Company that such holder would hold on the date of such exercise had it been a
holder of record of Common Stock on the date hereof and had thereafter, during
the period from the date hereof to and including the date of such exercise,
retained such shares and/or all other additional stock available by it as
aforesaid during such period, giving effect to all adjustments called for during
such period by the provisions of this Section 11.
(e) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
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<PAGE> 7
(f) No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 11 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holders of this Warrant against impairment.
12. Miscellaneous.
(a) Governing Law. This Warrant shall be governed in all respects by
the laws of the State of Delaware, as if entered into by and between Delaware
residents exclusively for performance entirely within Delaware.
(b) Successors and Assigns. Each and all of the covenants, terms,
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Holder. Nothing in this Warrant is intended to confer upon any party other than
the Company and the Holder or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Warrant, except as expressly provided in this Warrant.
(c) Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given (i) upon personal delivery to the
party notified, (ii) three days after deposit with the United States Post
Office, by registered or certified mail, postage prepaid, return receipt
requested, (iii) one day after deposit with a nationally recognized air courier
service such as DHL or Federal Express for next day delivery, or (iv) on the day
of facsimile transmission, with confirmed transmission, to the facsimile number
shown below (or to such other facsimile number as the party to be notified may
indicate by ten (10) days' advance written notice to the other party in the
manner herein provided), provided that notice is also given under clauses (i),
(ii) or (iii) above; in any such case addressed to the party to be notified at
the address indicated below for that party, or at such other address as that
party may indicate by ten (10) days' advance written notice to the other party
in the manner herein provided.
If to Investor: Intel Corporation
2200 Mission College Boulevard
Santa Clara, California 95052-8119
Facsimile: (408) 765-7636
If to the Company: MRV Communications, Inc.
8943 Fullbright Avenue
Chatsworth, CA 91311
Facsimile: (818) 407-5656
(d) Entire Agreement. This Warrant constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements or understandings, written or
oral, between the parties with respect thereto.
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<PAGE> 8
(e) Attorneys' Fees. In the event that any dispute between the
Company and the Holder should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Warrant, including without limitation, such reasonable fees and expenses
of attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
(f) Section Headings. Section captions are inserted for convenience
only and are not to be construed to define, limit or affect the construction or
interpretation hereof.
8
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated: November 26, 1996.
MRV COMMUNICATIONS, INC.
By: /s/ [SIG.]
-------------------------------
Title: PRESIDENT & CEO
----------------------------
9
<PAGE> 10
NOTICE OF EXERCISE
To: MRV COMMUNICATIONS, INC.
The undersigned hereby irrevocably elects to exercise the
right, represented by the attached Warrant, to purchase ____________ shares of
Common Stock issuable upon exercise thereof, and (check one):
[ ] herewith tenders payment for __________ of such shares to the
order of MRV Communications, Inc., in the amount of $__________
in accordance with the terms of the attached Warrant; or
[ ] herewith tenders the attached Warrant as payment for such
shares pursuant to the provisions of Section 3(b) thereof
The undersigned requests that a certificate (or certificates) for such shares be
registered in the name of the undersigned and that such certificate (or
certificates) be delivered to the undersigned's address below.
In exercising the attached Warrant, the undersigned hereby confirms and
acknowledges that such shares are being acquired solely for the account of the
undersigned and not as a nominee for any other party, or for investment, and
that the undersigned will not offer, sell or otherwise dispose of any such
shares except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws.
Dated:
-----------------------
Signature
-------------------------------------
-------------------------------------
(Print Name)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
attached Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
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<PAGE> 11
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Number of
Name of Assignee Address Shares
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
and does hereby irrevocably constitute and appoint as Attorney _________________
to make such transfer on the books of MRV COMMUNICATIONS, INC., maintained for
the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof are being acquired for investment and that the Assignee will not
offer, sell or otherwise dispose of this Warrant or such shares except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws. Further, the Assignee has
acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company confirm in writing, in a form satisfactory to the
Company, that the shares of stock so purchased are being acquired for investment
and not with a view toward distribution or resale.
Dated:
---------------------
------------------------------------
Signature of Holder
11
<PAGE> 1
EXHIBIT 10.31
Exhibit A-3
No. W- Warrant to Purchase 100,000
------------------- Shares of Common Stock
of MRV Communications, Inc.
WARRANT TO PURCHASE COMMON STOCK
OF
MRV COMMUNICATIONS, INC.
