U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For Fiscal Year Ended December 31, 1997
Commission File Number: 0-29020
MULTIMEDIA ACCESS CORPORATION
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(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 75-2528700
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(State of Incorporation) (I.R.S. Employer Identification No.)
2665 VILLA CREEK DRIVE, SUITE 200 DALLAS, TEXAS 75234 (972) 488-7200
(Address including zip code, area code and telephone number of Registrant's
executive offices.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, $.0001 par value NASDAQ
Redeemable Common Stock Purchase Warrants NASDAQ
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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 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-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $3,360,703
As of March 20, 1998, 8,733,958 shares of the Registrant's common stock were
outstanding.
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: As of March 20, 1998 - $15,468,796. This amount was computed by reference
to the average of the bid and asked prices of registrant's common stock.
Documents incorporated by reference: Proxy Statement, Part III
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TABLE OF CONTENTS
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ITEM NO. PAGE
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Glossary 3
PART I
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1. Description of Business 4 - 10
2. Description of Property 11
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 11
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 12
6. Management's Discussion and Analysis of Financial Condition and Results
of Operations 12 -14
7. Consolidated Financial Statements 15 - 35
8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 35
PART III
9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act 36
10. Executive Compensation 36
11. Security Ownership of Certain Beneficial Owners and Management 36
12. Certain Relationships and Related Transactions 36
13. Exhibits List and Reports on Form 8-K 38
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GLOSSARY
Algorithm: A step-by-step problem solving procedure.
Bandwidth: The amount of information that can be transmitted across an
information channel.
Intranet: A private Internet.
ISDN: (Integrated Services Digital Network) - a digital network
that provides seamless communication of voice, video and
text between desktop and group systems. ISDN is expected to
replace current telephone lines.
LAN: (Local Area Network) - a private computer network connecting
computers in the same building or campus using coaxial
cable, twisted pair or multimode fiber.
Multimedia: A combination of multiple digitized data types: text, sound,
computer-generated graphics and animations, photographs and
video.
PCI Bus: A fast 32 bit PC bus for peripherals.
Protocol: A set of rules for data communications; a set of rules and
procedures for establishing and controlling the exchange of
data between computers.
S Bus: A proprietary high speed interface for Sun workstations.
Standards-based: A product which is designed to comply with standards
promulgated by a recognized industry organization.
Switched
Architecture: Any network or device in which switching is present and is
used to direct messages from the sender to the ultimate
recipient.
UTP: (Unshielded Twisted Pair) - standard building wiring
currently used to transmit voice (telephone) and data
throughout an office or building.
WAN: (Wide Area Network) - a computer network covering a
geographic area larger than a campus, generally linking
multiple LANs.
World Wide Web: A very large collection of linked Internet servers using a
standard linking and display language.
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PART I
Item 1. Description of Business
GENERAL
MultiMedia designs, develops, manufactures and markets advanced
standards-based videocom systems that provide enterprise-wide solutions for
business customers. The Company's VBX video distribution and switching system,
Osprey(R) video and peripheral products and ViewCast(R) web-video systems
deliver videocom applications, including videoconferencing, video broadcasting,
video-based training, distance learning, telemedicine, surveillance and Internet
and intranet video communications.
The Company's VBX system allows customers to quickly and cost effectively
obtain videocom capabilities by creating a videocom network through the same
wiring used by their existing telephone system.
The Company's products and systems are marketed, installed and supported by
resellers, system integrators, OEMs and custom application developers. Many of
these resellers are the same entities that market, install and support a
customer's telephone PBX, LAN, e-mail file servers, routers and other
communication systems. The Company's products are compatible with existing
communications equipment and infrastructure.
The Company believes that the convergence of multimedia PCs, the
establishment of new standards-based audio and video technologies, increased
utilization of the Internet and corporate intranets, combined with lower price
levels for such capabilities, will generate a rapid adoption of videocom
products and services.
BUSINESS STRATEGY
The Company is a leading provider of enterprise-wide videocom solutions.
Key elements of the Company's strategy include:
o Provide Enterprise-Wide Video Communication Systems and Applications.
The Company's strategy is to offer turn-key videocom systems, including the
individual components and applications, which appeal to customers who are
looking for a complete solution to their videocom needs. These systems are
designed to be easy to install, cost-effective and user-friendly. The Company
believes its enterprise-wide systems and applications approach provides a
significant competitive advantage.
o Distribute Through Established Channels of Distribution.
The Company's strategy is to utilize resellers, system integrators, OEMs
and custom application developers to distribute its systems and applications.
These distributors are typically the same companies that market, install and
support an organization's telephone PBX, LAN, e-mail file servers, routers and
other communication systems. These distributors offer access to an existing
customer base, along with continuing service and support organizations.
o Develop and Acquire New Applications.
The Company believes that the continued growth of the videocom market will
be driven by the development of new applications in response to customer needs.
The Company intends to continue to invest significant resources to develop and
acquire value-added and technologically superior applications.
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o Develop Brand-Name Recognition.
The Company's strategy is to develop a strong brand identity in the
videocom marketplace. The Company believes a strong brand identity will result
in a significant competitive advantage and permit it to more easily introduce
new products and applications.
o Enhance Growth through Strategic Acquisitions and Alliances.
An important part of the Company's growth strategy is to acquire companies
with complementary technologies, products or customers and to integrate those
entities into the Company's operations. In addition, the Company seeks strategic
alliances and joint marketing relationships. The Company believes that the
videocom industry is highly fragmented and that this environment provides an
excellent opportunity to expand its business through acquisitions and alliances.
INDUSTRY BACKGROUND
Videoconferencing was introduced in the late 1970s with the introduction of
video tele-conferencing room systems. Classic video tele-conferencing room or
group systems permit communication only between compatible facilities. These
systems currently cost between $10,000 and $100,000 and are typically used by
large businesses primarily for intra-company communication between different
locations. The Company believes that the high cost of video tele-conferencing
room systems and the logistical problem of scheduling and availability have
limited their use.
Over the past decade, videoconferencing has begun to evolve from high-cost,
stand-alone boardroom systems to desktop systems. The Company offers
cost-effective video systems capable of providing commercial-quality video for
desktop video communications. The Company believes its systems meet the growing
demand for business video applications at the desktop.
To transmit live video images (which may contain over 90 million bits
per second of data) over communications networks, the video data must be
digitized and significantly compressed to fit the capacity of these networks (as
low as 28,800 bits per second). Generally, as video is compressed, redundant
data is eliminated. After transmission, the video image is reconstructed for
display at the receiving end.
The quality of the reconstructed image is a function of (i) the
sophistication of the video and audio compression algorithms, (ii) the amount of
real-time data which can be transmitted over networks, (iii) the power of the
video and audio Codec hardware, and (iv) the speed and power of PCs and
workstations. The Company believes cost-effective videoconferencing and other
videocom applications services are now attainable because the performance and
capabilities of these four key elements have recently improved significantly.
According to industry sources, the market for videocom products and
services is forecast to be $3.6 billion by 1999 with the desktop segment of that
industry forecast to exceed $1.2 billion by 1999. The PC dominates the desktop
computing market with 1995 sales of over 57 million units worldwide and an
estimated 100 million new PCs projected to be sold annually by 1999. The Company
believes it has developed products which position it to benefit from the growth
of these markets and which will have functions, performance and competitive
prices to compete successfully in the rapidly-emerging desktop video
communications industry.
PRODUCT FAMILY
The Company currently offers a broad array of products which when used
together provide an enterprise-wide solution for multiple videocom applications
for business customers. The MultiMedia product family includes: the VBX video
distribution and switching system, the Osprey(R) line of video peripheral
products and Codec cards and the ViewCast(R) line of Internet Web-video servers.
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Video Switching and Distribution System. The Company's VBX is an
enterprise-wide video distribution and switching system, which can video enable
hundreds of desktops with multiple videocom applications. The VBX switches and
distributes video content throughout an organization in much the same way as a
telephone PBX switches and distributes voice communications. The VBX provides
workgroup video communications and connectivity via shared Codecs and WAN
gateways to remote users equipped with stand-alone desktop computers, video
tele-conferencing room systems or users on another VBX. The VBX, a PC-based
WindowsNT system, employs a switched architecture to distribute uncompressed,
TV-quality video within a building or campus using UTP wiring (which typically
already exists within the organization's infrastructure as part of its telephone
system or which may be installed more cost-effectively than coaxial cable). The
VBX can support hundreds of users and allows point-to-point, multipoint and
broadcast modes of operation. The VBX is compatible with standard cameras, audio
components, speakerphones, PC video peripherals, videoconferencing systems and
other videocom products produced by third-party manufacturers.
A typical VBX system includes a video switch, a shared Codec server, WAN
interfaces and desktop components. Video and audio signals are distributed with
TV quality by utilizing the Company's VBX transceiver technology to send video
over existing UTP wiring at distances of up to 3,500 feet. An existing LAN or
telephone system is used only for non-video communications between the
multimedia switch and each user, requiring minimal use of the computer network.
The VBX also provides shared access to video sources and storage devices
located anywhere within the network. VCRs, videodisk players, broadcast or cable
TV and Direct Broadcast Satellite programming sources may also be connected to
the switch over UTP wiring or coaxial cabling and distributed on-demand to any
equipped desktop or TV monitor.
VBX transceivers allow desktop PCs, TV monitors, room systems and standard
video and audio devices to be connected to the VBX via UTP wiring. The VBX
client software allows users to place calls through a personal or system-wide
dialing directory, to subscribe to live video broadcasts, to access pre-recorded
video content or to establish a point-to-point or a multipoint videoconference.
The Company believes the VBX appeals to businesses and other institutions
with multiple users and with multiple geographic locations, such as college
campuses, office complexes, government bases and organizations with regional
offices. The VBX permits these customers to communicate and share video-based
information and resources, to distribute business and financial TV broadcasts,
to videoconference with co-workers and to receive business or industry
presentations or live broadcasts from local or remote locations.
Codecs and Video Peripheral Products. The Company designs, develops,
manufactures and markets standards-based video and audio peripheral products and
Codecs that video enable individual PCs and workstations for multimedia
applications. The Company's Osprey(R) Codecs enable video transmissions across
several different types of existing communication networks. The Osprey(R) Codecs
perform this function by capturing, digitizing, compressing, transmitting,
receiving, decompressing and displaying full-motion video. The Osprey(R) Codecs
are compatible with multiple video and audio compression standards and are
available for PCs and workstations that are equipped with the standard PCI-bus
or Sun's S-bus. The Codecs also support the Microsoft's WindowsNT, Windows 3.1
and Windows95, and Sun's Solaris and UNIX operating systems. The Company
believes its Osprey(R)-1000 is the leading standards-based, multi-algorithm
Codec for the WindowsNT operating system and that its Osprey(R)-1500 is
currently the only Codec available for Sun's new family of Ultra Workstations.
The Osprey(R) Codecs are used in connection with the VBX as a shared Codec
server to enable VBX users to video communicate with remote locations. In
addition, the Osprey(R) Codecs may be used in remote facilities to video enable
individual desktop computers.
The Company also offers a line of video peripheral products for PCs and
workstations, including SLIC-Video(R), Osprey(R)-100 and Osprey(R)-150 video
capture cards and WorkFone(TM) video applications software. SLIC-Video(R) is a
video capture product that enables Sun S-bus workstation users to view
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uncompressed, high-quality video and to capture full-motion video frames.
SLIC-Video(R) software also provides access to closed caption data which allows
key words to act as filters and thereby control video displayed on the screen.
SLIC-Video(R)'s compatibility with Sun products allows this product to support a
wide variety of video applications on existing Sun workstations. The Company's
WorkFone(TM) product provides affordable, consumer-quality video communications
capabilities over standard telephone lines with 28.8 Kbps modems. Typical uses
of this product include: families and grandparents exchanging live video
greetings, college students videoconferencing with their parents, business
workers accessing video-training courses or videoconferencing with co-workers in
remote locations.
Internet Video. The Company designs, manufactures and markets several video
products which capitalize on the growth of the Internet and the Web. Industry
improvements in video and audio compression technology, the establishment of
standards and increased access to the Internet have made delivering new forms of
motion-video content over the Internet possible. The Company's Osprey(R) Codecs
provide the necessary capability at the Web site server to allow the one-way
transmission of live broadcasts over the Internet. The Company has recently
introduced a line of ViewCast(R) Web-video servers that combine the Company's
Osprey(R) Codecs with popular video-streaming software to provide a complete
hardware and software system for Internet video broadcasting. The Company has
announced video-streaming compatibility with the following software providers:
RealNetworks, Inc. (formerly Progressive Networks, Inc.), VXtreme, Inc., Vosaic
LLC, Precept Software, Inc., Iterated Systems, Inc. and Microsoft Corporation.
The Company's products have allowed Internet users to view live broadcasts
of the NASA Mars Pathfinder expedition, the Indy 500 time trials and other live
events from their respective Web sites through Microsoft and Netscape Internet
browsers.
APPLICATIONS
Videoconferencing -- The Company's products offer the business and
institutional customer a cost-effective and efficient means of establishing an
enterprise-wide videoconferencing system. The VBX and Osprey(R) Codecs permit
employees, students or other members of the organization in different offices or
geographic locations to communicate with each other via live video.
Video Presentations or Live Video -- The Company's products offer
businesses or organizations the opportunity to broadcast live events. These
events could include educational seminars, management briefings, human resources
orientations or breaking news being created and transmitted by the organization
itself or by outside sources.
Internet Applications --Videocom products and technologies play an
important role in the development of live communications and entertainment on
the Internet. The Company markets its compression and video capture products to
many players in the Web video-streaming marketplace.
Three key applications in the Internet video marketplace include: (i)
Internet video publishing, (ii) Internet video broadcasting and (iii) Internet
video call center. Internet Video publishing refers to stored-video content,
designed to be played back to a user's system in real-time. Internet video
publishing entails compressing a video "clip" and storing it on a server which
is available to the user by accessing the relevant Web page. Internet video
broadcasting has recently come to the Internet and is characterized by one-way
live audio and motion-video. Although video broadcasting presents technical
challenges such as the limited bandwidth and multi-cast capabilities of most Web
sites, Internet video broadcasting is well suited to delivering video to distant
learning sites and to special interest broadcast recipients. The Company's
products work in conjunction with Web servers and browser software to establish
connections between multiple users and a broadcast source allowing businesses to
deliver live programs, commercials and other information over the Internet. The
Internet video call center is a new concept to the Internet, allowing one-way
live video and two-way audio across the Internet. The term "call center" is used
because the technology is well suited to utilize existing call center staff such
as help desks, catalog ordering centers, reservation systems and corporate
receptionists to provide live Web site sales assistance.
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Surveillance -- Video surveillance has expanded beyond internal systems
placed in businesses to monitor intrusions to include systems that monitor
daycare and nursing home facilities, traffic patterns and other relevant live
information which the Internet user can access from a Web site. The commercial
surveillance market represents strong business opportunity.
Industry Specific Applications -- The Company's products offer a broad
array of applications within specific industries. For instance, in the health
and medical industry, the Company's products allow doctors to collaborate via
videoconferencing, to receive computed tomography (CT) scans, ultrasounds and
other diagnostic tests at locations remote from the hospital or patient and to
take part in educational and training broadcasts. The judicial system and
correctional institutions are also taking advantage of the Company's videocom
products. In addition to surveillance, the VBX and Osprey(R) Codecs enable
prisons to hold arraignments by videoconference, to allow prisoner visitation
and legal consultation with persons in remote locations and to provide
vocational training and counseling for prisoners from outside sources.
MARKETING AND SALES
The Company markets its products primarily via third-party distribution
channels including, but not limited to, OEMs, resellers and system integrators.
The Company currently has distribution and reseller agreements with over 47
companies worldwide. In addition, the Company plans to continue to expand its
distribution channels both domestically and internationally.
The Company establishes distribution relationships with resellers and
integrators who service corporate, institutional and government customers. These
relationships are non-exclusive and typically require that these resellers
participate in the marketing, installation and technical support of the
Company's products.
For consumer products the Company will depend on major OEM customers who
provide access to consumer marketing channels. These OEMs have established
relationships with manufacturers and resellers and typically pay licensing fees
and royalties to bring new leading-edge products to market.
The Company continues to expand its marketing activities over the Internet.
The Company's products enable new ways to promote products over the Internet.
The Company intends to use its own products to increase sales productivity and
to pursue alternate selling strategies. In addition, the Company utilizes press
releases, product literature, presentations to industry analysts and
participation in trade shows to enhance brand awareness.
The Company's Internet related products are marketed primarily to Web site
designers. The Company bundles its products with other popular Web-video
products and sells or licenses its subsystems to resellers to integrate with
their Web development products. Such strategic business alliances provide Web
developers with a rich array of innovative capabilities with the familiarity of
existing tools.
PRODUCTION AND SUPPLY
The Company builds its current products using contract manufacturers in the
United States. The Company's operations personnel in Dallas are responsible for
parts planning, procurement and final testing and inspection to quality
standards. The Company plans for most high-volume production to be handled
through large OEMs or contract manufacturers. The Company has been and will
continue to be dependent on third parties for the supply and manufacture of its
components and electronic parts, including standard and custom-designed
components. The Company generally does not maintain supply agreements with such
third parties but instead purchases components and electronic parts pursuant to
purchase orders in the ordinary course of business. The Company is substantially
dependent on the ability of its third-party manufacturers and suppliers to,
among other things, meet the Company's design, performance and quality
specifications.
The electronics industry from time to time experiences short supplies of
certain high demand components, which may adversely affect the Company's ability
to meet its production schedules. Failure of
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manufacturers or suppliers to supply or delays in supplying the Company with
components, or allocations in the supply of certain high-demand components,
could adversely affect the Company's operations and ability to meet delivery
schedules on a timely and competitive basis.
INSTALLATION, SERVICE AND MAINTENANCE
Many of the Company's products are customer installable. The Company has
contracted with Data General Corporation to provide third-party field
installation and support. The Company maintains a small in-house technical
support group and also depends on its resellers to install and service its
products.
The Company offers limited warranties covering workmanship and materials,
during which period the Company or its resellers will replace parts or make
repairs. The Company also maintains an in-house staff of engineering personnel
and offers telephone support to assist resellers and end-users during normal
business hours.
In addition, the Company enters into annual contracts with end-users to
provide software and/or hardware maintenance on its products.
RESEARCH AND DEVELOPMENT
The Company has focused and will continue to focus on research and
development activities related to videocom applications. The Company's recent
development efforts have been devoted to the design and development of its
products and software applications, including the VBX, the VBX Codec server, the
WorkFone(TM), the Osprey(R) line of Codecs and the applications software for
these systems.
Total research and development expense for 1996 and 1997 was approximately
$2.0 million and $2.7 million, respectively.
COMPETITION
The market for videocom systems is highly competitive and characterized
by the frequent introduction of new products based upon innovative technologies.
The Company competes with numerous well-established manufacturers and suppliers
of videoconferencing, networking, telecommunications and multimedia products,
certain of which dominate the existing videoconferencing market for such
products. In addition, the Company is aware of others that are developing, and
in some cases have introduced, new videocom systems. Most of the Company's
competitors possess substantially greater financial, marketing, personnel and
other resources than the Company, have established reputations relating to
product design, development, manufacture, marketing and service of networking,
telecom and video products and have significant budgets to permit them to
implement extensive campaigns to market new products in response to competitors.
The Company is not aware of any direct competitors that compete in all of the
Company's product families and applications. However, among the Company's direct
competitors competing in one or more of the Company's products or applications
are C-Phone Corporation, Zydacron, Inc., VCON, Ltd., Corel Computer Corporation,
Objective Communications, Inc. and Datapoint Corporation. In addition,
electronics manufacturers such as Intel actively compete for business in this
market.
PATENTS, COPYRIGHTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company holds a United States patent covering certain aspects of
compressed video. Although the Company does not believe this patent or any other
patent is essential to its business operations, the Company may apply for
additional patents relating to other aspects of its products. The Company also
relies on copyright laws to protect its software applications, which it
considers proprietary. There can be no assurance as to the breadth or degree of
protection which existing or future patents, copyrights and trademarks, if any,
may afford the Company, that any patent, copyright or trademark applications
will result in issued patents, registered copyrights or registered trademarks,
as the case may be, that the Company's patents, copyrights or trademarks will be
upheld, if challenged, or that competitors will not
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develop similar or superior methods, products or names outside the protection of
any patent issued to or copyright held by the Company.
The Company believes that product recognition is an important competitive
factor and, accordingly, the Company promotes the ViewCast(R), Osprey(R),
SLIC-Video(R), Viewpoint VBX(TM) and WorkFone(TM) names, among others, in
connection with its marketing activities, and has applied for or received
trademark registration for such names. The Company's use of those marks may be
subject to challenge by others, which, if successful, could have a material
adverse effect on the Company.
The Company also relies on confidentiality agreements with its directors,
employees, consultants and manufacturers and employs various methods to protect
the source codes, concepts, ideas, proprietary know-how and documentation of its
proprietary technology. However, such methods may not afford the Company
complete protection, and there can be no assurance that others will not
independently develop similar know-how or obtain access to the Company's
know-how or software codes, concepts, ideas and documentation. Furthermore,
although the Company has and expects to continue to have confidentiality
agreements with its directors, employees, consultants, manufacturers, and
appropriate vendors, there can be no assurance that such arrangements will
adequately protect the Company's trade secrets. The Company purchases certain
components that are incorporated into its products from third-party suppliers
and relies on their assurances that such components do not infringe on the
patents of others. A successful claim against any components used in the
Company's products could affect the ability of the Company to manufacture,
supply and support its products. The Company uses commercially reasonable
efforts to ensure third-party supplied components are non-infringing, but there
can be no assurances against future claims.
GOVERNMENT REGULATION
The Company is subject to regulations relating to electromagnetic
radiation from its products, which impose compliance burdens on the Company. In
the event the Company redesigns or otherwise modifies its products or completes
the development of new products, it will be required to comply with Federal
Communications Commission regulations with respect to such products, of which
there can be no assurance prior to their commercialization. In addition, new
legislation and regulations, as well as revisions to existing laws and
regulations, at the federal, state and local levels may be proposed in the
future affecting the video communications industries. Such proposals could
affect the Company's operations, result in material capital expenditures, affect
the marketability of its products and limit opportunities for the Company with
respect to modifications of its products or with respect to new or proposed
products or technologies. Expansion into foreign markets may also require the
Company to comply with additional regulatory requirements. Currently, the
Company is seeking certain foreign certificates in order to expand its
international marketing opportunities.
There can be no assurance that such export controls, either in their
current form or as may be subsequently enacted, will not delay introduction of
new products or limit the Company's ability to distribute products outside of
the United States. Further, various countries may regulate the import of certain
technologies contained in the Company's products. Any such export or import
restrictions, new legislation or regulation or government enforcement of
existing regulations could have a material adverse effect on the Company's
business, operating results and/or financial condition. There can be no
assurance that the Company will be able to comply with additional applicable
laws and regulations without excessive cost or business interruption, if at all,
and failure to comply could have a material adverse effect on the Company.
EMPLOYEES
As of December 31, 1997, the Company had fifty-five (55) full-time
employees, four (4) of whom are in executive positions, twenty-six (26) of whom
are engaged in engineering, research and development, thirteen (13) of whom are
engaged in marketing and sales activities, five (5) of whom are engaged in
operations and seven (7) of whom are in administration. None of the Company's
employees are represented by a labor union. The Company considers its employee
relations to be satisfactory.
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Item 2. Description of Property
The Company's executive offices and some of its sales design and
development activities are located in approximately 16,159 square feet of leased
space in Dallas, Texas. The lease expires in September of 1998 and provides for
a base annual rent of $143,110. The Company's assembly operations are located in
approximately 4,065 square feet of leased space in Dallas, Texas. The lease
expires in January 1999 and provides for a base annual rent of $33,372. Osprey's
design and development activities are located in approximately 10,000 square
feet of leased space in Morrisville, North Carolina. The lease expires in
December of 2002 and provides for a base annual rent of $99,000. The company
leases office space for sales offices in Arlington, Virginia, Burlingame,
California, Atlanta, Georgia and London, England consisting of approximately
613, 150, 150, and 375 square feet of leased space, respectively. These leases
expire in May 2000, month to month, January 1999 and February 1999 respectively,
and provide for base annual costs of $11,034, $11,400, $10,740 and $47,880
respectively. The Company believes that its facilities are adequate for its
current and reasonable foreseeable future needs and its current facilities can
accommodate expansion, as required.
Item 3. Legal Proceedings
The Company is not currently a party to any litigation that it believes
could have a material adverse effect on the Company or its business.
Item 4. Submission of Matters to a Vote of Security Holders
None
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PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the Nasdaq under the symbol
"MMAC." The Public Warrants are traded on the Nasdaq under the symbol "MMACW."
As of December 31, 1997, there were 8,733,958 shares of Common Stock and
2,851,977 Public Warrants outstanding. The shares of Common Stock are held by
approximately 828 beneficial holders and the Public Warrants are held of record
by approximately 18 holders. The following table sets forth, for the periods
indicated, the high and low sales prices for the Common Stock and the Public
Warrants on the Nasdaq. These over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. The Company's IPO became effective on February 4,
1997. Before this date, there was no public market for the Company's securities.
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COMMON STOCK PUBLIC WARRANTS
------------ ---------------
FISCAL 1997 HIGH LOW HIGH LOW
----------- ---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter $ 5.8750 $ 4.1875 $ 2.3750 $ 1.0000
2nd Quarter 6.5000 5.0000 2.3750 1.3750
3rd Quarter 6.0000 4.0000 2.0000 1.0000
4th Quarter 6.0000 3.8125 2.1250 0.9375
</TABLE>
On March 20, 1998, the last reported sales prices for the Common Stock
and the Public Warrants as reported on the Nasdaq were $3.50 and $1.125,
respectively.
The Company declared no cash dividends in 1996 or 1997. The Company
does not anticipate paying cash dividends in the future as it intends to retain
earnings to finance the growth of the business. The payment of future dividends
will depend on such factors as earnings levels, anticipated capital
requirements, the operating and financial condition of the Company and other
factors deemed relevant by the Company's Board of Directors.
The company has received a letter from the Nasdaq Stock Market, Inc.
notifying the Company that it is not in compliance with the new net tangible
assets/ market capitalization/ net income requirements pursuant to NASD
Marketplace Rule 4310(c)(2) which became effective on February 23, 1998. The
Company has requested a temporary exception to the new requirements and has
submitted written materials supporting its position to Nasdaq. The Company
expects to receive a response to its request for a temporary exemption by the
end of April 1998. In the event that the Company's request is denied, the
Company may request an additional oral or written hearing before the Nasdaq
Listing Qualifications Panel pursuant to NASD Marketplace Rule 4800 Series. In
the event that the Company is not granted an exemption to the new listing
requirements and does not regain compliance, the Company faces delisting from
the Nasdaq SmallCap Market. The Company is currently evaluating a variety of
alternatives which would bring the Company into compliance with the new listing
criteria and will vigorously pursue all procedures available to it.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
MultiMedia develops and markets advanced videocom systems. The Company
delivers high-performance cost-effective products that integrate video
capabilities into existing desktop computers, applications and networks,
delivering standards-based video solutions to the PC and workstation
marketplace.
RESULTS OF OPERATIONS
Twelve Months Ended December 31, 1997 compared to Twelve Months Ended December
31, 1996.
Net Sales. Net sales for the year ended December 31, 1997 increased 206.9%
to $3,360,703 from $1,095,012 reported in 1996. This increase can be attributed
to significant growth in sales of both video peripheral products and video
systems during 1997 compared to 1996, offset in part by a decline in custom
programming and design revenue between the same periods.
During the year ended December 31, 1997, sales of video peripheral products
increased 193.9% over 1996 and represented approximately 65.5% of total 1997
revenues, compared to approximately 68.4% of total revenues in 1996. Sales of
video systems increased 602.2% in 1997, compared to the same period in 1996 and
represented approximately 31.8% of total 1997 revenues, compared to
approximately 13.9% of total revenues in 1996. While sales of video peripheral
products are expected to continue to increase during 1998 as new products are
developed and marketed and new contracts are finalized, the percentage of
12
<PAGE>
peripheral product sales to total sales is expected to decline as the Company
also expects to see a significant increase in video systems revenue during 1998.
The Company introduced a new product family during the third quarter of 1997,
the ViewCast(R) line of Web-video servers, that is expected to begin generating
revenue during 1998.
Cost of Goods Sold. Cost of goods sold increased $1,302,004 to $1,695,922
for the year ended December 31, 1997 compared to the same period in 1996
primarily due to the increase in net sales described above. Gross profit margin
for 1997 was 49.5%, representing a decline from the 64.0% margin during 1996.
This decline in gross margin can be attributed to greater custom programming and
design revenue in 1996, which had little or no associated costs, and to
increased sales in 1997 to distribution partners with contractual sales
discounts. The Company anticipates that its gross profit margin will generally
average 50% for the foreseeable future.
Selling, General and Administrative Expense. Selling, general, and
administrative expense increased to $4,243,485 for the year ended December 31,
1997 from $2,378,653 in 1996 due to a significant expansion of the Company's
sales, marketing and customer support efforts in 1997. During 1997, the Company
added 14 sales positions and three customer support positions that did not exist
during 1996. Also contributing to the increase are expenses related to being a
public company that were incurred subsequent to the Company's initial public
offering in February 1997, including significant increases in insurance,
investor relations, travel, legal and professional fees.
Research and Development Expense. Research and development expense
increased $743,711 to $2,740,857 for the year ended December 31, 1997 compared
to 1996, primarily due to an increase in the Company's development staff,
contract consultants and manufacturing staff during 1997. The new staff and
consultants were principally involved in the continued development of the
Company's Viewpoint VBX(TM) system, Osprey(R) video products and the newly
announced ViewCast(R) Web-video servers.
Other Income (Expense). For the year ended December 31, 1997, other expense
decreased $314,833 to $198,386, primarily as a result of an increase in interest
income and a reduction in interest expense during the year. The changes to other
income and expense can be attributed principally to increased capital and
retirement of debt in conjunction with the Company's initial public offering in
February 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company successfully completed an IPO of its Common Stock and Public
Warrants on February 7, 1997 and on March 13, 1997 sold the over-allotment
option, raising a total of $5,427,000 of net proceeds. During 1997, with the
proceeds of the IPO, the Company has endeavored to build an effective marketing
and sales organization, develop a network of independent resellers and achieve
market acceptance of its products at prices and volumes which will, in the
future, result in profitable operations. However, the Company expects operating
losses to continue until such time as gross margins from the sales of its
products exceed its development, selling, administrative and financing costs.
In August 1997, the Company registered, in a Registration Statement on Form
SB-2, 2,981,573 shares of Common Stock underlying Private Warrants that had
previously been issued by the Company at various times between June 1995 and
February 1997 in connection with various financing transactions. Each such
private warrant entitles the holder to purchase one share of Common Stock at
prices ranging from $1.00 to $3.00 per share at any time commencing immediately
upon issuance through and including three (3) years from the date of issuance.
The Company will not receive any of the proceeds of the sale of such shares of
Common Stock, but will receive proceeds of up to $7,529,719 from the exercise of
the Private Warrants. Through December 31, 1997, 821,667 of the Private Warrants
had been exercised, resulting in net proceeds to the Company of $1,676,533.
These proceeds and any additional proceeds will be used for working capital and
general corporate purposes and possible future acquisitions.
On December 9, 1997 the Company sold, in a private placement, $5,000,000
aggregate principal amount of 8% Senior Convertible Notes due 2002 (the "Notes")
at an initial offering price of 100% of the principal amount thereof, less 8%
gross commission. The Notes are convertible into shares of Common
13
<PAGE>
Stock of the Company at a conversion price of $4.625 per share of Common Stock,
subject to adjustment in certain circumstances (including upon certain issuances
of Common Stock or Common Stock Equivalents at less than the then effective
conversion price). The Notes rank senior to all existing and future subordinated
obligations and rank pari passu with all present and future senior indebtedness
of the Company, except to the extent of any collateral securing such debt. Net
proceeds to the Company in December 1997 after expenses amounted to $4,168,000.
At December 31, 1997, the Company also had outstanding $324,363 of secured
senior indebtedness, most of which is due and payable in early 1998 to a
principal stockholder and officer of the Company.
Until the completion of its IPO on February 7, 1997, the Company was
dependent upon loans from its principal stockholders, as well as private
placements of its debt and equity securities, to finance its working capital
requirements. It is believed that the anticipated proceeds from the exercise of
Private Warrants and Public Warrants, the remaining net proceeds from the Notes
and the anticipated proceeds from an offering of convertible preferred stock
that is currently contemplated will be sufficient to fund the operations of the
Company through at least the end of 1998. In the event that the Company's plans
change or its assumptions change or prove to be inaccurate or such proceeds
prove to be insufficient to fund operations (due to unanticipated expenses or
difficulties or otherwise), the Company may be required to seek additional
financing sooner than currently anticipated or could be required to curtail its
activities. As a result of the above, the Company's auditors have found it
necessary to include a going concern emphasis in their opinion. The Company
believes that it will be able to raise sufficient capital to fund its growth at
least through the end of 1998.
The Company has had preliminary discussions with several potential sources
of additional financing, and may seek additional financing to provide additional
working capital in the future. Such financing may include loans, lines of credit
and/or secured capital financing through the issuance of convertible preferred
stock or other equity securities and could include factoring agreements.
Although the Company has no current firm arrangements with respect to any
additional financing, it is currently considering various proposals by several
potential investors relating to the issuance of convertible preferred stock or
other equity in exchange for a cash investment in the Company. The Company is
also considering obtaining a revolving line of credit which would rank pari
passu with the Notes, except to the extent of the collateral securing such debt.
There can be no assurance that any such additional financing will be available
to the Company on acceptable terms, or at all. Additional equity financing,
including the issuance of convertible preferred stock, may involve substantial
dilution to the Company's then existing stockholders and holders of the Notes
(assuming conversion thereof).
At December 31, 1997, the Company had working capital of $4,547,850 and did
not have any material commitments for capital expenditures.
YEAR 2000 COMPLIANCE
The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems and on products sold as well as products purchased by the
Company. The Company believes that its internal information systems and products
are either year 2000 compliant or will be so prior to the year 2000 without
incurring material costs. The Company is also assessing whether its key
suppliers are adequately addressing this issue and the effect this might have on
the Company. The Company has not completed its analysis and, therefore, there
can be no assurance that the Company will not be adversely impacted by the year
2000 problem as it relates to products purchased from key suppliers.
14
<PAGE>
Item 7. Financial Statements
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent
Auditors....................................................................16
Consolidated Balance Sheets at December 31, 1996 and 1997.....................17
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1997..................................................18
Consolidated Statements of Stockholders' Equity (Deficit) for
the years ended December 31, 1996 and 1997 .................................19
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1997 .................................................20
Notes to Consolidated Financial Statements....................................21
15
<PAGE>
Report of Independent Auditors
The Board of Directors
MultiMedia Access Corporation
We have audited the accompanying consolidated balance sheets of MultiMedia
Access Corporation and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years then ended. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
MultiMedia Access Corporation and subsidiaries at December 31, 1996 and 1997,
and the consolidated results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. As more fully described in Note 1, the Company is dependent upon the
proceeds from additional sales of its equity securities or other alternative
financing, has incurred recurring losses from operations and anticipates
negative cash flow from operations during 1998. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
Dallas, Texas
March 6, 1998
16
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1996 1997
------------------- -------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 18,539 $ 3,117,202
Accounts receivable, less allowance for doubtful accounts of
$43,000 and $65,000 at December 31, 1996 and 1997, respectively 185,564 1,195,230
Inventory 310,133 1,762,186
Prepaid expenses 46,239 75,096
Deferred charges 504,295 191,287
------------------- -------------------
Total current assets 1,064,770 6,341,001
Property and equipment, net 460,895 877,440
Software development costs, net 147,321 203,858
Deferred charges - 752,125
Deposits 18,272 36,991
------------------- -------------------
Total assets $ 1,691,258 $ 8,211,415
=================== ===================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 682,689 759,319
Accrued compensation 239,707 313,634
Deferred revenue 15,591 52,784
Other accrued liabilities 857,260 343,051
Short-term debt, officer 533,089 311,243
Short-term debt, other 1,966,202 13,120
Current portion of long-term debt 3,177,550 -
------------------- ------------------
Total current liabilities 7,472,088 1,793,151
Long-term debt - 5,000,000
Commitments
Stockholders' equity (deficit):
Preferred stock, $.0001 par value:
Authorized shares - 5,000,000
Issued shares - none
Common stock, $.0001 par value:
Authorized shares - 20,000,000 - -
Issued and outstanding shares - 5,315,811 and 8,995,455
at December 31, 1996 and 1997, respectively 532 900
Additional paid-in capital 6,602,572 19,628,703
Accumulated deficit (12,372,028) (18,199,433)
Treasury stock, 261,497 shares at December 31, 1996 and 1997 (11,906) (11,906)
------------------- -------------------
Total stockholders' equity (deficit) (5,780,830) 1,418,264
------------------- -------------------
Total liabilities and stockholders' equity (deficit) $ 1,691,258 $ 8,211,415
=================== ===================
</TABLE>
See accompanying notes.
17
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997
------------------ -----------------
<S> <C> <C>
NET SALES $ 1,095,012 $ 3,360,703
Cost of goods sold 393,918 1,695,922
------------------ -----------------
GROSS PROFIT 701,094 1,664,781
Operating expenses:
Selling, general and administrative 2,378,653 4,243,485
Research and development 1,997,146 2,740,857
Depreciation and amortization 206,041 309,458
------------------ -----------------
Total operating expenses 4,581,840 7,293,800
------------------ -----------------
OPERATING LOSS (3,880,746) (5,629,019)
Other income (expense):
Dividend and interest income 36 63,613
Interest expense (513,979) (290,492)
Other 724 28,493
------------------ -----------------
Total other income (expense) (513,219) (198,386)
------------------ -----------------
NET LOSS $ (4,393,965) $ (5,827,405)
================== =================
NET LOSS PER SHARE: BASIC AND DILUTED $ (0.91) $ (0.75)
================== =================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 4,844,706 7,806,378
================== =================
</TABLE>
See accompanying notes.
18
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED TREASURY
SHARES PAR VALUE CAPITAL DEFICIT STOCK
--------------- ------------- ------------------ ----------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 4,721,268 $ 472 4,736,933 $ (7,978,063) $ (11,906)
Exchange of short-term debt for
common stock 221,195 22 571,167 - -
Sale of common stock, net of
of expenses 304,016 31 896,481 - -
Exchange of trade payables for
common stock 69,332 7 207,991 - -
Fair market value of warrants
issued for consulting services
and inducement of debt - - 190,000 - -
Net loss - - - (4,393,965) -
--------------- ------------- ------------------ ----------------- ---------------
BALANCE, DECEMBER 31, 1996 5,315,811 532 6,602,572 12,372,028) (11,906)
Sale of common stock and Public
Warrants, net of expenses 1,610,000 161 5,427,077 - -
Exchange of short-term and
long-term debt for common stock
and Public Warrants 1,241,977 124 5,713,003 - -
Fair market value of warrants issued
for inducement of debt - - 191,500 - -
Exercise of options and warrants, net 827,667 83 1,694,551 - -
Net loss - - - (5,827,405) -
--------------- ------------- ------------------ ----------------- ---------------
BALANCE, DECEMBER 31, 1997 8,995,455 $ 900 $ 19,628,703 $ (18,199,433) $ (11,906)
=============== ============= ================== ================= ===============
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
-------------------
<S> <C>
BALANCE, DECEMBER 31, 1995 $ (3,252,564)
Exchange of short-term debt for
common stock 571,189
Sale of common stock, net of
of expenses 896,512
Exchange of trade payables for
common stock 207,998
Fair market value of warrants
issued for consulting services
and inducement of debt 190,000
Net loss (4,393,965)
----------------
BALANCE, DECEMBER 31, 1996 (5,780,830)
Sale of common stock and Public
Warrants, net of expenses 5,427,238
Exchange of short-term and
long-term debt for common stock
and Public Warrants 5,713,127
Fair market value of warrants issued
for inducement of debt 191,500
Exercise of options and warrants, net 1,694,634
Net loss (5,827,405)
-------------------
BALANCE, DECEMBER 31, 1997 $ 1,418,264
===================
</TABLE>
See accompanying notes.