Void after November 26, 1999
This certifies that, for value received, INTEL CORPORATION, or registered
assigns (the "Holder") is entitled, subject to the terms set forth below, to
purchase from MRV COMMUNICATIONS, INC. (the "Company"), a Delaware corporation,
100,000 shares of the Common Stock, par value $.0034 per share ("Common Stock")
of the Company, as constituted on the date hereof (the "Warrant Issue Date"),
upon surrender hereof, at the principal office of the Company referred to below,
with the subscription form attached hereto duly executed, and simultaneous
payment therefor in lawful money of the United States of otherwise as
hereinafter provided, at the Exercise Price as set forth in Section 2 below. The
number, character and Exercise Price of such shares of Common Stock are subject
to adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant, and any warrants delivered in substitution or exchange therefor as
provided herein.
1. Exerciseability of Warrant. Subject to the terms and conditions
set forth herein, this Warrant shall be exercisable if, and only if, royalty
payments paid by the Holder to the Company pursuant to Section 4.1 of that
certain Resale and Manufacturing License Agreement, dated as of the Warrant
Issue Date, for the period beginning on January 1, 1997 and ending on December
31, 1997 are equal to or greater than $2,700,000. Immediately upon the
satisfaction of the condition set forth in the preceding sentence, this Warrant
may be exercised, in whole or in part, during the period commencing immediately
upon such satisfaction and ending at 5:00 P.M., Pacific time, on November 26,
1999, and shall be void thereafter. Notwithstanding the foregoing, this Warrant
shall not be exercisable prior to February 25, 1997.
2. Exercise Price. The Exercise Price at which this Warrant may
be exercised shall be $20.00 per share of Common Stock, as adjusted from time to
time pursuant to Section 11 hereof.
3. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are
exercisable by the Holder in whole or in part, at any time, or from time to
time, during the term hereof as described in Section 1 above, by the surrender
of this Warrant and the Notice of Exercise annexed hereto duly completed and
executed on behalf of the Holder, at the office of the Company (or such other
office or agency of the Company as it may designate by notice in writing
to the Holder at the
1
<PAGE> 2
address of the Holder appearing on the books of the Company), upon payment in
cash or by check of the purchase price of the shares to be purchased.
(b) In lieu of exercising this Warrant pursuant to
Section 3(a) above, when permitted by law and applicable regulations (including
Nasdaq and NASD rules), the Holder may pay Exercise Price through a "same day
sale" commitment from the Holder (and if applicable a broker-dealer that is a
member of the National Association of Securities Dealers (a "NASD Dealer")),
whereby the Holder irrevocably elects to exercise this Warrant and to sell a
portion of the Shares so purchased to pay for the Exercise Price and the Holder
(or, if applicable, the NASD Dealer) commits upon sale (or, in the case of the
NASD Dealer, upon receipt) of such Shares to forward the exercise price directly
to the Company.
(c) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date. As
promptly as practicable on or after such date and in any event within ten (10)
days thereafter, the Company at its expense shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of shares issuable upon such exercise. In the event that this Warrant
is exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation surrender and cancellation of this Warrant, the
Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor and amount.
6. Rights of Stockholders. Subject to Sections 9 and 11 of this
Warrant, the Holder shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock for any purpose, nor shall anything contained
herein be construed to confer upon the Holder, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until the Warrant shall
have been exercised as provided herein.
2
<PAGE> 3
7. Transfer of Warrant.
(a) Warrant Register. The Company will maintain a register
(the "Warrant Register") containing the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change his
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
(b) Warrant Agent. The Company may, by written notice to
the Holder, appoint an agent for the purpose of maintaining the Warrant Register
referred to in Section 7(a) above, issuing the Common Stock or other securities
then issuable upon the exercise of this Warrant, exchanging this Warrant,
replacing this Warrant, or any or all of the foregoing, Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
(c) Transferability and Non-negotiability of Warrant.
Neither this Warrant, nor any shares of Common Stock issuable upon exercise of
this Warrant, shall be transferable prior to February 25, 1997. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee. Subject to compliance with such laws, title to this Warrant may be
transferred by endorsement (by the Holder executing the Assignment Form annexed
hereto) and delivery in the same manner as a negotiable instrument transferable
by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer. On surrender of
this Warrant for exchange, properly endorsed on the Assignment Form and subject
to the provisions of this Warrant with respect to compliance with applicable
securities laws and with the limitations on assignments and transfers and
contained in this Section 7, the Company at its expense shall issue to or on the
order of the Holder a new warrant or warrants of like tenor, in the name of the
Holder or as the Holder (on payment by the Holder of any applicable transfer
taxes) may direct, for the number of shares issuable upon exercise hereof
(e) Compliance with Securities Laws. The Holder of this
Warrant, by acceptance hereof, agrees that the Holder will not offer, sell or
otherwise dispose of this Warrant or any shares of Common Stock to be issued
upon exercise hereof except under circumstances that will not result in a
violation of the federal or any state securities laws.