19
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997
------------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(4,393,965) $(5,827,405)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of fixed assets 155,233 229,659
Amortization of software development 50,809 79,799
Non-cash charges to interest expense 165,001 168,691
Changes in operating assets and liabilities:
Accounts receivable (181,000) (1,009,666)
Inventory (112,664) (1,452,053)
Prepaid expenses (27,268) (28,857)
Due from debt holder 315,300 -
Deferred charges (527,531) (416,308)
Deposits (75) (18,719)
Accounts payable 310,527 76,630
Accrued compensation 13,220 73,927
Deferred revenue (59,922) 37,193
Other accrued liabilities 541,605 (133,228)
--------------- ------------------
Net cash used in operating activities (3,750,730) (8,220,337)
--------------- -----------------
INVESTING ACTIVITIES:
Purchase of property and equipment, net (133,597) (649,938)
Software development costs (54,335) (136,336)
Other 3,169 3,734
--------------- -----------------
Net cash used in investing activities (184,763) (782,540)
--------------- -----------------
FINANCING ACTIVITIES:
Net proceeds from issuance of short-term debt 2,550,000 212,202
Repayment of short-term debt-officer - (235,000)
Other (9,085) 2,466
Proceeds from issuance of long-term debt 500,000 5,000,000
Proceeds from the exercise of options and warrants - 1,694,634
Net proceeds from sale of common stock 896,512 5,427,238
--------------- -----------------
Net cash provided by financing activities 3,937,427 12,101,540
--------------- -----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,934 3,098,663
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 16,605 18,539
--------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 18,539 $ 3,117,202
=============== =================
</TABLE>
See accompanying notes.
20
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts
of MultiMedia Access Corporation (MMAC), and its wholly-owned subsidiaries,
Viewpoint Systems, Inc. (Viewpoint), VideoWare, Inc. (VideoWare) and Osprey
Technologies, Inc. (Osprey) (collectively, the Company). MMAC, Viewpoint,
VideoWare and Osprey were incorporated in Delaware in February 1994, November
1992, September 1994 and September 1995, respectively. The Company operates in
one business segment and is engaged in developing and marketing advanced video
communications products that integrate video capabilities into existing desktop
computers, applications and networks. The Company markets its products directly
to end-users, through value-added resellers and computer system integrators,
primarily in the continental United States.
In February 1997, the Company completed an underwritten initial public
offering ("the Offering") of 1,400,000 shares of its common stock and 1,400,000
redeemable common stock purchase warrants (Public Warrants). The shares of
common stock and the Public Warrants were sold on the basis of one Public
Warrant for each share of common stock at a unit price to the public of $4.60,
and were separately transferable immediately upon issuance. Each Public Warrant
entitles the holder to purchase one share of common stock at $4.50 per share,
subject to adjustment under certain circumstances, at any time commencing six
months from the date of the Prospectus through and including five years from the
date of the Prospectus. The Public Warrants are redeemable by the Company, at
any time commencing twelve months from the date of the Prospectus, upon notice
of not less than thirty days, at a price of $.10 per Public Warrant, provided
that the closing price or bid price of the common stock for any twenty trading
days within a period of thirty consecutive trading days ending on the fifth day
prior to the day on which the Company gives notice of redemption has been at
least 150% (currently $6.75, subject to adjustment) of the initial public
offering price per share of common stock. Additionally, in March 1997, the
Company issued an additional 210,000 shares of common stock and Public Warrants
upon exercise of the underwriter's over-allotment option. The Company received
net proceeds of $5,427,000 during February and March 1997 related to this sale.
No Public Warrants have been exercised to date.
In August 1997, the Company registered, in a Registration Statement on
Form SB-2, 2,981,573 shares of common stock underlying private warrants that had
previously been issued by the Company at various times between June 1995 and
February 1997 in connection with various financing transactions. Each such
private warrant entitles the holder to purchase one (1) share of common stock at
prices ranging from $1.00 to $3.00 per share at any time commencing immediately
upon issuance through and including three years from date of issuance. The
Company will not receive any of the proceeds of the sale of such shares of
common stock, but will receive proceeds of up to $7,529,719 from the exercise of
the private warrants, to the extent the warrants are exercised. Such proceeds
will be used for working capital and general corporate purposes, and possible
future acquisitions. In September and October 1997, the Company received net
proceeds of $1,676,533 upon the exercise of 821,667 private warrants at prices
ranging from $1.00 to $3.00 per share.
On December 9, 1997 the Company sold $5,000,000 aggregate principal amount
of 8% senior convertible notes due 2002 (the "Notes") at an initial offering
price of 100% of the principal amount thereof, less 8% gross commission. The
Notes are convertible into shares of common stock of the Company at a conversion
price of $4.625 per share of common stock, subject to adjustment in certain
circumstances (including upon certain issuances of common stock or common stock
equivalents at less than the then effective conversion price). The Notes rank
senior to all existing and future subordinated obligations and rank pari passu
with all present and future senior indebtedness of the Company, except to the
extent of any collateral securing such debt. Net proceeds to the Company in
December 1997 after expenses amounted to $4,168,000.
21
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1997, with the proceeds from the above mentioned financings, the
Company has endeavored to build an effective marketing and sales organization,
develop a network of independent resellers and achieve market acceptance of its
products at prices and volumes which will, in the future, result in profitable
operations. However, the Company expects operating losses to continue during
1998 and until such time, if ever, as gross margins from the sales of its
products exceed its development, selling, administrative and financing costs.
The Company anticipates that additional financing will be needed in the first
half of 1998 in order to meet its working capital requirements and has had
preliminary discussions with several potential sources of financing, and may
seek additional financing to provide additional working capital in the future.
Such financing may include loans, lines of credit and/or secured capital
financing through the issuance of convertible preferred stock or other equity
securities and could include factoring agreements.
Although the Company has no current firm arrangements with respect to any
additional financing, it is currently considering various proposals by several
potential investors relating to the issuance of convertible preferred stock or
other equity in exchange for a cash investment in the Company. The Company is
also considering obtaining a revolving line of credit, which would rank pari
passu with the Notes, except to the extent of the collateral securing such debt.
There can be no assurance that any such additional financing will be available
to the Company on acceptable terms, or at all. Additional equity financing,
including the issuance of convertible preferred stock, may involve substantial
dilution to the Company's then existing stockholders and holders of the Notes
(assuming conversion thereof). In the event the Company is unable to raise
additional capital it may be required to curtail its activities.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As reflected in the
accompanying consolidated financial statements, the Company incurred significant
losses of $4,393,965 and $5,827,405 during the years ended December 31, 1996 and
1997, respectively. These losses in conjunction with the matters discussed
above, raise substantial doubt about the Company's ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments which might be necessary should the Company be unable to continue as
a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All material inter-company accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
INVENTORY
Inventory consists primarily of purchased electronic components and
computer system products, along with the related documentation manuals and
packaging materials. Inventory is carried at the lower of cost or market, cost
being determined on a standard cost basis, which approximates average cost.
22
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is determined
using the straight-line method over the estimated useful lives, generally five
years, of the related assets. Leasehold improvements are amortized over the
lives of the related leases. Expenditures for repairs and maintenance are
charged to operations as incurred; renewals and betterments are capitalized.
SOFTWARE DEVELOPMENT COSTS
Costs of developing new software products and substantial enhancements
to existing software products are expensed as incurred until technological
feasibility has been established, after which time additional costs incurred are
capitalized in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Amortization of capitalized software development costs
begins when products are available for general release to customers, and is
computed using the straight-line method over a period not to exceed three years.
Amortization expense for the years ended December 31, 1996 and 1997 was $50,809
and $79,799, respectively.
REVENUE RECOGNITION
Revenue from the sale of video communication systems and products and
licensing of the related software is recognized upon shipment to customers. With
pre-approval by a return merchandise authorization, a customer may return
undamaged product to the Company, subject to a 30-day money back guarantee. The
Company maintains an accrued warranty reserve for products which are returned
defective during the warranty period.
NET LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128 (SFAS 128), "Earnings per Share," which has changed the method for
calculating earnings per share on the face of the income statement. The new
standard eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure of
how the per share amounts were computed. Basic earnings per share is calculated
by dividing net income/loss by the number of weighted average common shares
outstanding for the period. Since the Company has reported net losses for all
periods presented, the computation of diluted loss per share excludes the
effects of options (see Note 8), warrants (see Note 8) and convertible debt (see
Note 6) since their effect is anti-dilutive. Loss per share amounts for prior
periods have been restated to conform to SFAS 128 requirements.
DEFERRED CHARGES AND OTHER ASSETS
Deferred charges at December 31, 1997, which consist of legal,
accounting and lead manager fees and expenses associated with the issuance of
the $5,000,000 8% senior convertible notes due 2002 in December 1997, are being
amortized using the straight-line method over the term of the notes. Net debt
issue costs at December 31, 1997 amounted to $943,412 of which $191,287 has been
classified as current.
Deferred charges at December 31, 1996 consist of legal, accounting and
other expenses associated with the Company's initial public offering consummated
in February 1997, as well as expenses incurred in connection with the issuance
of 8% debt in July through December of 1996. During February and March 1997,
$2,079,000 of legal, accounting, underwriting and printing costs incurred in
connection with the initial public offering were charged against the proceeds
from the offering.
23
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Amortization of deferred debt issue costs charged to operations for the
years ended December 31, 1996 and 1997 was $165,001 and $168,691, respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit
risk consist principally of cash, cash equivalents and trade accounts
receivable. The Company invests its cash and cash equivalents with a Texas
commercial bank and a commercial brokerage firm. The brokerage firm maintains
accounts in several banks throughout the country and in government securities.
The Company sells its products and services primarily to distributors and
resellers without requiring collateral, however, the Company routinely assesses
the financial condition of its customers and maintains allowances for
anticipated losses. During the years ended December 31, 1996 and 1997, three
customers accounted for 37% and one customer accounted for 14% of total
consolidated revenues, respectively. Balances due from these customers at
December 31, 1996 and 1997 represented 0% and 10% of net accounts receivable,
respectively. The Company believes it has no significant concentration of credit
risk.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME TAXES
The Company utilizes the liability method of accounting for income
taxes as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are determined based upon the differences between the financial
statement and tax bases of assets and liabilities, as measured by the enacted
tax rates expected to be in effect when these differences reverse.
ADVERTISING COSTS
Advertising costs are generally expensed as incurred. Advertising
expense was $89,414 and $226,413 for the years ended December 31, 1996 and 1997,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amount of certain of its
financial instruments, which include cash equivalents, accounts receivable,
accounts payable, short-term debt and accrued expenses approximate fair value
due to the short-term maturities of these instruments. The Company also believes
the carrying value of its long-term debt approximates fair value at December 31,
1997 since actual interest rates were consistent with rates estimated to be
available for obligations with similar terms and conditions.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation". SFAS 123 defines a fair-value based method of
accounting for an employee stock option or similar equity instrument. As
permitted by SFAS 123, the Company has elected to continue to measure the cost
of its stock-based compensation plans using the intrinsic-value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." See Note 8 to the Consolidated Financial
Statements for additional information concerning stock-based compensation.
24
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information," which established standards for the way
public business enterprises report information in annual statements and interim
financial reports regarding operating segments, products and services,
geographic areas and major customers. SFAS 131 will first be reflected in the
Company's 1998 financial statements. The Company's management is currently
evaluating the impact of this statement.
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1997
------------------------------------
<S> <C> <C>
Purchased materials $180,149 $1,035,006
Finished goods 129,984 727,180
------------------------------------
$310,133 $1,762,186
====================================
</TABLE>
Inventory at December 31, 1996 is presented net of a reserve of $215,000.
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1997
------------------------------------
<S> <C> <C>
Computer equipment $519,966 $933,767
Software 141,841 270,386
Leasehold improvements 36,985 43,951
Office furniture and equipment 87,630 180,256
------------------------------------
786,422 1,428,360
Less accumulated depreciation
and amortization (325,527) (550,920)
------------------------------------
$460,895 $877,440
====================================
</TABLE>
25
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997
-------------------------------
<S> <C> <C>
OFFICER:
Secured note payable to an officer and affiliate of the
Company, due on demand with interest at 15%.
Collateralized by all assets of the Company. $ 533,089 $ 311,243
===============================
OTHER:
Secured note payable to an individual investor, due on
demand with interest at 15%. Collateralized by all
assets of the Company. $ 22,548 $ -
Convertible secured debt payable to a principal
stockholder of the Company, due on demand 10 days
subsequent to an initial public offering or 180 days
after date of issue, with interest at 8%.
Collateralized by all assets of the Company. 500,000 -
Unsecured notes payable to principal stockholders of
the Company, due on demand 10 days subsequent to an
initial public offering or 180 days after date of
issue, with interest at 8% 1,315,000 -
Unsecured , non-interest bearing note payable to
the Company's underwriter 120,000 -
Other 8,654 13,120
-------------------------------
Total short-term debt, other $ 1,966,202 $ 13,120
===============================
</TABLE>
In January and February 1996, the Company issued $650,000 of 10% 90-day
secured notes to an existing stockholder of the Company. As an incentive to
advance these notes, the stockholder received 65,000 three-year warrants to
purchase Company stock at $3.00 per share. Based on an independent appraisal,
the fair market value of these warrants of $.50 per share was charged to
interest expense over the term of the notes.
In July 1996, the Company issued $500,000 of 8% secured convertible
debt to a principal stockholder of the Company. The convertible debt was due on
demand 10 days subsequent to an initial public offering of the Company's equity
securities or 180 days from date of issue. As an incentive to advance these
notes, the stockholder received 50,000 three-year warrants to purchase Company
stock at $3.00 per share. Based on an independent appraisal, the fair market
value of these warrants of $.50 per share was charged to interest expense.
26
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Between September and December of 1996, the Company issued $1,315,000
of 8% unsecured notes to existing stockholders of the Company. The notes were
due on demand 10 days subsequent to an initial public offering of the Company's
equity securities or 180 days from date of issue. As an incentive to advance the
notes, the stockholders received 131,500 three-year warrants to purchase Company
stock at $3.00 per share. Based on an independent appraisal, the fair market
value of these warrants of $1.00 per share was charged to interest expense.
In October 1996, the Company converted salary and bonuses of $127,781
and accrued interest of $41,154 owing to its Chief Executive Officer into
$168,935 principal amount of 15% secured notes due in February of 1998.
In January and February 1997, the Company issued $600,000 of 8%
unsecured debt to two principal stockholders of the Company. The unsecured debt
was due on demand 10 days subsequent to an initial public offering of the
Company's equity securities or 180 days from the date of issue. As an incentive
to advance the debt, the stockholders were issued 60,000 three-year warrants to
purchase Company stock at $3.00 per share. Based on independent appraisal, the
fair market value of these warrants of $1.00 per share was charged to interest
expense.
In February 1997, $2,915,000 principal amount of secured and unsecured
notes were exchanged for 633,694 shares of Common Stock and Public Warrants in
the Offering. Additionally, in February 1997, the Company repaid $377,548
principal amount of secured and demand notes together with total accrued
interest of $90,745.
Interest paid was $1,287 and $253,675 for the years ended December 31,
1996 and 1997, respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
-----------------------------------
<S> <C> <C>
U.S $5,000,000 Senior 8% Convertible
Notes
due December 2002 with interest payable $ - $ 5,000,000
semi-annually in arrears
Short-term notes converted to convertible notes 110,250 -
Convertible secured debt payable to a
principal
stockholder of the Company, due January
1998 with interest at 8% collateralized by all
assets of the Company 500,000 -
Convertible notes 2,567,300 -
---------------------------------
3,177,550 5,000,000
Less: current portion 3,177,550 -
---------------------------------
$ - $ 5,000,000
=================================
</TABLE>
27
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In July of 1996, the Company issued $500,000 of 18-month 8% convertible
debt to a principal stockholder of the Company. As an incentive to advance these
notes, the stockholder was granted 50,000 three-year warrants to purchase
Company stock at $3.00 per share. Based on an independent appraisal, the fair
market value of these warrants of $.50 per share was charged to interest
expense.
In February 1997, $2,430,300 principal amount of 8% convertible notes
together with accrued interest of $367,827 were exchanged for 608,283 shares of
common stock and Public Warrants in the Offering. Additionally, in February
1997, the Company repaid $247,250 principal amount of 8% convertible debt
together with accrued interest of $118,726. Converting noteholders received
1,215,150 three-year warrants to purchase Company stock at $3.00 per share while
repayment noteholders received 82,418 three-year warrants to purchase Company
stock at $3.00 per share.
On December 9, 1997 the Company sold $5,000,000 aggregate principal amount
of 8% senior convertible notes due 2002 (the "Notes") at an initial offering
price of 100% of the principal amount thereof, less 8% gross commission (see
Note 1). The Notes rank senior to all existing and future subordinated
obligations and rank pari passu with all present and future senior indebtedness
of the Company, except to the extent of any collateral securing such debt. Lead
managers in connection with the Notes offering received 108,108 warrants to
purchase Company stock at an exercise price of $4.625 per share. In December
1997, the Company received net proceeds of $4,168,000 from the Notes offering.
At December 31, 1997, the Company had outstanding $324,363 of secured
senior indebtedness, most of which is due and payable in early 1998 to a
principal stockholder and officer of the Company.
7. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires a valuation allowance to be recorded when it is "more
likely than not that some portion or all of the deferred tax assets will not be
realized." In the opinion of management, realization of the Company's net
operating loss carryforward is not reasonably assured, and a valuation allowance
of $4,625,000 and $6,716,000 has been provided against deferred tax assets in
excess of deferred tax liabilities in the accompanying consolidated financial
statements at December 31, 1996 and 1997, respectively.
The components of the Company's net deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1997
-------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 4,349,000 $ 6,357,000
Excess of tax over financial statement basis of
patent 41,000 37,000
Accruals deductible for tax purposes when paid 236,000 241,000
Excess of tax over financial statement basis of
software development costs 42,000 130,000
-------------------------------------
Total deferred tax assets 4,668,000 6,765,000
Less: valuation allowance (4,625,000) (6,716,000)
-------------------------------------
43,000 49,000
Deferred tax liabilities:
Excess of financial statement over tax basis of
of property and equipment 43,000 49,000
-------------------------------------
Total deferred tax liabilities 43,000 49,000
=====================================
Net deferred taxes $ - $ -
=====================================
</TABLE>
28
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation between the federal income tax benefit calculated by
applying U.S. federal statutory rates to net loss and the absence of a tax
benefit reported in the accompanying consolidated financial statements is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1997
-------------------------------------
<S> <C> <C>
U.S. federal statutory rate applied to pretax loss $ (1,494,000) $ (1,981,000)
Accrued compensation and other accruals (19,000) 70,000
Amortization of patent (3,000) (4,000)
Depreciation of property and equipment (5,000) (12,000)
Software development costs for financial reporting
purposes (11,000) (43,000)
Net operating loss carryforward not recognized for
financial reporting purposes 1,476,000 1,966,000
Inventory and doubtful account reserves 3,000 (66,000)
Non-deductible interest expense 46,000 58,000
Other 7,000 12,000
-------------------------------------
$ - $ -
=====================================
</TABLE>
The Company has a federal income tax net operating loss carryforward of
approximately $17,000,000 at December 31, 1997. Approximately $2,700,000,
$4,700,000, $4,300,000 and $5,300,0000 of the carryforward will expire in 2009,
2010, 2011 and 2012, respectively. The Company is subject to limitations
existing under Internal Revenue Code Section 382 (Change of Control) relating to
the availability of the operating loss carryforward. Beginning with 1994,
approximately $790,000 of the carryforward that will expire in 2009 is limited
to utilization at a rate of approximately $300,000 per year.
No income taxes were paid for the years ended December 31, 1996 and
1997.
8. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
In September 1995, the Company began a private placement of up to
2,666,667 shares of common stock to qualified investors. In March 1996 a
principal stockholder of the company exchanged $663,589 of notes and accrued
interest for 221,195 shares of common stock and 65,000 warrants in the offering.
In April through June of 1996, the Company sold 304,016 shares of the offering
to individual investors at $3.00 per share. Proceeds to the Company were
$912,054. Additionally, in May and June of 1996, the Company converted $208,000
of accounts payable into 69,332 shares of the offering at $3.00 per share.
In February 1997, the Company completed an underwritten initial public
offering of 1,400,000 shares of its common stock and 1,400,000 redeemable common
stock purchase warrants (Public Warrants). The shares of common stock and the
Public Warrants were sold on the basis of one Public Warrant for each share of
common stock at a unit price to the public of $4.60, and were separately
transferable immediately upon issuance (see Note 1). In March 1997, the Company
issued an additional 210,000 shares of common stock and Public Warrants upon
exercise of the underwriter's over-allotment option. The Company received net
proceeds of $5,427,000 during February and March 1997 related to this sale.
Additionally, in February of 1997, $5,345,300 principal amount of convertible
and bridge notes together with accrued interest of $367,827 were converted into
1,241,977 shares of common stock and Public Warrants in the offering.
29
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In August 1997, the Company registered, in a Registration Statement on Form
SB-2, 2,981,573 shares of common stock underlying private warrants that had
previously been issued by the Company at various times between June 1995 and
February 1997 in connection with various financing transactions. Each such
private warrant entitles the holder to purchase one (1) share of common stock at
prices ranging from $1.00 to $3.00 per share at any time commencing immediately
upon issuance through and including three years from date of issuance. The
Company will not receive any of the proceeds of the sale of such shares of
common stock, but will receive proceeds of up to $7,529,719 from the exercise of
the private warrants, to the extent the warrants are exercised. In September and
October 1997, the Company received net proceeds of $1,676,533 upon the exercise
of 821,677 private warrants at prices ranging from $1.00 to $3.00 per share. As
an inducement for early exercise of the private warrants, exercising warrant
holders received 82,000 three-year warrants to purchase Company stock at $4.50
per share.
STOCK OPTION PLANS
In April 1995, the Company adopted its 1995 Stock Plan (the 1995 Stock
Option Plan) under which 2,000,000 shares of the Company's common stock are
reserved for issuance to officers, key employees and consultants of the Company.
The objectives of the stock plan are to attract and retain qualified personnel
for positions of substantial responsibility, and to provide additional
incentives to employees and consultants to promote the success of the Company's
business. Options granted under the plan may be incentive stock options or
non-qualified stock options. The plan is administered by the Board of Directors.
The options are granted at the discretion of the Board of Directors at an option
price per share not less than fair market value at the date of grant.
In April 1995, the Company also adopted the 1995 Director Option Plan
under which 250,000 shares of the Company's common stock are reserved for
issuance to outside directors of the Company. The objective of the director plan
is to attract and retain qualified personnel for service as outside directors of
the Company, and to encourage their continued service to the Board. Only
non-qualified stock options may be granted. Grants under the plan are automatic
and nondiscretionary, and are issued at an option price per share not less than
fair market value at the date of grant.
Following is a summary of stock option activity from December 31, 1995
through December 31, 1997:
<TABLE>
<CAPTION>
STOCK OPTIONS
--------------------------------------------------------
WEIGHTED-
AVERAGE
NUMBER PRICE PER EXERCISE PRICE
OF SHARES SHARE PER SHARE
--------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995 1,811,774 $ .04 - 3.00 $ 2.48
Granted 870,400 3.00 - 4.00 3.32
Exercised - - -
Canceled/forfeited 588,213 .20 - 3.00 2.55
------------------
Outstanding at December 31, 1996 2,093,961 .04 - 4.00 2.81
Granted 780,666 3.00 - 5.84 4.55
Exercised 6,000 3.00 3.00
Canceled/forfeited 130,817 2.20 - 4.63 3.42
------------------
Outstanding at December 31, 1997 2,737,810 $ .04 - 5.84 $ 3.27
==================
</TABLE>
30
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The weighted-average grant-date fair value of options granted was $0.86
and $2.23 for the years ended December 31, 1996 and 1997, respectively.
The following information applies to options outstanding at December
31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------- ---------------------------------
WEIGHTED-AVERAGE
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
EXERCISE DECEMBER 31, 1997 LIFE PRICE DECEMBER 31, PRICE
PRICES 1997
---------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.01 - 1.00 154,770 4.2 $ 0.10 138,438 $ 0.10
1.01 - 2.00 - - - - -
2.01 - 3.00 1,488,040 6.7 2.85 988,255 2.80
3.01 - 4.00 381,000 6.1 3.71 115,914 3.63
4.01 - 5.00 542,500 9.5 4.37 - -
5.01 - 6.00 171,500 5.1 5.33 - -
---------------------------------------------------- ---------------------------------
2,737,810 6.9 $ 3.27 1,242,606 $2.58
</TABLE>
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting
For Stock Based Compensation," requires the disclosure of pro forma net income
and earnings per share information computed as if the Company had accounted for
its employee stock options granted subsequent to December 31, 1994 under the
fair value method set forth in SFAS 123. The fair value for these options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1997
-----------------------------------------
<S> <C> <C>
Risk-free interest rate 6.4% 6%
Dividend yield 0% 0%
Volatility factor of the
market price of the
Company's common stock 0% 40%
Expected life of the options
(years) 5 6
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimated, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options. In addition, because SFAS 123 is applicable only to
options granted subsequent to December 31, 1994, the pro forma information
presented below is not necessarily indicative of the effects on reported net
income in future years.
31
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. Pro forma
information for the years ended December 31, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
-------------------- -------------------
<S> <C> <C>
Pro forma net loss $ (4,597,827) $ (6,212,743)
Pro forma net loss per share:
basic and diluted $ (0.95) $ (.80)
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In May 1995, the Company established an Employee Stock Purchase Plan
("ESPP") to provide employees of the Company with an opportunity to purchase
Common Stock through payroll deductions. Under the ESPP, up to 250,000 shares of
Common Stock have been reserved for issuance, subject to certain antidilution
adjustments. The ESPP, by its terms, became effective at the time of the
Company's IPO. The ESPP is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Internal Revenue Code.
Each offering period will be for a period of six months except the first
offering period under the ESPP is from October 1, 1997 through April 30, 1998.
The ESPP terminates in April, 2005. Eligible employees may participate in the
ESPP by authorizing payroll deductions during an offering period within a
percentage range determined by the Board of Directors. Initially, the amount of
authorized payroll deductions is not more than ten percent of an employee's cash
compensation during an offering period, but not more than $25,000 per year.
Amounts withheld from payroll are applied at the end of each offering period to
purchase shares of Common Stock. Participants may withdraw their contributions
at any time before stock is purchased, and in the event of withdrawal such
contributions will be returned to participants. The purchase price of the Common
Stock is equal to eighty-five percent of the lower of (i) the market price of
Common Stock immediately before the beginning of the applicable offering period
or (ii) the market price of Common Stock at the end of each offering period. The
Company will pay all expenses incurred in connection with the implementation and
administration of the ESPP.
WARRANTS
The Company has issued private warrants to purchase common stock of the
Company in connection with the issuance and repayment of certain notes payable
(as described in Notes 5 and 6), as inducement for early exercise of private
warrants and as compensation for services rendered by various consultants and a
financial consulting firm controlled by an officer, director, and stockholder of
the Company. Additionally, the Company has issued Public Warrants to purchase
common stock of the Company in connection with its initial public offering and
concurrent debt retirement and debt for equity exchange (as described in the
Common Stock section of Note 8).
32
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of warrant activity from December 31, 1995
through December 31, 1997:
WARRANTS
<TABLE>
<CAPTION>
-----------------------------------------------------------
WEIGHTED-
AVERAGE
NUMBER OF PRICE PER EXERCISE PRICE
SHARES SHARE PER SHARE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1995 1,147,500 $ 1.00 - 3.00 $ 1.77
Granted 376,505 3.00 3.00
Exercised - - -
--------------------
Outstanding at December 31, 1996 1,524,005 1.00 - 3.00 2.07
Granted - Non-Public Warrants 1,717,676 3.00 - 4.63 3.24
Granted - Public Warrants 2,851,977 4.50 4.50
Exercised 821,667 1.00 - 3.00 2.13
--------------------
Outstanding at December 31, 1997 5,271,991 $ 1.00 - 4.63 $ 3.76
====================
</TABLE>
In addition, at December 31, 1997 the Company's IPO representative
holds warrants to purchase 140,000 units at $6.30 per unit, each unit consisting
of one share of common stock and one common stock purchase warrant exercisable
at $4.50 per share through February 2002.
At December 31, 1997, 5,084,716 warrants at prices ranging from $1.00
to $4.50 with a weighted-average exercise price of $3.74 were exercisable.
9. EMPLOYEE BENEFIT PLAN
Effective March 1, 1997, the Company adopted a profit sharing plan pursuant
to Section 401(k) of the Internal Revenue Code whereby participants may elect to
contribute up to twenty percent (20%) of their compensation subject to statutory
limitations. The plan provides for discretionary matching and profit sharing
contributions by the Company. All full-time employees are eligible to
participate in the plan provided they meet a minimum service requirement of six
consecutive months and a minimum age requirement of twenty-one. For the year
ended December 31, 1997 no matching or profit sharing contributions were made by
the Company.
10. COMMITMENTS AND CONTINGENCIES
The Company leases various office and manufacturing space under
non-cancelable operating leases extending through 2003. The Company also leases
certain office and computer equipment under non-cancelable operating leases.
Future minimum operating lease payments with initial or remaining terms of one
year or more are as follows:
33
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OPERATING
LEASES
----------------
Year ended December 31:
1998 $ 343,663
1999 145,172
2000 125,247
2001 122,029
2002 122,029
Thereafter 12,211
-------------
Total minimum lease payments $ 870,351
=============
Rent expense was $247,765 and $261,400 for the years ended December 31,
1996 and 1997, respectively.
The Company has entered into an employment contract with its Chief
Executive Officer through February 1999 that provides for a minimum annual
salary and incentives based generally on the Company's performance.
11. RELATED PARTY TRANSACTIONS AND SUBSEQUENT EVENTS
In February 1994 the Company entered into two five-year consulting
agreements with two of its former directors, pursuant to which the Company
agreed to pay monthly consulting fees of $5,000 to each individual. In March
1995 one of these consulting agreements was canceled with no further liability
to the Company. In June 1996, the Company converted $80,000 of accounts payable
owed on the remaining consulting agreement into 26,666 shares of common stock at
$3.00 per share. By mutual agreement, effective May 1, 1996 consulting fees from
the remaining consulting contract were suspended until February 1997. Consulting
fees charged to expense with respect to the aforementioned agreements for the
years ended December 31, 1996 and 1997 were $20,000 and $50,000, respectively.
Consulting fees of $12,500 and $62,500 remained accrued at December 31, 1996 and
1997, respectively.
In May 1996, the Company issued three-year warrants to purchase 5,005
shares of Company stock at $3.00 per share to a company which is partially owned
by the Chief Executive Officer of the Company. The warrants were issued as
consideration for consulting services rendered during 1996. The fair market
value of the warrants of $.50 as determined by independent appraisal and fees of
$2,503 were charged to expense during 1996. Additionally, $3,562 and $8,130 of
consulting fees were paid in 1996 and 1997, respectively, for consulting
services rendered in 1994.
In January and February 1996, the Company issued to a principal stockholder
of the Company, secured notes totaling $650,000 under the terms as described in
Note 5. During March 1996, these secured notes were exchanged for equity
securities of the Company under the terms described in Note 5.
During July 1996, the Company issued $1,000,000 of 8% secured
convertible debt to a principal stockholder of the Company. The note matured 10
days subsequent an initial public offering of the Company's equity securities.
During February 1997, the note was converted into common stock and Public
Warrants in the Offering as described in Note 5. As an incentive to advance the
debt, the stockholder was issued 100,000 three-year warrants to purchase Company
stock at $3.00 per share. The fair market value of the warrants of $.50 per
share as determined by independent appraisal were charged to interest expense
over the term of the notes. Additionally, the stockholder was issued 100,000
three-year warrants to purchase Company Stock at $3.00 per share upon
conversion. The fair market value of the warrants of $1.00 per share as
determined by independent appraisal were charged against the proceeds of the
Offering.
34
<PAGE>
MULTIMEDIA ACCESS CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During July 1996, the Company issued to a stockholder and former
director of the Company, 75,000 three-year warrants to purchase Company stock at
$3.00 per share pursuant to the terms of a consulting agreement more fully
described in Note 10. Based on an independent appraisal, the fair market value
of these warrants of $15,000 was charged to consulting fees in 1996.
During October 1996, the Chief Executive Officer of the Company agreed
to defer receipt of $164,154 principal amount of Secured and Demand Notes,
accrued interest of $41,154 and accrued salary and bonuses of $127,781 until
February of 1998 under the terms described in Note 5.
In November and December of 1996, the Company issued $700,000 of 8%
unsecured debt to two principal stockholders of the Company. The debt matured 10
days subsequent to an initial public offering of the Company's equity securities
or 180 days from the date of issue. During February 1997, these notes were
converted into common stock and Public Warrants in the Offering as described in
Note 5. As an incentive to advance the debt, the stockholder's were issued
70,000 three-year warrants to purchase Company stock at $3.00 per share. The
fair market value of the warrants of $1.00 per share as determined independent
appraisal were chared to interest expense over the term of the notes.
During January and February of 1997, the Company issued $600,000 of 8%
unsecured notes to two principal stockholders of the Company. The notes were due
on demand 10 days subsequent to an initial public offering of the Company's
equity securities or 180 days from date of issue. During February of 1997 these
notes were converted into common stock and Public Warrants in the Offering as
described in Note 6.
During February 1997, $1,915,000 principal amount of 8% unsecured
bridge notes and $1,000,000 principal amount of 8% secured convertible notes
owing to four principal stockholders of the Company were converted into 633,694
shares of common stock and Public Warrants in the Offering at $4.60 per share.
Additionally, during February 1997, the Company paid accrued interest of $76,634
to the stockholders.
During February 1997, $1,905,000 principal amount of 8% convertible
debt and accrued interest of $282,992 owing to four principal stockholders, its
Chief Executive Officer and the spouse of another principal stockholder and
former director, were converted into 475,647 shares of common stock and Public
Warrants in the Offering at $4.60 per share.
During February 1997, the Company repaid $235,000 principal amount of
15% secured debt to its Chief Executive Officer together with accrued interest
of $10,399.
In August 1997, the Company registered, in a Registration Statement on
Form SB-2, 2,981,573 shares of common stock underlying private warrants (see
Note 8), some of which are held by affiliates of the Company. In September and
October of 1997, the Company received gross proceeds of $1,700,000 upon exercise
of 805,000 private warrants from three principal stockholders of the Company and
the spouse of a principal stockholder. As an incentive for early exercise of the
above mentioned warrants, the stockholders were issued 82,000 three-year private
warrants to purchase Company stock at $4.50 per share.
During 1997 the Company paid $56,000 of consulting fees to the Chairman
of the Company.
In February 1998, the Company repaid $125,000 principal amount of
secured notes to its Chief Executive Officer and converted the remaining
principal balance of $186,243 to a demand note.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no disagreements concerning any matter of accounting
principle or financial statement disclosure between the Company and its
independent auditors.
35
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16 (a) of the Exchange Act.
The information required by this item is incorporated by reference to
disclosure in the Company's Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within
120 days after the end of the fiscal year covered by this report
("Proxy Statement").
Item 10. Executive Compensation
The information required by this item is incorporated by reference to
the Proxy Statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to
the Proxy Statement.
Item 12. Certain Relationship and Related Transactions
The information required by this item is incorporated by reference to
the Proxy Statement.
Item 13. Exhibits and Report on Form 8-K
a.) Exhibits
See Exhibit index.
b.) Reports on Form 8-K
On December 23, 1997, the Company filed a Form 8-K covering the
private placement of $5,000,000 aggregate principal amount of 8%
Senior Convertible Notes due 2002.
36
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date MultiMedia Access Corporation
----
March 27, 1998 By: /s/ William S. Leftwich
-----------------------
William S. Leftwich
Chief Financial Officer and
Asst. Secretary
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Date MultiMedia Access Corporation
----
March 27, 1998 By: /s/ Glenn A. Norem
-------------------------------
Glenn A. Norem
Director and Chief
Executive Officer
March 27, 1998 By: /s/ William S. Leftwich
-------------------------------
William S. Leftwich
Chief Financial Officer and
Asst. Secretary
March 27, 1998 By: /s/ William D. Jobe
-------------------------------
William D. Jobe
Director and Chairman of
the Board
March 27, 1998 By: /s/ Joe C. Culp
-------------------------------
Joe C. Culp
Director
37
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT
PAGE SEQUENTIAL
NO. DESCRIPTION OF EXHIBIT PAGE NO.
- -----------------------------------------------------------------------------------------------------------
2 Agreement and Plan of Merger and Reorganization (1)
3(a) Certificate of Incorporation (1)
3(b) Amendment to Certificate of Incorporation (1)
3(c) Restated By-Laws (1)
4(a) Form of Common Stock Certificate (1)
4(b) Form of Warrant Certificate (1)
4(c) Form of Warrant Agreement between the Company and Continental Stock Transfer & Trust Company (1)
4(d) Form of Representative's Warrant Agreement (1)
4(e) Form of Trust Indenture - $5,000,000 8% Senior Convertible Notes Due 2002
4(f) Form of Lead Managers Warrant Agreement
9(a) Voting Trust Agreement between Robert M. Sterling, Jr. and Thomas E. Brown (1)
9(b) Voting Trust Agreement between Robert P. Bernardi and Richard Bernardi (1)
9(c) Form of Lock-Up Agreement (1)
9(d) Lock-Up Agreement with Robert Sterling Trust (1)
9(e) Lock-Up Agreement with Robert Bernardi Trust (1)
9(f) Lock-Up Agreement with Michael Nissenbaum (1)
10(a) Modified Employment Agreement between the Company and Glenn A. Norem (1)
10(b) Modified Consulting Agreement between the Company and Sterling Capital Group Inc. (1)
10(c) Form of Indemnification Agreement between the Company and Executive Officers and Directors (1)
10(d) 1995 Stock Option Plan (1)
10(e) 1994 Stock Option Plan (1)
10(f) 1993 Viewpoint Stock Plan (1)
l0(g) 1995 Director Option Plan (1)
10(h) Lease Agreement between the Company and Metro Squared, L P (1)
10(i) Employee Stock Purchase Plan (1)
l0(j) Licensing Agreement between the Company and Boca Research, Inc. (1)
10(k) Agreement between the Company and Unisys(TM)(1)
10(l) Employment Agreement between the Company and Philip M. Colquhoun (1)
10(m) Employment Agreement between the Company and William S. Leftwich (1)
10(n) Employment Agreement between the Company and David T. Stoner (1)
10(o) Employment Agreement between the Company and Neal Page (1)
10(p) Employment Agreement between the Company and A. David Boomstein (1)
10(r) Lease between the Company and Burlingame Home Office, Inc. (1)
10(s) Lease between the Company and Family Funds Partnership (1)
10(t) Agreement between the Company and Catalyst Financial Corporation (1)
10(u) Promissory Note by the Company payable to Robert Rubin dated September 5, 1996. (1)
10(v) Promissory Note by the Company payable to M. Douglas Adkins dated November 15, 1996. (1)
10(w) Promissory Note by the Company payable to H.T. Ardinger dated November 15, 1996. (1)
10(x) Promissory Note by the Company payable to H.T. Ardinger dated January 15, 1997. (1)
10(y) Promissory Note by the Company payable to Adkins Family Partnership, Ltd. dated January 15,
1997. (1)
10(z) Lease between the Company and the Air Force Association
10(aa) Lease between the Company and Airport Boulevard Parters, LLC
21 List of Subsidiaries of the Company (1)
23 Consent of Ernst & Young LLP (2)
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the Registration Statement on Form SB-2 and
all amendments thereto as declared effective on February 4, 1997.