8. Reservation of Stock. The Company covenants that during the
term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and, from time to
time, will take all steps necessary to amend its Certificate of Incorporation to
provide sufficient reserves of shares of Common Stock issuable upon exercise of
the Warrant. The Company further covenants that all shares that may be issued
upon the exercise
3
<PAGE> 4
of rights represented by this Warrant, upon exercise of the rights represented
by this Warrant and payment of the Exercise Price, all as set forth herein, will
be free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein). The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant.
9. Notices.
(a) Whenever the Exercise Price or number of shares
purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Exercise Price and number of shares purchasable hereunder after giving effect to
such adjustment, and shall cause a copy of such certificate to be mailed to the
Holder of this Warrant.
(b) In case:
(i) the Company shall take a record of the holders of
its Common Stock (or other stock or securities at the time receivable upon
the exercise of this Warrant) for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to
receive any other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance
of all or substantially all of the assets of the Company to another
corporation, or
(iii) of any voluntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder or Holders a notice specifying, as the case may be, (A) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or such stock or securities at the time receivable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the date therein specified.
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<PAGE> 5
(c) All such notices, advises and communications shall be
given in accordance with Section 12(c) hereof.
10. Amendments.
(a) Any term of this Warrant may be amended with the
written consent of the Company and the holders of warrants representing not less
than a majority of the shares of Common Stock issuable upon exercise hereof,
even without the consent of the Holder. Any amendment effected in accordance
with this Section 10 shall be binding upon each future Holder and on the
Company; provided, however, that no special consideration or inducement may be
given to any Holder in connection with such consent that is not given ratably to
all Holders, and that such amendment must apply to all Holders equally and
ratably in accordance with the number of shares of Common Stock issuable to such
Holders upon exercise of this Warrant. The Company shall promptly give notice to
all Holders of any amendment effected in accordance with this Section 10.
(b) No waivers of, or exceptions to, any term, condition
or provision of this Warrant, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
11. Adjustments. The Exercise Price and the number of shares
purchasable hereunder are subject to adjustment from time to time as follows:
(a) Merger, Sale of Assets, etc. If at any time while
this Warrant, or any portion thereof, is outstanding and unexpired there shall
be (i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this paragraph (a) shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as
5
<PAGE> 6
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect to the rights and
interests of the Holder after the transaction, to the end that the provisions of
this Warrant shall be applicable after that event, as near as reasonably may be,
in relation to any shares or other property deliverable after that event upon
exercise of this Warrant.
(b) Reclassification, etc. If the Company, at any time
while this Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change its Common Stock into
the same or a different number of securities of any other class or classes, this
Warrant shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect
to the Common Stock immediately prior to such reclassification or other change
and the Exercise Price therefor shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 11.
(c) Split, Subdivision or Combination of Shares. If the
Company, at any time while this Warrant, or any portion thereof, remains
outstanding and unexpired shall split, subdivide or combine its Common Stock,
into a different number of shares, the number of shares of Common Stock subject
to this Warrant shall be proportionately adjusted. Such adjustment shall be made
without change in the aggregate Exercise Price applicable to this Warrant, but
with an appropriate adjustment in the Exercise Price per share.
(d) Adjustments for Dividends in Stock or Other
Securities or Property. If while this Warrant, or any portion hereof, remains
outstanding and unexpired the holders of Common Stock shall have received, or,
on or after the record date fixed for the determination of eligible
stockholders, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Company by way of dividend, then and in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of Common
Stock, and without payment of any additional consideration therefor, the amount
of such other or additional stock or other securities or property (other than
cash) of the Company that such holder would hold on the date of such exercise
had it been a holder of record of Common Stock on the date her,,: and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period, giving effect to all adjustments called
for during such period by the provisions of this Section 11.
(e) Certificate as to Adjustments. Upon the occurrence
of each adjustment or readjustment pursuant to this Section 11, the Company at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
6
<PAGE> 7
(f) No Impairment. The Company will not, by any
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 11 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holders of this Warrant
against impairment.
12. Miscellaneous.
(a) Governing Law. This Warrant shall be governed in all
respects by the laws of the State of Delaware, as if entered into by and between
Delaware residents exclusively for performance entirely within Delaware.
(b) Successors and Assigns. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the successors and permitted assigns of the Company and
the Holder. Nothing in this Warrant is intended to confer upon any party other
than the Company and the Holder or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Warrant, except as expressly provided in this Warrant.