(2) Incorporated by reference to the Annual Report on Form 10-KSB for the
period ended December 31, 1997.
MULTIMEDIA ACCESS CORPORATION
Up to $10,000,000
8% Senior Convertible Notes Due 2002
TRUST INDENTURE
December 1, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE....................................................................1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.....................1
SECTION 1.01 Definitions.................................................1
Act....................................................................1
Affiliate..............................................................1
Agent Members..........................................................2
Alternative Stock Exchange.............................................2
Authenticating Agent...................................................2
Authorized Denomination................................................2
Authorized Newspapers..................................................2
Board of Directors.....................................................2
Board Resolution.......................................................2
Business Day...........................................................2
Capital Stock..........................................................2
Capitalized Lease Obligation...........................................3
Cedel Bank.............................................................3
Certificate of Incorporation...........................................3
Closing Date...........................................................3
Commission.............................................................3
Common Depository......................................................3
Common Stock...........................................................3
Company................................................................3
Company Request........................................................4
Conversion Agent.......................................................4
Conversion Date........................................................4
Conversion Price.......................................................4
Conversion Right.......................................................4
Conversion Shares......................................................4
Corporate Trust Office.................................................4
Corporation............................................................4
Coupon.................................................................4
Couponholder...........................................................4
Default................................................................4
Euroclear..............................................................4
Event of Default.......................................................5
Exchange Act...........................................................5
i
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Extraordinary Resolution...............................................5
Federal Bankruptcy Code................................................5
Generally Accepted Accounting Principles...............................5
Guaranty...............................................................5
Holder.................................................................5
Indebtedness...........................................................5
Indenture..............................................................6
Interest Payment Date..................................................6
Lien...................................................................6
Luxembourg Paying Agent and Conversion Agent...........................6
Market Price...........................................................6
Maturity...............................................................6
Nasdaq.................................................................7
Noteholder.............................................................7
Notes..................................................................7
Notice.................................................................7
Offering Circular......................................................7
Officers' Certificate..................................................7
Opinion of Counsel.....................................................7
Outstanding............................................................7
Paying Agent...........................................................8
Person.................................................................8
Predecessor Note.......................................................8
Preferred Stock........................................................8
Presentation Date......................................................8
Principal Paying and Conversion Agent..................................8
Property...............................................................8
Redemption Date........................................................8
Redemption Price.......................................................9
Regulation S...........................................................9
Relevant Date..........................................................9
Replacement Agent......................................................9
Required Filing Dates..................................................9
Responsible Officer....................................................9
Restricted Period......................................................9
Securities Act.........................................................9
Senior Indebtedness....................................................9
Shares................................................................10
Stated Maturity.......................................................10
ii
<PAGE>
Stock Exchange Business Day...........................................10
Subordinated Obligation...............................................10
Subsidiary............................................................10
Temporary Conversion Price............................................10
Trustee...............................................................10
Unexercised Note......................................................10
U.S. Government Obligations...........................................11
U.S. Person...........................................................11
Vice President........................................................11
Voting Stock..........................................................11
SECTION 1.02 Other Definitions..........................................11
SECTION 1.03 Rules of Construction......................................11
SECTION 1.04 Compliance Certificates and Opinions.......................12
SECTION 1.05 Form of Documents Delivered to Trustee.....................13
SECTION 1.06 Acts of Noteholders........................................13
SECTION 1.07 Notices, Etc., to Trustee and Company......................14
SECTION 1.08 Notice to Noteholders; Waiver..............................15
SECTION 1.09 Effect of Headings and Table of Contents...................15
SECTION 1.10 Successors and Assigns.....................................15
SECTION 1.11 Separability Clause........................................15
SECTION 1.12 Benefits of Indenture......................................16
SECTION 1.13 Governing Law..............................................16
SECTION 1.14 Legal Holidays.............................................16
ARTICLE TWO...................................................................16
FORMS OF THE NOTES.........................................................16
SECTION 2.01 Forms Generally............................................16
SECTION 2.02 Restrictive Legends........................................17
ARTICLE THREE.................................................................19
THE NOTES..................................................................19
SECTION 3.01 ISSUABLE IN SERIES; Terms..................................19
SECTION 3.02 Authorized Denomination....................................19
SECTION 3.03 Execution, Authentication, Delivery and Dating.............20
SECTION 3.04 Temporary Notes............................................21
SECTION 3.05 Exchange...................................................21
SECTION 3.06 Book-Entry Provisions for Global Note......................22
SECTION 3.07 Special Transfer Provisions................................24
SECTION 3.08 Mutilated, Destroyed, Lost and Stolen Notes................24
iii
<PAGE>
SECTION 3.09 Payment of Interest; Interest Rights Preserved.............25
SECTION 3.10 Persons Deemed Owners......................................25
SECTION 3.11 Cancellation...............................................25
SECTION 3.12 Computation of Interest....................................26
SECTION 3.13 ISINOr Other Identifying Numbers...........................26
SECTION 3.14 Prescription...............................................26
ARTICLE FOUR..................................................................26
SATISFACTION AND DISCHARGE.................................................26
SECTION 4.01 Satisfaction and Discharge of Indenture....................26
SECTION 4.02 Application of Trust Money.................................27
ARTICLE FIVE..................................................................27
EVENTS OF DEFAULT AND REMEDIES.............................................27
SECTION 5.01 Events of Default..........................................27
SECTION 5.02 Acceleration of Maturity; Rescission and Annulment.........30
SECTION 5.03 Collection of Indebtedness and Suits for Enforcement
by Trustee...............................................31
SECTION 5.04 Trustee May File Proofs of Claim...........................32
SECTION 5.05 Trustee May Enforce Claims Without Possession of Notes.....33
SECTION 5.06 Application of Money Collected.............................33
SECTION 5.07 Limitation on Suits........................................33
SECTION 5.08 Unconditional Right of Holders to Receive Principal
and Interest.............................................34
SECTION 5.09 Restoration of Rights and Remedies.........................34
SECTION 5.10 Rights and Remedies Cumulative.............................35
SECTION 5.11 Delay or Omission Not Waiver...............................35
SECTION 5.12 Control by Noteholders.....................................35
SECTION 5.13 Waiver of Past Defaults....................................35
SECTION 5.14 Waiver of Stay or Extension Laws...........................36
SECTION 5.15 Undertaking for Costs......................................36
ARTICLE SIX...................................................................36
THE TRUSTEE................................................................36
SECTION 6.01 Notice of Defaults.........................................36
SECTION 6.02 Certain Rights of Trustee..................................37
SECTION 6.03 Trustee Not Responsible for Recitals or Issuance of Notes..38
SECTION 6.04 May Hold Notes.............................................38
SECTION 6.05 Money Held in Trust........................................38
SECTION 6.06 Compensation and Reimbursement.............................38
SECTION 6.07 Corporate Trustee Required; Eligibility....................39
iv
<PAGE>
SECTION 6.08 Resignation and Removal; Appointment of Successor..........39
SECTION 6.09 Acceptance of Appointment by Successor.....................41
SECTION 6.10 Merger, Conversion, Consolidation or Succession to
Business.................................................41
SECTION 6.11 Certain Duties and Responsibilities........................42
SECTION 6.12 Meetings of Noteholders....................................43
SECTION 6.13 Authenticating Agents......................................44
ARTICLE SEVEN.................................................................45
NOTEHOLDERS' LISTS AND REPORTS BY COMPANY..................................45
SECTION 7.01 Disclosure of Names and Addresses of Noteholders...........45
SECTION 7.02 Reports by Company.........................................45
ARTICLE EIGHT.................................................................46
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER, OR LEASE......................46
SECTION 8.01 Company May Consolidate, Etc., Only on Certain Terms.......46
SECTION 8.02 Successor Substituted......................................47
ARTICLE NINE..................................................................47
SUPPLEMENTAL INDENTURES....................................................47
SECTION 9.01 Supplemental Indentures Without Consent of Noteholders.....47
SECTION 9.02 Supplemental Indentures with Consent of Noteholders........48
SECTION 9.03 Execution of Supplemental Indentures.......................49
SECTION 9.04 Effect of Supplemental Indentures..........................49
SECTION 9.05 Reference in Notes to Supplemental Indentures..............50
SECTION 9.06 Notice of Supplemental Indentures..........................50
ARTICLE TEN...................................................................50
COVENANTS..................................................................50
SECTION 10.01 Payment of Principal and Interest.........................50
SECTION 10.02 Maintenance of Office or Agency...........................51
SECTION 10.03 Money for Payments to Be Held in Trust....................51
SECTION 10.04 Corporate Existence.......................................52
SECTION 10.05 Payment of Taxes and Other Claims.........................52
SECTION 10.06 Maintenance of Properties.................................52
SECTION 10.07 Insurance.................................................53
SECTION 10.08 Statement by Officers as to Default.......................53
SECTION 10.09 Provision of Financial Statements.........................54
SECTION 10.10 Limitation on Other Indebtedness..........................54
SECTION 10.11 WAIVER OF CERTAIN COVENANTS...............................54
v
<PAGE>
SECTION 10.12 Waiver of Certain Covenants...............................54
SECTION 10.13 Restrictions on Charter Amendments........................54
SECTION 10.14 United States Withholding and Reporting Requirements......55
SECTION 10.15 Maintenance of Listings for Notes and Shares..............55
ARTICLE ELEVEN................................................................55
REDEMPTION OF NOTES........................................................55
SECTION 11.01 Right of Redemption.......................................55
SECTION 11.02 Applicability of Article..................................56
SECTION 11.03 Election to Redeem; Notice to Trustee.....................56
SECTION 11.04[INTENTIALLY OMITTED.......................................56
SECTION 11.05 Notice of Redemption......................................57
SECTION 11.06 Deposit of Redemption Price...............................57
SECTION 11.07 Notes Payable on Redemption Date..........................58
SECTION 11.08 Surrender of Notes........................................58
SECTION 11.09 Conversion on Redemption..................................58
SECTION 11.10 Notes Redeemed in Part....................................59
ARTICLE TWELVE................................................................60
CONVERSION.................................................................60
SECTION 12.01 Conversion Right and Conversion Price....................60
SECTION 12.02 Exercise of Conversion Right..............................62
SECTION 12.03 Calculation of Shares Issued on Conversion and
Fractions of Shares....................................................63
SECTION 12.04 Adjustment of Conversion Price............................63
SECTION 12.05 Notice of Adjustments of Conversion Price.................68
SECTION 12.06 Notice of Certain Corporate Action........................68
SECTION 12.07 Company to Reserve Common Stock...........................69
SECTION 12.08 Taxes on Conversions......................................69
SECTION 12.09 Cancellation of Converted Bearer Notes....................69
SECTION 12.10 Provisions in Case of Reclassification Consolidation,
Merger or Sale of Assets.................................70
SECTION 12.11 Proposed Amendments to Regulation S.......................70
ARTICLE THIRTEEN..............................................................71
DEFEASANCE AND COVENANT DEFEASANCE.........................................71
SECTION 13.01 Company's Option to Effect Defeasance or Covenant
Defeasance...............................................71
SECTION 13.02 Legal Defeasance and Discharge............................71
vi
<PAGE>
SECTION 13.03 Covenant Defeasance.......................................71
SECTION 13.04 Conditions to Legal Defeasance or Covenant Defeasance.....72
SECTION 13.05 Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions............73
SECTION 13.06 Reinstatement.............................................74
ARTICLE FOURTEEN..............................................................74
SENIORITY OF NOTES.........................................................74
SECTION 14.01 Seniority of the Notes....................................74
ARTICLE FIFTEEN...............................................................75
IMMUNITY OF INCORPORATORS,.................................................75
SECTION 15.01 Liability Solely Corporate................................75
vii
<PAGE>
EXHIBITS
EXHIBIT A Form of Bearer Notes, Coupons, and Trustee's Certificate of
Authentication
EXHIBIT B Form of Global Note
EXHIBIT C Form of Certificate from the Company's Chief Financial Officer
Transmitting Annual Financial Statements
EXHIBIT D Form of Notice from Noteholder of Exercise of Conversion Rights
EXHIBIT E Form of Notice from the Noteholder of Exercise of
RedemptionRights
viii
<PAGE>
TRUST INDENTURE dated as of December 1, 1997 ("Indenture"), between MULTIMEDIA
ACCESS CORPORATION, a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), and MARINE MIDLAND BANK, a
banking corporation and trust company duly organized and existing under the laws
of the State of New York, as Trustee (herein called the "Trustee").
WHEREAS:
The Company has duly authorized the creation of an issue of up to U.S.
$10,000,000 of 8% Senior Convertible Notes Due 2002, which may be issued in one
or more series, and the Coupons, if any, thereto appertaining (collectively, the
"Notes") and to provide therefor the Company has duly authorized the execution
and delivery of this Indenture.
The Company intends to issue US$5,000,000 of the Notes on December 9,
1997, and up to an additional US$5,000,000 of Notes pursuant to an indenture
supplemental hereto, with such Notes to be identical in all respects and
fungible with the Notes issued hereunder.
All things necessary have been done to make the Notes, when duly issued
and executed by the Company and authenticated and delivered hereunder, the valid
obligations of the Company and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms.
The Trustee has agreed to act as trustee under this Indenture on the
terms and conditions set forth herein.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes or of a series thereof
(including Holders from time to time of the Notes of any series held through a
Noteholder which is a Common Depository (as defined herein))as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.01 Definitions.
"Act," when used with respect to any Noteholder, has the meaning
specified in Section 1.06.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person and the terms "controlling" and "controlled"
have meanings correlative to the foregoing.
<PAGE>
"Agent Members" has the meaning specified in Section 3.06.
"Alternative Stock Exchange" means any other national or regional stock
exchange or quotation service such as Nasdaq National Market System or any
similar quotation service maintained by the National Quotation Bureau or any
successor thereto.
"Authenticating Agent" means the Person authorized pursuant to Section
6.13 to act on behalf of the Trustee to authenticate the Notes of one or more
series until a successor Authenticating Agent shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Authenticating
Agent" shall mean such successor Authenticating Agent. Pursuant to the terms
hereof, Midland Bank Plc will initially act as the Authenticating Agent.
"Authorized Denomination" has the meaning specified in Section 3.02.
"Authorized Newspapers" means the Luxembourg Wort of Luxembourg and The
Financial Times (European Edition) of London, England. If either such newspaper
shall cease to be published, the Company or the Trustee shall substitute for it
another newspaper in Europe, customarily published at least once a day for at
least five (5) days in each calendar week, of general circulation. If, because
of temporary suspension of publication or general circulation of either such
newspaper or for any other reason, it is impossible or, in the opinion of the
Company or the Trustee, impracticable to make any publication of any Notice
required by this Indenture in the manner herein provided, such publication or
other Notice in lieu thereof which is made by the Company or the Trustee in the
exercise of its reasonable discretion shall constitute a sufficient publication
of such Notice.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee. Where any provision hereof refers
to an action to be taken pursuant to a Board Resolution (including establishment
of any series of the Notes and the forms and terms thereof), such action may be
taken by any committee, officer or employee of the Company authorised to take
such action (generally or in any particular respect) by a Board Resolution
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is a day on which banking institutions in Switzerland, Luxembourg,
the city of New York, New York, and London, England are not authorized or
obliged by law, regulation or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of such
Person's capital stock whether now
2
<PAGE>
outstanding or issued on or after the date of this Indenture, including, without
limitation, all Common Stock and Preferred Stock.
"Capitalized Lease Obligation" means the amount of the liability under
any capital lease that, in accordance with GAAP, is required to be capitalized
and reflected as a liability on the balance sheet of the relevant Person.
"Cedel Bank" means Cedel Bank, societe anonyme.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as in effect on the date hereof and as amended or restated from
time to time hereafter.
"Closing Date" means December 9, 1997, with respect to the Notes issued
on December 9, 1997, and with respect to any other series of Notes which may be
issued, the actual date of issuance thereof.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted or, if at any time after the execution of this Indenture
such Commission is not existing, then the body performing similar duties at such
time.
"Common Depository", with respect to the Notes of any series (which are
issued in the form of Global Notes),means the common depository appointed by
Morgan Guaranty Trust Company of New York, Brussels office, as operator of the
Euroclear System, and Cedel Bank, societe anonyme, which shall initially be
Midland Bank plc, including the nominees and successors of any Common
Depository.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participation and other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the date of this Indenture, and includes, without limitation, all
series and classes of such common stock.
"Common Stock Equivalent" means equity or debt securities (other than
Common Stock) of the Company which are convertible into or exercisable for
shares of Common Stock (including, without limitation, shares, units of shares,
preferred stock and other convertible securities) which the Board of Directors
has deemed to have the same value or economic rights as shares of Common Stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
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"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its Chief Executive Officer,
its President, or a Vice President and by its Chief Financial Officer, its
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, and
delivered to the Trustee.
"Conversion Agent" means any Person (including the Company acting as
Conversion Agent) authorized by the Company to effect conversions of the Notes
on behalf of the Company. Pursuant to the terms hereof, the Company has
initially appointed Midland Bank plc to act as the Principal Conversion Agent,
Kredietbank S.A. Luxembourgeoise as the Luxembourg Conversion Agent, Swiss Bank
Corporation and Marine Midland Bank as Conversion Agents for the Notes.
"Conversion Date" means the Business Day on which the Conversion Right
is exercised by delivery to the Conversion Agent of the Note surrendered for
conversion and the completed notice of a Noteholder's intention to exercise its
Conversion Right (as set forth in Exhibit D hereto) with respect to any Note.
"Conversion Price" means $4.625, the price at which Conversion Shares
shall be issued upon conversion, subject to adjustment as set forth herein.
"Conversion Right" means the right of a Holder of any Note to convert
such Note into Conversion Shares.
"Conversion Shares" means the Shares into which the Notes are
convertible.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 140 Broadway, New York, New York 10005-1180, except that with respect
to presentation of Notes for payment upon redemption, for conversion or
exchange, such term shall mean the office or agency of the Trustee at which, at
any particular time, its corporate agency business shall be conducted.
"Corporation" includes corporations, limited liability companies,
limited and general partnerships, associations, joint-stock companies and
business trusts.
"Coupon" means bearer interest Coupons relating to the Bearer Notes and
any replacement Coupons issued pursuant to Section 3.08.
"Couponholder" means a Person who is the bearer of any Coupon.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Euroclear" means the Euroclear System.
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"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extraordinary Resolution" means a resolution passed at a meeting of
the Noteholders duly convened and held in accordance with Section 6.12 hereof.
"Federal Bankruptcy Code" means the Bankruptcy Act or Title 11 of the
United States Code, as amended from time to time.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, as applied from time to
time by the Company and its Subsidiaries in the preparation of its financial
statements.
"Guaranty" means all obligations of any Person (other than endorsements
in the ordinary course of business of negotiable instruments for deposit or
collection) guaranteeing or in effect guaranteeing any Indebtedness, dividend or
other obligation, of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including without limitation all obligations
incurred through an agreement, contingent or otherwise, by such Person: (i) to
purchase such Indebtedness or obligation or any Property or assets constituting
security therefor, or (ii) to advance or supply funds (1) for the purchase or
payment of such Indebtedness or obligation, or (2) to enable the recipient of
such funds to maintain certain financial conditions (e.g. agreed amount of
working capital) under loan or similar documents, or (iii) to lease Property or
to purchase securities or other Property or services primarily for the purpose
of assuring the owner of such Indebtedness or obligation of the ability of the
primary obligor to make payment of the Indebtedness or obligation, or (iv)
otherwise to assure the owner of the Indebtedness or obligation of the primary
obligor against loss in respect thereof. For the purposes of all computations
made under this Indenture, a Guaranty in respect of any Indebtedness shall be
deemed to be Indebtedness equal to the principal amount and accrued interest of
such Indebtedness which has been guaranteed, and a Guaranty in respect of any
other obligation or liability or any dividend shall be deemed to be Indebtedness
equal to the maximum aggregate amount of such obligation, liability or dividend.
"Holder" means a Person who is a bearer of a Note or Coupon, as the
case may be.
"Indebtedness" of any Person means and includes all present and future
obligations of such Person, which shall include all obligations (i) which in
accordance with GAAP shall be classified upon a balance sheet of such Person as
liabilities of such Person, (ii) for borrowed money, (iii) which have been
incurred in connection with the acquisition of Property (including, without
limitation, all obligations of such Person evidenced by any debenture, bond,
note, commercial paper or other similar security, but excluding, in any case,
obligations arising from the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection), (iv) secured by any Lien
existing on Property owned by such Person, even though such Person has not
assumed or become liable for the payment of such obligations, (v) created or
arising under any conditional sale or other title retention agreement with
respect to Property acquired by such Person, notwithstanding
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the fact that the rights and remedies of the seller, lender or lessor under such
agreement in the event of default are limited to repossession or sale of such
Property, (vi) which are Capitalized Lease Obligations, (vii) for all
Guaranties, whether or not reflected in the balance sheet of such Person and
(viii) which are all reimbursement and other payment obligations (whether
contingent, matured or otherwise) of such Person in respect of any acceptance or
documentary credit. Notwithstanding the foregoing, Indebtedness shall not
include (i) Indebtedness incidental to the operation of the business of the
Person in the ordinary course and in the aggregate not material to the business
and operations of the Person, (ii) Indebtedness for which the Company or any of
its Subsidiaries are the sole obligors and obligees, and (iii) Indebtedness
represented by purchase, rental or lease obligations not to exceed $250,000 in
any period of 12 months for any Person and its Subsidiaries.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall include the terms of particular series of Notes established or
contemplated by Section 3.01.
"Interest Payment Date" means the Stated Maturity of an instalment of
interest on the Notes.
"Lien" means any mortgage, charge, pledge, lien, security interest or
encumbrance of any kind whatsoever, including any interest in Property securing
an obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on the common law, statute or contract,
and including but not limited to the security interest lien arising from a
mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease,
consignment or bailment for security purposes. The term "Lien" shall include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purposes of this Indenture, the Company or its
Subsidiary shall be deemed to be the owner of any Property which it has acquired
or holds subject to a conditional sale agreement, financing lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes.
"Luxembourg Paying Agent and Conversion Agent" means any Person
authorised by the Company to act as the Luxembourg paying and conversion agent
for the Notes until a successor Luxembourg Paying and Conversion Agent shall
have become such pursuant to the applicable provisions of this Indenture, and
thereafter "Luxembourg Paying and Conversion Agent" shall mean such successor
Luxembourg Paying and Conversion Agent. Pursuant to the terms hereof, the
Company has initially appointed Kredietbank S.A. Luxembourgeoise as the
Luxembourg Paying and Conversion Agent.
"Market Price" means the daily closing sale price of the Common Stock
for a Stock Exchange Business Day.
"Maturity," when used with respect to any Note, means the date on which
the principal of such Note becomes due and payable as therein or herein
provided, whether at the Stated Maturity or the Redemption Date and whether by
declaration of acceleration, call for redemption or otherwise.
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"Nasdaq" means the National Association of Securities Dealers Automated
Quotation System.
"Noteholder" means a Person who is the bearer of any Note.
"Notes" has the meaning stated in the first recital of this Indenture
and more particularly means any Notes authenticated and delivered under this
Indenture.
"Notice" has the meaning specified in Section 1.07.
"Offering Circular" means that certain Final Offering Circular dated
December 8, 1997, together with all supplements and amendments thereto.
"Officers' Certificate" means a certificate signed by the Chairman, its
Chief Executive Officer, the President or a Vice President, and by the Chief
Financial Officer, its Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the Company, and delivered to the Trustee. Any one
individual holding the requisite titles may sign and deliver an Officer's
Certificate without cosignature of another individual with a requisite title.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
reasonably acceptable to the Trustee.
"Outstanding," when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except: (1) Notes heretofore cancelled by a Paying and Conversion
Agent or delivered to a Paying and Conversion Agent for cancellation; (2) Notes,
or portions thereof, for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the Holders of
such Notes; provided that, if such Notes are to be redeemed, Notice of such
redemption has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made; (3) Notes, except to the extent
provided in Sections 13.02 and 13.03, with respect to which the Company has
effected defeasance and/or covenant defeasance as provided in Article Thirteen;
and (4) Notes which have been paid pursuant to Section 3.08 or in exchange for
or in lieu of which other Notes have been authenticated and delivered pursuant
to this Indenture, other than any such Notes in respect of which there shall
have been presented to the Trustee proof satisfactory to it that such Notes are
held by a bona fide purchaser in whose hands the Notes are valid obligations of
the Company; provided, however, that in determining whether the Holders of the
requisite principal amount of Outstanding Notes have taken any Act or given or
made any Extraordinary Resolution or other request, demand, authorization,
direction, consent, Notice or waiver hereunder, Notes owned by the Company or
any other obligor upon the Notes or any Affiliate of the Company or such other
obligor shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee
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shall be protected in making such calculation or in relying upon any such
request, demand, authorization, direction, consent, Notice or waiver, only Notes
which the Trustee knows to be so owned shall be so disregarded. Notes so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Notes and that the pledgee is not the Company or any
other obligor upon the Notes or any Affiliate of the Company or such other
obligor.
"Paying Agent" means any Person (including the Company acting as Paying
Agent) authorized by the Company to pay the principal of or interest on any
Notes on behalf of the Company. Pursuant to the terms hereof, the Company has
initially appointed Midland Bank plc as the Principal Paying Agent, Kredietbank
S.A. Luxembourgeoise as the Luxembourg Paying Agent and Swiss Bank Corporation
and Marine Midland Bank as Paying Agents.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 3.08 in exchange for or in lieu of a
mutilated, lost, destroyed or stolen Note shall be deemed to evidence the same
debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participation or other equivalents (however designated) of
such Person's preferred or preference stock whether now outstanding or issued on
or after the date of this Indenture, and includes, without limitation, all
classes and series of preferred or preference stock.
"Presentation Date" means the date on which a Note is presented by a
Noteholder for payment of principal or a Coupon is presented by the Couponholder
for payment of interest, as the case may be, or if such date is not a Business
Day, the next date which is a Business Day.
"Principal Paying and Conversion Agent" means any Person authorized by
the Company to act as the principal paying and conversion agent for the Notes
until a successor Principal Paying and Conversion Agent shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Principal Paying and Conversion Agent" shall mean such successor Principal
Paying and Conversion Agent. Pursuant to the terms hereof, the Company has
initially appointed Midland Bank plc as the Principal Paying and Conversion
Agent.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Redemption Date," when used with respect to any Note to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
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"Redemption Price," when used with respect to any Note to be redeemed,
means the price at which it is to be redeemed pursuant to the terms hereof plus
accrued interest to the Redemption Date.
"Regulation S" means Regulation S under the Securities Act as in effect
on the date hereof or as such Regulation may hereafter be amended and deemed
applicable to the Notes.
"Relevant Date" means the date on which the payment first becomes due;
provided, that if the full amount of the money payable has not been received by
the Principal Paying Agent or the Trustee on or before the due date, it shall
mean the date on which, the full amount of the money having been so received,
Notice to that effect shall have been duly given to the Noteholders by the
Company in accordance with Section 1.08.
"Replacement Agent" means Kredietbank S.A. Luxembougeois.
"Required Filing Dates" has the meaning specified in Section 10.09.
"Responsible Officer," when used with respect to the Trustee, means any
trust officer or assistant trust officer or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above-designated officers, and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"Restricted Period" means the period commencing on the initial Closing
Date, and continuing for a period of forty (40) calendar days, unless either (i)
additional series of the Notes are issued, in which case the Restricted Period
will be lengthened for a period of forty (40) calendar days after the final such
issuance, or (ii) Regulation S under the Securities Act is amended, and deemed
applicable to the Notes, in which case the term "Restricted Period" with respect
to the Notes shall have the meaning set forth in Regulation S as amended, it
being understood that in no event may Notes be issued hereunder subsequent to
January 9, 1998.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the principal of (and premium, if any, on),
interest on (including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law) and other amounts due
on or in connection with any Indebtedness of the Company, whether outstanding on
the date of this Indenture or hereafter created and whether secured or
unsecured, incurred or assumed (including, without limitation, all fees,
expenses, indemnities and other monetary obligations of the Company relating to
any such Indebtedness), other than (A) Indebtedness of the Company that is
expressly subordinated in right of payment to any Senior Indebtedness of the
Company, including the Notes, (B) Indebtedness of the Company that by operation
of law is subordinate to any general unsecured obligations of the Company
(including Preferred Stock), (C) Indebtedness of the Company to the extent
incurred in violation of any
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provisions hereof, (D) any liability for Federal, state or local taxes, or other
taxes, domestic or foreign, owed or owing by the Company, (E) trade account
payables owed or owing by the Company and (F) amounts owed by the Company for
compensation to employees or for services rendered to the Company. Without
limiting the generality of the foregoing, "Senior Indebtedness" shall include
the principal of (and premium, if any, on) and interest (including interest
accruing after the occurrence of an event of default or after the filing of a
petition initiating any proceeding pursuant to any bankruptcy law) on all
obligations of every nature of the Company from time to time owed under the
Notes and any amounts owed as of the date hereof pursuant to certain secured
notes payable to a principal stockholder and officer of the Company in February
1998.
"Shares" means the common stock, par value U.S.$0.0001, of the Company
(and all other (if any) shares or stock resulting from any sub-division,
consolidation or reclassification of such shares).
"Stated Maturity," when used with respect to any Indebtedness or any
instalment of principal thereof or interest thereon, means the date specified in
such Indebtedness as the fixed date on which the principal of such Indebtedness
or such instalment of principal or interest is due and payable.
"Stock Exchange Business Day" means any day (other than a Saturday or
Sunday) on which Nasdaq or the Alternative Stock Exchange, as the case may be,
is open for business.
"Subordinated Obligation" means any Indebtedness of the Company
outstanding on such date which is contractually subordinate or junior in right
of payment to the Notes. Notwithstanding the immediately preceding sentence, any
Indebtedness and shares of Preferred Stock issued by any Subsidiary shall, for
purposes of this definition, be treated as Subordinated Obligations.
"Subsidiary" of any Person means any Corporation of which at least a
majority of the shares of stock having by the terms thereof ordinary voting
power to elect a majority of the Board of Directors of such Corporation
(irrespective of whether or not at the time stock of any other class or classes
of such Corporation shall have or might have voting power by reason of the
happening of any contingency) is directly or indirectly owned or controlled by
any one of or any combinations of the Company or one or more of its
Subsidiaries.
"Temporary Conversion Price" has the meaning specified in Section
12.01(c).
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unexercised Note" means any Note with respect to which Conversion
Rights have not been exercised by the Noteholder.
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"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.
"U.S. Person" means any Person who is a "U.S. person" as defined in
Regulation S.
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president."
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily is entitled (without regard to the occurrence of any additional event
or contingency) to vote for the election of directors (or persons performing
similar functions) of such Person.
SECTION 1.02 Other Definitions.
Term Defined in Section
---- ------------------
Agency Agreement 10.02
Bearer Notes 2.01
Commencement Date 12.04
Covenant defeasance 13.03
Current Event 12.04
Expiration Time 12.04
Global Note 2.01
legal defeasance 13.02
Other Event 12.04
Reference Date 12.04
SECTION 1.03 Rules of Construction.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
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(a) all the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(c) all ratios and computations based on GAAP contained in
this Indenture shall be computed in accordance with the definition of
GAAP set forth above;
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision of this Indenture;
(e) "or" is not exclusive;
(f) all references to $, U.S.$, dollars or United States
dollars shall refer to the lawful currency of the United States of
America;
(g) provisions apply to successive events and transactions;
(h) all references to Sections or Articles refer to Sections
or Articles of this Indenture unless otherwise indicated; and
(i) all references to Terms or Conditions refer to the Terms
and Conditions of the Notes unless otherwise indicated.
SECTION 1.04 Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall, with
respect to any application or request to make an optional redemption and, upon
the request of the Trustee with respect to any other application or request,
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
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(a) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such individual,
such individual has made such examination or investigation as is
necessary to enable such individual to express an informed opinion as
to whether or not such covenant or condition has been complied with;
and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.05 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such officer's certificate or opinion is
based are erroneous. Any such certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.06 Acts of Noteholders.
(a) Any Extraordinary Resolution, request, demand,
authorization, direction, declaration, Notice, consent, waiver or other
action provided by this Indenture to be given or taken by Noteholders
may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by
agents duly appointed
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in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to
the Company. Such instrument or instruments (and the action embodied
therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Indenture and
conclusive in favour of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness
of such execution or by a certificate of a notary public or other
officer authorized by law to take acknowledgements of deeds, certifying
that the individual signing such instrument or writing acknowledged to
such witness, notary public or other such officer the execution
thereof. Where such execution is by a signer acting in a capacity other
than such signer's individual capacity, such certificate or affidavit
shall also constitute sufficient proof of authority. The fact and date
of the execution of any such instrument or writing, or the authority of
the Person executing the same, may also be proved in any other manner
which the Trustee deems sufficient.
(c) Any Extraordinary Resolution, request, demand,
authorization, direction, Notice, consent, waiver or other Act of the
Holders of any Note shall bind every future Holder of the same Note and
the Holder of every Note issued upon conversion or redemption thereof
or in exchange therefor or in lieu thereof in respect of anything done,
omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon
such Note.
SECTION 1.07 Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, declaration, notice,
consent, waiver, Extraordinary Resolution or Act of Noteholders or
other document provided or pertained by this Indenture ( herein
collectively called "Notice") to be made upon, given or furnished to,
or filed with:
(a) the Trustee by any Noteholder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee and received at its Corporate
Trust Office, Attention: Corporate Trust Services - Multimedia Access,
Telephone (212) 658-6564, Facsimile (212) 658-6425, or
(b) the Company by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing to or
with the Company addressed to it at the address of its principal office
which shall initially be: Multimedia Access Corporation, 2665 Villa
Creek Drive, Suite 200, Dallas, Texas 75234, Attention: William S.
Leftwich, Telephone (972) 488-7200, Facsimile (972) 488-7299, with a
copy to Janice V. Sharry, Haynes and Boone,
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LLP, 3100 Nationsbank Plaza, 901 Main Street, Dallas, Texas,
75202-3789, Telephone (214) 651-5562, Facsimile (214) 651-5940.
Any Notice to be given hereunder by any party to another shall be in
writing and in English (by letter, telex or fax) delivered in person or by
courier service requiring acknowledgement of delivery, mailed by first class
mail, postage prepaid, or sent by fax or telex to the addressee (including
telecopier number, if applicable) set forth herein. Notices to the Trustee given
by mail, fax, personal delivery or courier service shall be effective upon
actual receipt. Notice given by telex shall be effective upon receipt by the
sender of the addressee's answer-back at the end of transmission; provided, that
any such Notice or other communication which would otherwise take effect after
4:00 p.m. on any particular day shall not take effect until 10:00 a.m. on the
immediately succeeding Business Day in the place of the addressee. A party may
change any address to which Notice is to be given to it by giving Notice as
provided above of such change of address.
SECTION 1.08 Notice to Noteholders; Waiver.
Where this Indenture provides for Notice of any event to Noteholders by
the Company or the Trustee, such Notice shall be sufficiently given (unless
otherwise herein expressly provided) if published in the Authorized Newspapers.
Neither the Trustee nor the Company need give any Notice to the Couponholders
and such Couponholders will be deemed to have notice of the contents of any
Notice given to the Noteholders in accordance with this Section.
In case by reason of any cause it shall be impracticable to publish
Notice of any event to the Noteholders when such Notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
Notice as shall be satisfactory to the Trustee shall constitute a sufficient
notification for every purpose hereunder.
SECTION 1.09 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 1.10 Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 1.11 Separability Clause.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions, to the extent permitted by law, shall not in any way
be affected or impaired thereby.
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SECTION 1.12 Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent, any
Conversion Agent and their respective successors hereunder, and the Noteholders
any legal or equitable right, remedy or claim under this Indenture.
SECTION 1.13 Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF.
SECTION 1.14 Legal Holidays.
In any case where any Interest Payment Date, Conversion Date,
Redemption Date or Stated Maturity or Maturity of any Note or Coupon shall not
be a Business Day, then (notwithstanding any other provision of this Indenture
or of the Notes or Coupons) payment of interest or principal or any other
payment required to be made on such date need not be made on such date, but
shall be made on the immediately following Business Day with the same force and
effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity or Maturity.
ARTICLE TWO
FORMS OF THE NOTES
SECTION 2.01 Forms Generally.
The Notes of each series and the Trustee's certificate of
authentication shall be in substantially the forms set forth in this Article,
except as otherwise provided by or pursuant to a Board Resolution in accordance
with Section 3.01 or by one or more indentures supplemental hereto with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required by applicable law or rules or regulations thereunder or as may,
consistently herewith, be determined by the officer or officers executing such
Notes, as evidenced by their execution of the Notes. Any portion of the text of
any Note may be set forth on the reverse thereof.
The definitive Notes shall be typed, printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner as determined
by the officers of the Company executing such Notes, as evidenced by their
execution in accordance with Section 3.03 of such Notes.
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The Notes shall be known as the "8% Senior Convertible Notes Due 2002"
of the Company. The Notes and the Trustee's certificate of authentication shall
be in substantially the form annexed hereto as Exhibit A. The Company shall
approve the form of the Notes and any notation, legend or endorsement on the
Notes. Each Note shall be dated as of the date of issuance.
The terms and provisions contained in the form of the Bearer Notes
annexed hereto as Exhibit A and in the form of the Global Note annexed hereto as
Exhibit B shall constitute, and are hereby expressly made, a part of this
Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
The Notes shall be issued initially in the forms of temporary global
bearer notes (one for each such series with a colour designation or other manner
of designation to distinguish each such series) substantially in the form set
forth in Exhibit B (collectively, the "Global Note") deposited with the Common
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Global Note may from
time to time be decreased by adjustments made on the records of the Common
Depository or its nominee, as hereinafter provided.
The Notes offered and sold, other than as described in the preceding
paragraph, shall be issued in form of permanent certificated Notes in bearer
form in substantially the form set forth in Exhibit A (the "Bearer Notes"), with
a colour designation or other manner of designation to distinguish each such
series.