(c) Notices. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given (i) upon personal
delivery to the party notified, (ii) three days after deposit with the United
States Post Office, by registered or certified mail, postage prepaid, return
receipt requested, (iii) one day after deposit with a nationally recognized air
courier service such as DHL or Federal Express for next day delivery, or (iv) on
the day of facsimile transmission, with confirmed transmission, to the facsimile
number shown below (or to such other facsimile number as the party to be
notified may indicate by ten (10) days' advance written notice to the other
party in the manner herein provided), provided that notice is also given under
clauses (i), (ii) or (iii) above; in any such case addressed to the party to be
notified at the address indicated below for that party, or at Such other address
as that party may indicate by ten (10) days' advance written notice to the other
party in the manner herein provided.
If to Investor: Intel Corporation
2200 Mission College Boulevard
Santa Clara, California 95052-8119
Facsimile:(408) 765-7636
If to the Company: MRV Communications, Inc.
8943 Fullbright Avenue
Chatsworth, CA 91311
Facsimile:(818) 407-5656
(d) Entire Agreement. This Warrant constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements or understandings, written or
oral, between the parties with respect thereto.
7
<PAGE> 8
(e) Attorneys' Fees. In the event that any dispute between
the Company and the Holder should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Warrant, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
(f) Section Headings. Section captions are inserted for
convenience only and are not to be construed to define, limit or affect the
construction or interpretation hereof.
8
<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated November 26, 1996.
MRV COMMUNICATIONS, INC.
By: /s/ NOAM LOTAN
-----------------------------
Title: President & CEO
-------------------------
9
<PAGE> 10
NOTICE OF EXERCISE
To: MRV COMMUNICATIONS, INC.
The undersigned hereby irrevocably elects to exercise the right,
represented by the attached Warrant, to purchase ___________ shares of Common
Stock issuable upon exercise thereof, and (check one):
[ ] herewith tenders payment for _____________ of such shares to
the order of MRV Communications, Inc., in the amount of $ _______
in accordance with the terms of the attached Warrant; or
[ ] herewith tenders the attached Warrant as payment for such shares
pursuant to the provisions of Section 3(b) thereof.
The undersigned requests that a certificate (or certificates) for such shares be
registered in the name of the undersigned and that such certificate (or
certificates) be delivered to the undersigned's address below.
In exercising the attached Warrant, the undersigned hereby confirms and
acknowledges that such shares are being acquired solely for the account of the
undersigned and not as a nominee for any other party, or for investment, and
that the undersigned will not offer, sell or otherwise dispose of any such
shares except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws.
Dated:
-----------------------
Signature
----------------------------
-------------------------------------
(Print Name)
-------------------------------------
(Street Address)
-------------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
attached Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
10
<PAGE> 11
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock set forth below:
Number of
Name of Assignee Address Shares
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and does hereby irrevocably constitute and appoint as Attorney _________________
to make such transfer on the books of MRV COMMUNICATIONS, INC., maintained for
the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof are being acquired for investment and that the Assignee will not
offer, sell or otherwise dispose of this Warrant or such shares except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws. Further, the Assignee has
acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company confirm in writing, In a form satisfactory to the
Company, that the shares of stock so purchased are being acquired for investment
and not with a view toward distribution or resale.
Dated:
------------------------
----------------------------------------
Signature of Holder
11
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
The Company's subsidiaries at December 31, 1996 were as follows:
1) Nbase Communications, Inc.,
a Maryland corporation
2) N.N.H. Computer Communications, Inc.,
a Kansas corporation
3) NBase Communications, Ltd.,
an Israeli corporation
4) NBase UK Ltd.,
a United Kingdom corporation
5) NBase Europe, GMBH
a German corporation
6) NBase Fibronics, Limited
an Israeli corporation
7) EDS LAN,
an Italian corporation
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference into the Registration Statement on Form S-8 of MRV
Communications, Inc. (File No. 33-96458) and into the Registration Statement on
Form S-3 of MRV Communications, Inc. (File No. 333-17537) of our report dated
February 7, 1997 included in the Form 10-K of MRV Communications, Inc. for the
year ended December 31, 1996.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
April 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1996 AND CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 14,641
<SECURITIES> 17,659
<RECEIVABLES> 26,764
<ALLOWANCES> 2,468
<INVENTORY> 18,238
<CURRENT-ASSETS> 81,871
<PP&E> 7,737
<DEPRECIATION> (1,489)
<TOTAL-ASSETS> 96,943
<CURRENT-LIABILITIES> 24,898
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 52,229
<TOTAL-LIABILITY-AND-EQUITY> 96,943
<SALES> 88,815
<TOTAL-REVENUES> 88,815
<CGS> 51,478
<TOTAL-COSTS> 98,473
<OTHER-EXPENSES> 4,400
<LOSS-PROVISION> 1,643
<INTEREST-EXPENSE> 5,100
<INCOME-PRETAX> (14,058)
<INCOME-TAX> (4,404)
<INCOME-CONTINUING> (9,654)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,654)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