The Terms and Conditions contained in the form of the Bearer Notes
annexed hereto as Exhibit A are expressly incorporated by reference herein. To
the extent applicable, the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby. To the extent of any conflict between the Terms and Conditions
and the provisions of this Indenture, the Terms and Conditions shall control the
interpretation of the terms of the Note and this Indenture.
SECTION 2.02 Restrictive Legends.
During the Restricted Period, each Bearer Note and each Coupon shall
bear the following legend on the face thereof:
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE BEEN OR WILL BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, CONVERTED OR
OTHERWISE DISPOSED OF IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, ANY "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE
SECURITIES ACT) UNLESS THIS
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NOTE AND SUCH SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT AND
ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SUCH LAWS ARE AVAILABLE.
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE U.S. INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE UNITED STATES INTERNAL
REVENUE CODE OF 1986, AS AMENDED.
Each Global Note shall bear the following legend on the face thereof:
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND
MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, CONVERTED OR OTHERWISE
DISPOSED OF IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, ANY "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE SECURITIES
ACT) UNLESS THIS NOTE HAS BEEN REGISTERED UNDER THE SECURITIES ACT AND
ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF SUCH LAWS ARE AVAILABLE.
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE U.S. INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE UNITED STATES INTERNAL
REVENUE CODE OF 1986, AS AMENDED.
In the event that Regulation S is amended during the period while any Note or
Coupon remains outstanding and the Company determines that the foregoing
restrictive legends are required to be amended as a result thereof, the Company
shall provide the Trustee with Notice pursuant to Section 1.07 setting forth the
revised form of restricted legend that the Company believes is required and
shall provide the Trustee with an Opinion of Counsel to the effect that such
restrictive legends are required to be amended. The form of Bearer Note set
forth at Exhibit A and each Global Note shall be deemed to be so amended
effective at the date of such Notice to the Trustee.
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ARTICLE THREE
THE NOTES
SECTION 3.01 Issuable in Series; Terms .
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to up to $10,000,000, except for Notes
authenticated and delivered in exchange for, or in lieu of, other Notes pursuant
to Section 3.03, 3.04, 3.05, 3.06, 3.08, or 9.05. Their Stated Maturity shall be
December 15, 2002, and they shall bear interest at the rate per annum specified
therein from the Closing Date or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, payable in arrears, and
thereafter as provided in the Notes and at said Stated Maturity, until the
principal thereof is paid or duly provided for.
The Notes may be issued in one or more series at any time and from time
to time prior to January 9, 1998. Each such series shall be established, without
the approval of any Noteholders or the Trustee, by or pursuant to authority
granted by one or more Board Resolutions, and established in one or more
indentures supplemental hereto.
All Notes of any series shall be identical and with the form described
in Section 2.01 hereof except that in each case interest on such Notes shall
accrue only from the date of issuance. Any other terms of the series shall be as
set forth in the supplemental indenture so long as the terms of such series
shall not be inconsistent with the provisions hereof, except as permitted by
Section 9.01(h).
The principal of and interest on the Notes shall be payable at the
office or agency of the Company maintained for such purpose in The City of
London, or at such other office or agency of the Company as may be maintained
for such purpose.
The Notes shall be redeemable as provided in Article Eleven.
The Notes shall be convertible as provided in Article Twelve.
The Notes shall be Senior Indebtedness and shall be senior in right of
payment to Subordinated Obligations as provided in Article Fourteen.
SECTION 3.02 Authorized Denomination.
The Notes shall be issuable only in bearer form and, in the case of
Bearer Notes, serially numbered, with Coupons attached thereto on issue, and
shall be issuable in denominations of U.S.$10,000 (the "Authorized
Denomination").
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SECTION 3.03 Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its Chairman,
its Chief Executive Officer, its President or a Vice President under a facsimile
of its corporate seal reproduced thereon and attested by its Secretary or an
Assistant Secretary. The signature of any of these officers on the Notes may be
manual or facsimile signatures of the present or any future such authorized
officer and may be imprinted or otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes, and the Trustee or the Authenticating
Agent in accordance with such Company Order shall authenticate and deliver such
Notes. If the form or forms or terms of the Notes of the series have been
established by or pursuant to Sections 2.01 and 3.01 in authenticating such
Notes and accepting the additional responsibilities hereunder in relation to
such Notes, the Trustee shall be entitled to receive, and (subject to Article
Six) shall be fully protected in relying upon the form of supplemental indenture
reflecting the issuance of such Notes. Such Company Order shall specify the
amount of Notes to be authenticated and the date on which the original issue of
Notes is to be authenticated. The aggregate principal amount of Notes
outstanding at any time may not exceed $10,000,000 except for Notes
authenticated and delivered in exchange for, or in lieu of, other Notes pursuant
to Section 3.04, 3.05 or 3.08.
Each Note shall be dated as of the date of issuance.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for in Exhibit
A duly executed by the Trustee or the Authenticating Agent by manual or
facsimile signature of an authorized officer, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder and is entitled to the benefits of
this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Notes authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be
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exchanged for other Notes executed in the name of the successor Person with such
changes in phraseology and form as may be appropriate, but otherwise in
substance of like tenor as the Notes surrendered for such exchange and of like
principal amount; and the Trustee or an Authenticating Agent, upon Company
Request of the successor Person, shall authenticate and deliver Notes as
specified in such request for the purpose of such exchange.
SECTION 3.04 Temporary Notes.
Pending the preparation of definitive Notes of any series, but in no
event prior to the end of the Restricted Period, the Company may execute, and
upon Company Order the Trustee or an Authenticating Agent shall authenticate and
deliver, temporary Notes which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in the Authorized Denomination,
substantially of the tenor of the definitive Notes in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Notes may determine, as conclusively
evidenced by their execution of such Notes.
If temporary Notes of any series are issued, the Company will cause
definitive Notes of that series to be prepared without unreasonable delay, but
in no event prior to the end of the Restricted Period. After the preparation of
definitive Notes of such series, the temporary Notes of such series shall be
exchangeable, subject to Section 3.05, for definitive Notes of such series upon
surrender of the temporary Notes of such series at the office or agency of the
Company designated for such purpose pursuant to Section 10.02, for that series,
without charge to the Noteholder. Upon surrender for cancellation of any one or
more temporary Notes of any series, the Company shall execute and the Trustee or
an Authenticating Agent shall authenticate and deliver in exchange therefor a
like principal amount of definitive Notes of the same series of the Authorized
Denomination. Until so exchanged, the temporary Notes of any series shall in all
respects be entitled to the same benefits under this Indenture as definitive
Notes.
SECTION 3.05 Exchange.
Upon surrender for exchange of any Note of any series at the office or
agency of the Company designated pursuant to Section 10.02 for such series, the
Company shall execute, and the Trustee or the Authenticating Agent shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of the same series the Authorized
Denomination of a like aggregate principal amount.
Furthermore, any Holder of a beneficial interest in the Global Note
shall, by acceptance of a beneficial interest in such Global Note, agree that
transfers of such beneficial interest may be effected only through a book-entry
system maintained by the holder of such Global Note, or its agents, and that
ownership of a beneficial interest in the Global Note shall be required to be
reflected in a book entry.
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At the option of the Noteholder, Notes of any series may be exchanged
for other Notes of the same series of the Authorized Denomination and of a like
aggregate principal amount, upon surrender of the Notes to be exchanged at such
office or agency. Whenever any Notes are so surrendered for exchange, the
Company shall execute, and the Trustee or an Authenticating Agent shall
authenticate and deliver, the Notes which the Noteholder making the exchange is
entitled to receive.
All Notes issued upon any exchange of Notes shall be the valid
obligations of the Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Notes surrendered upon such exchange.
Every Note presented or surrendered for exchange shall (if so required
by the Company or the Trustee) be duly endorsed, or be accompanied by a written
instrument of transfer, in form satisfactory to the Company and the Trustee,
duly executed by the Noteholder thereof or such Noteholder's attorney duly
authorized in writing.
No service charge shall be made for any exchange, conversion or
redemption of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any exchange of Notes, other than exchanges pursuant to Sections 3.03,
3.04, 3.05, 3.06, or 9.05.
The Company shall not be required to register the transfer of or
exchange of any Note during a period beginning five days before the date of
Maturity and ending on such date of Maturity.
SECTION 3.06 Book-Entry Provisions for Global Note.
(a) The Global Note initially shall be delivered to the Common
Depository and shall bear the legends set forth in Section 2.02.
Members of, or participants in, Euroclear and Cedel Bank ("Agent
Members") shall have no rights under this Indenture with respect to any
Global Note held on their behalf by the Common Depository, or under the
Global Note, and the Common Depository may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute
owner of such Global Note for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Company, the Trustee or
any agent of the Company or the Trustee, from giving effect to any
written certification, proxy or other authorization furnished by the
Common Depository or shall impair, as between the Common Depository and
the Agent Members, the operation of customary practices governing the
exercise of the rights of a Noteholder.
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(b) Transfers of the Global Note shall be limited to transfers
of such Global Note in whole, but not in part, to the Common
Depository, its successors or their respective nominees. Interests of
beneficial owners in the Global Note may be transferred in accordance
with the rules and procedures of the Common Depository and the
provisions of Section 3.06. Beneficial owners may obtain Bearer Notes
in exchange for their beneficial interests in the Global Note upon
request in accordance with the Common Depository's procedures. In
addition, Bearer Notes shall be transferred to all beneficial owners in
exchange for their beneficial interests in the Global Note if (i) the
Common Depository notifies the Company that it is unwilling or unable
to continue as Common Depository for the Global Note and a successor
depository is not appointed by the Company within 90 days of such
Notice or (ii) an Event of Default has occurred and is continuing and
the Trustee has received a request from the Common Depository.
(c) In connection with any transfer of a portion of the
beneficial interest in the Global Note to beneficial owners pursuant to
subsection (b) of this Section, the Common Depository shall reflect on
its books and records the date and a decrease in the principal amount
of the Global Note in an amount equal to the principal amount of the
beneficial interest in the Global Note to be transferred, and the
Company shall execute, and the Trustee or an Authenticating Agent shall
authenticate and deliver, one or more Bearer Notes of like tenor and
amount.
(d) In connection with the transfer of the entire Global Note
to beneficial owners pursuant to subsection (b) of this Section, the
Global Note shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee or an
Authenticating Agent shall authenticate and deliver, to each beneficial
owner identified by the Common Depository in exchange for its
beneficial interest in the Global Note, an equal aggregate principal
amount of Bearer Notes of Authorized Denomination.
(e) During the Restricted Period, any Bearer Note delivered in
exchange for an interest in the Global Note pursuant to subsection (b)
or subsection (c) of this Section shall bear the applicable legend
regarding transfer restrictions applicable to the Bearer Note set forth
in Section 2.02.
(f) The Holder of the Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons
that may hold interests through Agent Members, to take any action which
a Noteholder is entitled to take under this Indenture or the Notes.
(g) Any Bearer Note delivered in exchange for an interest in
the Global Note pursuant to subsection (b) or (c) of this Section will
prior to delivery to the Noteholder have all matured Coupons as of such
delivery date, which are attached to such Bearer Note, cancelled and
voided by the Authenticating Agent.
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SECTION 3.07 Special Transfer Provisions.
The Noteholders by acceptance of the Notes hereby covenant and agree
that neither the Notes nor the Conversion Shares will be offered, sold,
transferred, pledged, converted or otherwise disposed of in the United States or
to, or for the account or benefit of, any U.S. Person unless the Notes and the
Conversion Shares have been registered under the Securities Act and any
applicable state securities or blue sky laws or exemptions from the registration
requirements of such laws are available.
SECTION 3.08 Mutilated, Destroyed, Lost and Stolen Notes.
If (i) any mutilated Note or Coupon is surrendered to the Trustee or
the Replacement Agent, or (ii) the Company and the Trustee receive evidence to
their satisfaction of the destruction, loss or theft of any Note or Coupon, and
there is delivered to the Company and the Trustee such security and/or indemnity
as may be required by them to save each of them harmless, then, in the absence
of Notice to the Company or the Trustee that such Note or Coupon has been
acquired by a bona fide purchaser, the Company shall execute and upon Company
Order, and the Trustee or a Replacement Agent shall authenticate and deliver, in
exchange for any such mutilated Note or Coupon or in lieu of any such destroyed,
lost or stolen Note or Coupon, a new Note or Coupon of the same series and of
like tenor and principal amount, bearing a number not contemporaneously
Outstanding.
In case any such mutilated, destroyed, lost or stolen Note or Coupon
has become or is about to become due and payable, the Company in its discretion
may, instead of issuing a new Note or Coupon, pay such Note or Coupon, as the
case may be.
Upon the issuance of any new Note or Coupon under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee and the Replacement
Agent) connected therewith.
Every new Note or Coupon issued pursuant to this Section in lieu of any
destroyed, lost or stolen Note or Coupon shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Note or Coupon shall be at any time enforceable by anyone, and shall be
entitled to all benefits of this Indenture equally and proportionately with any
and all other Notes or Coupons duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Note or Coupon.
Any new Note issued under this Section 3.08 in lieu of any destroyed,
lost or stolen Note shall be issued by the Replacement Agent with all matured
Coupons as of such date of issuance cancelled or voided.
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SECTION 3.09 Payment of Interest; Interest Rights Preserved.
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date, shall be paid to the bearer against
presentation and surrender (or in the case of part payment only, endorsement) of
the relevant Coupons, at the corporate trust office or agency of any Paying
Agent maintained for such purpose pursuant to Section 10.02.
Each such payment will be made at the specified office of any Paying
Agent, at the option of the Holder of such Coupon, by U.S. dollar cheque drawn
on a bank in New York or by transfer to a U.S. dollar account maintained by the
payee with a bank subject in all cases to any applicable fiscal or other laws
and regulations.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture in exchange for or in lieu of any other Note
shall carry the rights to interest accrued and unpaid, and to accrue, which were
carried by such other Note.
SECTION 3.10 Persons Deemed Owners.
Subject to the provision of Section 3.14 and except with respect to any
unmatured Coupon, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person who is the bearer of any Note or Coupon as the
owner of such Note or Coupon for the purpose of receiving payment of principal
of and (subject to Sections 3.05 and 3.09) interest on such Note and for all
other purposes whatsoever, whether or not such Note be overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 3.11 Cancellation.
All Notes surrendered for payment, conversion, redemption or exchange
shall, if surrendered to any Paying or Conversion Agent other than the Trustee,
shall be promptly cancelled by such Paying or Conversion Agent and delivered to
the Trustee. The Company may at any time deliver to the Trustee for cancellation
any Notes previously authenticated and delivered hereunder which the Company may
have acquired in any manner whatsoever, and may deliver to the Trustee (or to
any other Person for delivery to the Trustee) for cancellation any Notes
previously authenticated hereunder which the Company has not issued and sold,
and all Notes so delivered shall be promptly cancelled by the Trustee. If the
Company shall so acquire any of the Notes, however, such acquisition shall not
operate as a redemption or satisfaction of the indebtedness represented by such
Notes unless and until the same are surrendered to the Principal Paying and
Conversion Agent for cancellation. No Notes shall be authenticated in lieu of or
in exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Notes held by the Principal
Paying and Conversion Agent shall be disposed of by the Principal Paying and
Conversion Agent in accordance with its customary procedures and certification
of their disposal delivered to the Company unless by Company Order the Company
shall direct that cancelled Notes be returned to it.
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SECTION 3.12 Computation of Interest.
Interest on the Notes of any particular series shall be computed from
the date of issuance on the basis of a 360-day year of twelve 30-day months and,
in the case of an incomplete month, the number of days elapsed.
SECTION 3.13 ISIN Or Other Identifying Numbers.
The Company in issuing the Notes may use "ISIN" or other identifying
numbers (if then generally in use), and the Trustee shall use ISIN or other
identifying numbers in Notices of redemption, conversion or exchange, and any
other Notice provided for the benefit of the Noteholders, as a convenience to
Noteholders; provided that any such Notice shall state that no representation is
made as to the correctness of such numbers either as printed on the Notes or as
contained in any Notice of redemption, conversion or exchange or other Notice.
SECTION 3.14 Prescription.
Notes and Coupons will become void unless presented for payment within
periods of ten (10) years (in the case of principal) and five (5) years (in the
case of interest) from the Relevant Date in respect of the Notes or the Coupons,
as the case may be, subject to the provisions of Section 11.08.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 4.01 Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights of conversion or redemption of Notes herein
expressly provided for and the Company's obligations to the Trustee pursuant to
Section 6.06) and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
when:
(a) either:
(i) all Notes theretofore authenticated and delivered
(other than (1) Notes which have been destroyed, lost, mutilated or
stolen and which have been replaced or paid as provided in Section 3.08
and (2) Notes for whose payment money has theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged
from such trust, as
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provided in Section 10.03) have been delivered to the Trustee or a
Paying or Conversion Agent for cancellation; or
(ii) all such Notes not theretofore delivered to the
Trustee for cancellation (1) have become due and payable, or (2) will
become due and payable at their Stated Maturity, within one year, or
(3) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of Notice of redemption by
the Trustee in the name, and at the expense, of the Company, and the
Company has irrevocably deposited or caused to be deposited with the
Trustee as trust funds, in trust for the purpose an amount sufficient
to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Trustee for cancellation, for principal
and interest to the date of such deposit (in the case of Notes which
have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be;
(b) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.06 and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of clause (a) of
this Section, the obligations of the Trustee under Section 4.02 and the last
paragraph of Section 10.03 shall survive.
SECTION 4.02 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.03, all
money deposited with the Trustee pursuant to Section 4.01 shall be held in trust
and applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such money has been deposited with the Trustee; but such money
need not be segregated from other funds except to the extent required by law.
ARTICLE FIVE
EVENTS OF DEFAULT AND REMEDIES
SECTION 5.01 Events of Default.
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"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be occasioned by the provisions of Article Fourteen or be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) which shall have occurred and is
continuing:
(a) if default is made for a period of five (5) Business Days
or more in the payment of interest or principal due in respect of the
Notes or any of them; or
(b) if the Company fails to perform or observe any of its
other obligations, covenants, conditions or provisions under the Notes
or this Indenture, and (except where the Trustee shall have certified
to the Company in writing that it considers such failure to be
incapable of remedy in which case no such Notice or continuation as is
hereinafter mentioned will be required) such failure continues for the
period of thirty (30) calendar days (or such longer period as the
Trustee may in its absolute discretion permit) next following the
service by the Trustee on the Company of Notice requiring the same to
be remedied; or
(c) if (i) any other Indebtedness of the Company or any
Subsidiary becomes due and payable prior to its Stated Maturity by
reason of an event of default (howsoever defined) or (ii) any such
Indebtedness of the Company or any Subsidiary is not paid when due or,
as the case may be, within any applicable grace period or (iii) the
Company or any Subsidiary fails to pay when due (or, as the case may
be, within any applicable grace period) any amount payable by it under
any present or future guarantee for, or indemnity in respect of, any
Indebtedness of any Person or (iv) any security given by the Company or
any Subsidiary for any Indebtedness of any Person or any Guaranty or
indemnity of Indebtedness of any Person by the Company or any
Subsidiary becomes enforceable by reason of default in relation thereto
and steps are taken to enforce such security save in any such case
where there is a bona fide dispute as to whether the relevant
Indebtedness or any such Guaranty or indemnity as aforesaid shall be
due and payable (following any applicable grace period), provided that
in each such case the Indebtedness exceeds in the aggregate
U.S.$250,000 and in each such case such event continues unremedied for
a period of thirty (30) calendar days (or such longer period as the
Trustee may in its sole discretion consent to in writing upon receipt
of written Notice from the Company); or
(d) if the Company or any Subsidiary shall generally fail to
pay its debts as such debts come due (except debts which the Company or
such Subsidiary, as the case may be, may contest in good faith
generally) or shall be declared or adjudicated by a competent court to
be insolvent or bankrupt, consents to the entry of an order of relief
against it in an involuntary bankruptcy case, shall enter into any
assignment or other similar arrangement for the benefit of its
creditors or consents to the appointment of a custodian (including,
without limitation, a receiver, liquidator or trustee); or
(e) if a receiver, administrative receiver, administrator or
other similar official shall be appointed in relation to the Company or
any Subsidiary or in relation to the whole
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or a substantial part of the undertaking or assets of any of them or a
distress, execution or other process shall be levied or enforced upon
or sued out against, or an encumbrancer shall take possession of, the
whole or a substantial part of the assets of any of them and in any of
the foregoing cases is not paid out or discharged within ninety (90)
calendar days (or such longer period as the Trustee may in its absolute
discretion consent to in writing upon receipt of written Notice from
the Company); or
(f) if the Company or any Subsidiary institutes proceedings to
be adjudicated a voluntary bankrupt, or shall consent to the filing of
a bankruptcy proceeding against it, or shall file a petition or answer
or consent seeking organization under the laws of the Federal
Bankruptcy Code or any similar applicable U.S. Federal, State or
foreign law, or shall consent to the filing of any such petition, or
shall consent to the appointment of a receiver or liquidator or trustee
or assignee (or other similar official) in bankruptcy or insolvency of
it or its property, or shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they come due; or
(g) if a decree or order by a court having jurisdiction in the
premises shall have been entered adjudging the Company or any
Subsidiary bankrupt or insolvent, or approving as properly filed a
petition seeking the reorganization of the Company or any Subsidiary
under the Federal Bankruptcy Code or any other similar applicable U.S.
Federal, State or foreign law, and such decree or order shall have
continued undischarged or unstayed for a period of ninety (90) calendar
days; or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver or liquidator or trustee or
assignee (or other similar official) in bankruptcy or insolvency of the
Company or any Subsidiary or of all or substantially all of its
property, or for the winding up or liquidation of its affairs, shall
have been entered, and such decree or order shall have continued
undischarged and unstayed for a period of ninety (90) calendar days; or
(h) if a warranty, representation, or other statement made by
or on behalf of the Company contained in this Indenture, the Notes or
any certificate or other agreement furnished in compliance with such
documents is false in any material respect when made and (except where
the Trustee shall have certified to the Company that it considers such
falsity to be incapable of remedy, in which case no such Notice or
continuation as is hereinafter mentioned will be required) such falsity
continues for a period of thirty (30) calendar days (or such longer
period as the Trustee may in its absolute discretion permit) next
following the service by the Trustee on the Company of Notice requiring
the same to be remedied; or
(i) if there is any final judgment or judgments for the
payment of money exceeding in the aggregate U.S.$250,000 outstanding
against the Company or any Subsidiary which has been outstanding for
more than sixty (60) calendar days from the date of its entry and shall
not have otherwise been discharged in full or stayed by appeal, bond or
otherwise.
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SECTION 5.02 Acceleration of Maturity; Rescission and Annulment.
The Trustee at its discretion may, and if so requested in writing by
the Holders of at least one-quarter in principal amount of the Notes then
outstanding or if so directed by an Extraordinary Resolution of the Noteholders
shall, give notice to the Company that the Notes are, and they shall accordingly
thereby forthwith become, immediately due and payable at their principal amount
together with accrued interest (as provided herein) if any Event of Default (as
specified in Section 5.01) shall have occurred.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Notes, by written Notice to the Company
and the Trustee, may rescind and annul such declaration and its consequences if
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(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue interest on all Outstanding Notes,
(ii) all unpaid principal of any Outstanding Notes
which has become due otherwise than by such declaration of
acceleration, and interest on such unpaid principal at the
rate prescribed therefor in the Notes,
(iii) to the extent that payment of such interest is
legally enforceable, interest on overdue interest at the rate
prescribed therefor in the Notes, and
(iv) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(b) all Events of Default, other than the non-payment of
amounts of principal of or interest on Notes which have become due
solely by such declaration of acceleration, have been cured or waived
as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any
right consequent thereon.
SECTION 5.03 Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if
(a) default is made in the payment of any instalment of
interest on any Note when such interest becomes due and payable and
such default continues for a period of five (5) Business Days, or
(b) default is made in the payment of the principal of any
Note at the Maturity thereof and such default continues for a period of
five (5) Business Days,
the Company will, upon demand of the Trustee, pay to the Trustee for the benefit
of the Holders of such Notes, the whole amount then due and payable on such
Notes for principal and interest, and interest on any overdue principal and, to
the extent that payment of such interest shall be legally enforceable, upon any
overdue instalment of interest, at the rate prescribed therefor in the Notes,
and, in addition thereto, such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
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If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Noteholders by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.04 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Noteholders allowed in such
judicial proceeding, and
(b) to participate as a member, voting or otherwise, of any
official committee of creditors appointed in such matters; and
(c) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.06.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
of reorganization, arrangement,
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adjustment or composition affecting the Notes or the rights of any Noteholder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Noteholder in any such proceeding.
SECTION 5.05 Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the rateable benefit of
the Noteholders in respect of which such judgment has been recovered.
SECTION 5.06 Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or interest,
upon presentation of the Notes and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.06;
SECOND: To the payment of the amounts then due and unpaid for
principal of and interest on the Notes in respect of which or for the
benefit of which such money has been collected, rateably, without
preference or priority of any kind, according to the amounts due and
payable on such Notes for principal and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 5.07 Limitation on Suits.
No Noteholder shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(a) such Noteholder has previously given written Notice to the
Trustee of a continuing Event of Default, with a copy of such Notice to
the Company;
(b) the Holders of not less than 25% in principal amount of
the Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
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(c) such Noteholder or Noteholders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such Notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Noteholders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other
Noteholders, or to obtain or to seek to obtain priority or preference over any
other Noteholders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and rateable benefit of all the
Noteholders.
SECTION 5.08 Unconditional Right of Holders to Receive Principal and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Note or of any Coupon, as the case may be, shall have the right, which is
absolute and unconditional, to receive payment, as provided herein (including,
if applicable, Article Thirteen) and in such Note of the principal of and
(subject to Section 3.09) interest on, such Note on the respective Stated
Maturity or expressed in such Note (or, in the case of redemption, on the
Redemption Date) or Coupon and to institute suit for the enforcement of any such
payment, and such rights shall not be impaired without the consent of such
Holder; provided, that all monies paid by the Company to the Paying Agent for
the payment of principal or interest on any Note which remain unclaimed at the
end of two (2) years after the Stated Maturity or Redemption Date of such Note
will be repaid to the Company and the Holder of any Note or Coupon shall
thereafter have only the rights of a creditor of the Company or such rights as
may be otherwise provided by applicable law.
SECTION 5.09 Restoration of Rights and Remedies.
If the Trustee or any Noteholder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Noteholders
shall be restored severally and respectively to their former positions hereunder
and thereafter all rights and remedies of the Trustee and the Noteholders shall
continue as though no such proceeding had been instituted.
SECTION 5.10 Rights and Remedies Cumulative.
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Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section
3.08, no right or remedy herein conferred upon or reserved to the Trustee or to
the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 5.11 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Noteholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Noteholders, as the
case may be.
SECTION 5.12 Control by Noteholders.
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Notes shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that in each
case:
(a) such direction shall not be in conflict with any rule of
law or with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve
it in personal liability or be unjustly prejudicial to the Noteholders
not joining in such direction.
SECTION 5.13 Waiver of Past Defaults.
Subject to Section 5.02, the Holders of not less than a majority in
principal amount of the Outstanding Notes may on behalf of the Holders of all
the Notes waive any past default hereunder and its consequences, except a
default
(a) in respect of the payment of the principal of or interest
on any Note, or
(b) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Note affected.
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Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 5.14 Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 5.15 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by
such Noteholder's acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section shall not be deemed to require any court to
require an undertaking or to make such an assessment in any suit instituted by
the Trustee or by the Company except against the Trustee.
ARTICLE SIX
THE TRUSTEE
SECTION 6.01 Notice of Defaults.
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall publish Notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; provided, however, that,
except in the case of a Default in the payment of the principal of or interest
on any Note, the Trustee shall be protected in withholding such Notice if and so
long as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such Notice is in the interest of the Noteholders.
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SECTION 6.02 Certain Rights of Trustee.
(a) The Trustee may request and rely and shall be protected in
acting or refraining from acting upon any Extraordinary Resolution,
Act, Notice or other resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper party or parties.
(b) Any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution.
(c) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate.
(d) The Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon.
(e) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Noteholders pursuant to this Indenture,
unless such Noteholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses (including reasonable
fees of Trustee's counsel), and liabilities which might be incurred by
it in compliance with such request or direction.
(f) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any Extraordinary Resolution, Act,
Notice or other resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit,
and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, personally or by agent or attorney.
(g) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
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(h) The Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture.
(i) The permissive right of the Trustee to take or refrain
from taking any actions enumerated in this Indenture shall not be
confused as a duty and the Trustee shall not be answerable in such
actions other than for its own negligence or wilful misconduct.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 6.03 Trustee Not Responsible for Recitals or Issuance of Notes.
The recitals contained herein and in the Notes, except for the
Trustee's certificates of authentication, and in the Coupons, shall be taken as
the statements of the Company, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Notes or the Coupons or of the
Conversion Shares, except that the Trustee represents that it is duly authorized
to execute and deliver this Indenture, authenticate the Notes and perform its
obligations hereunder. The Trustee shall not be accountable for the use or
application by the Company of Notes or the proceeds thereof.
SECTION 6.04 May Hold Notes.
The Trustee, any Paying Agent, any Conversion Agent, any Authenticating
Agent, any Replacement Agent or any other agent of the Company or of the
Trustee, in its individual or any other capacity, may become the owner or
pledgee of Notes and the Coupons and may otherwise deal with the Company with
the same rights it would have if it were not Trustee, Paying Agent, Conversion
Agent, Authenticating Agent, Replacement Agent or such other agent.
SECTION 6.05 Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 6.06 Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
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(b) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence, bad faith or wilful
misconduct; and
(c) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
When the Trustee incurs expenses or renders service in connection with
an Event of Default specified in Section 5.01 (f) or Section 5.01 (g), the
expenses (including the reasonable charges of its counsel) and the compensation
for the services are intended to constitute expenses of the administration under
any applicable federal, state or foreign bankruptcy, insolvency or other similar
law.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a claim prior to the Notes upon all
property and funds held or collected by the Trustee as such, except funds held
in trust for the payment of principal of or interest on particular Notes.
The provision of this Section shall survive the termination of this
Indenture or the earlier resignation or removal of the Trustee. Any Paying Agent
or Authenticating Agent appointed hereunder shall be entitled to the benefits of
Section 6.06(c) as if the indemnity set forth therefor were specifically
afforded to such Paying Agent or Authenticating Agent.
SECTION 6.07 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible
to act as Trustee and shall have a combined capital and surplus of at least
$50,000,000. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of Federal, State, territorial
or District of Columbia supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section, it shall
resign immediately in the manner and with the effect hereinafter specified in
this Article.
SECTION 6.08 Resignation and Removal; Appointment of Successor.
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(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor
Trustee in accordance with the applicable requirements of Section 6.09.
(b) The Trustee may resign at any time by giving written
Notice thereof to the Company. If the instrument of acceptance by a
successor Trustee required by Section 6.09 shall not have been
delivered to the Trustee within thirty (30) days after the giving of
such Notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the
Outstanding Notes, delivered to the Trustee and to the Company.
(d) If at any time:
(i) the Trustee shall cease to be eligible under
Section 6.07 and shall fail to resign after written request
therefor by the Company or by any Noteholder who has been a
bona fide Holder of a Note for at least six (6) months, or
(ii) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of the
Trustee or of its property shall be appointed or any public
officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation,
conservation or liquidation, or
(iii) the Trustee shall fail or refuse to timely
carry out and discharge its duties hereunder,
then, in any such case, (i) the Company, by a Board Resolution, may
remove the Trustee, or (ii) any Noteholder who has been a bona fide
Holder of a Note for at least six (6) months may, on behalf of such
Noteholder and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any reason, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee. If, within one year after such
resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment,
become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Noteholders and accepted appointment in
the manner hereinafter provided, any Noteholder who has been a
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bona fide Holder of a Note for at least six (6) months may, on behalf
of such Noteholder and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor
Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to
the Noteholders in the manner provided for in Section 1.08. Each Notice
shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
SECTION 6.09 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder, whether or not invested. Upon request of any
such successor Trustee, the Company shall execute any and all instruments for
more fully and certainly vesting in and confirming to such successor Trustee all
such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 6.10 Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes; and in case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Notes or in
this Indenture provided that the certificate of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Notes in the name of any
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predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
SECTION 6.11 Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default with
respect to the Notes,
(i) the Trustee undertakes to perform such duties and
only such duties with respect to the Notes as are specifically
set forth in this Indenture, and no implied covenants or
obligations with respect to the Notes shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture;
but in the case of any such certificates or opinions which by
any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the
requirements of this Indenture, but not to verify the contents
thereof.
(b) In case an Event of Default has occurred and is continuing
of which a Responsible Officer of the Trustee has actual knowledge, the
Trustee shall exercise such of the rights and powers vested in it by
this Indenture with respect to the Notes, and use the same degree of
care and skill in their exercise, as a prudent person would exercise or
use under the circumstances in the conduct of such person's own
affairs.
(c) No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its
own negligent failure to act, or its own wilful misconduct, except
that:
(i) this Subsection shall not be construed to limit
the effect of Subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless
it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Noteholders, given as
provided in Section 5.12, relating to the time, method and
place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon
the Trustee, under this Indenture; and
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(iv) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to
the provisions of this Section.
SECTION 6.12 Meetings of Noteholders.
(a) The Trustee or the Noteholders may convene a meeting at
any time and from time to time to consider any matter affecting the
interests of the Trustee or the Holders of the Notes, including the
modification of the Terms and Conditions or this Indenture and to make,
give or take any request, demand, authorization, direction, Notice,
consent, waiver or other action provided by this Indenture to be made,
given or taken by Holders of the Notes.
(b) The Trustee may at any time call a meeting of the Holders
of the Notes for any purpose specified in Section 6.12(a), to be held
at such time and at such place in the Borough of Manhattan, The City of
New York, or in the City of London, England, as the Trustee shall
determine. Notice of every meeting of the Holders of the Notes, setting
forth the time and the place of such meeting and in general terms the
action proposed to be taken at such meeting, shall be given in the
manner provided in Section 1.08, not less than 21 nor more than 180
days prior to the date fixed for the meeting.
(c) In case at any time the Company, pursuant to a Board
Resolution, or the Holders of at least 25% in aggregate principal
amount of the Outstanding Notes shall have requested the Trustee to
call a meeting of the Holder of the Notes for any purpose other than
specified in Section 6.12(a), by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and
the Trustee shall not have made the first publication of the Notice of
such meeting within 21 days after receipt of such request or shall not
thereafter proceed to cause the meeting to be held as provided herein,
then the Company or the Holders of the Notes in the amount specified,
as the case may be, may determine the time and the place in the Borough
of Manhattan, The City of New York, or in the City of London, England,
for such meeting and may call such meeting for such purposes by giving
Notice thereof as provided in Section 1.08.
(d) To be entitled to vote at any meeting of Holders of the
Notes, a Person shall be (i) a Holder of one or more Outstanding Notes,
or (ii) a Person appointed by an instrument in writing as proxy for a
Holder or Holders of one or more Outstanding Notes by such Holder or
Holders. The only Persons who shall be entitled to be present or to
speak at
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any meeting of Noteholders shall be the Persons entitled to vote at
such meeting and their counsel, any representatives of the Trustee and
the Company, and their respective counsel.
(e) The quorum at any meeting for passing any Extraordinary
Resolution will be one or more Persons present holding or representing
25% or more in principal amount of the Outstanding Notes as of the date
of the meeting, or at any adjourned such meeting one or more Persons
present whatever the principal amount of the Notes held or represented
by such Person, except that at any meeting, the business of which
includes the modification of certain of the provisions of the Terms and
Conditions (including Condition 8) and the provisions of this
Indenture, the necessary quorum and vote required for passing an
Extraordinary Resolution will be one or more Persons present holding or
representing not less than a majority, or at any adjourned such meeting
not less than one-third, of the principal amount of the Outstanding
Notes. An Extraordinary Resolution passed at any meeting of the Holders
of the Notes will be binding on all Holders of the Notes, whether or
not such Noteholders are present at the meeting, and on the Holders of
all Coupons.
(f) The Trustee may agree, without the consent of the Holders
of the Notes or the Coupons, to any modification (subject to certain
exceptions) of, or to the waiver or authorization of any breach or
proposed breach of, any of the Terms and Conditions or any of the
provisions of this Indenture which is not, in the opinion of the
Trustee materially prejudicial to the interests of the Holders of the
Notes or the Coupons or which is of a formal, minor or technical nature
or to correct a manifest error.
SECTION 6.13 Authenticating Agents.
The Principal Paying and Conversion Agent may authenticate the Global
Note, the Temporary Notes and the Notes, as the Trustee's Authenticating Agent.
The Trustee may, with the written consent of the Company, appoint an additional
Authenticating Agent acceptable to the Company with respect to the Notes which
shall be authorized to act on behalf of the Trustee to authenticate Notes issued
upon exchange or substitution pursuant to this Indenture.
Notes authenticated by an Authenticating Agent shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes as
if authenticated by the Trustee hereunder, and every reference in this Indenture
to the authentication and delivery of Notes by the Trustee or the Trustee's
certificate of authentication shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
The Notes shall have endorsed thereon the certificate of authentication set
forth in Exhibits A and B hereto. Each Authenticating Agent shall be subject to
acceptance by the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any state
thereof, the District of Columbia, Luxembourg, or England and Wales authorised
under such laws to act as Authenticating Agent and subject to supervision or
examination by government or other fiscal authority. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
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provisions of this Section 6.13, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section 6.13.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent; provided such corporation shall be otherwise eligible
under this Section 6.13, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written Notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written Notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a Notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 6.13, the Trustee may appoint a successor
Authenticating Agent which shall be subject to acceptance by the Company.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for this service under Section 6.13.
ARTICLE SEVEN
NOTEHOLDERS' LISTS AND REPORTS BY COMPANY
SECTION 7.01 Disclosure of Names and Addresses of Noteholders.
Every Noteholder, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company nor the Trustee nor any agent
of either of them shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Noteholders regardless of
the source from which such information was derived.
SECTION 7.02 Reports by Company.
The Company shall:
(a) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company may
be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company is not required
to file information, documents or reports pursuant to
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either of said Sections, then, on the 120th day following the initial
issuance of the Notes and annually thereafter, it shall file with the
Trustee, in accordance with rules and regulations prescribed from time
to time by the Commission, such of the supplementary and periodic
information, documents and reports which may be required pursuant to
Section 13 of the Exchange Act in respect of a security listed and
registered on a national securities exchange as may be prescribed from
time to time in such rules and regulations; and
(b) file with the Trustee, in accordance with rules and
regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to
compliance by the Company with the conditions and covenants of this
Indenture as may be required from time to time by such rules and
regulations.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER, OR LEASE
SECTION 8.01 Company May Consolidate, Etc., Only on Certain Terms.
The Company will not merge or consolidate with or sell, convey,
transfer or lease or otherwise dispose of all or substantially all of its
properties or assets substantially as an entirety to any Person, unless:
(a) either (i) the Company shall be the surviving Person or
(ii) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer, or which leases, the properties and
assets of the Company substantially as an entirety (1) shall be a
Person organized and validly existing under the laws of the United
States of America, any state thereof or the District of Colombia and
(2) shall expressly assume, by a trust indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, the Company's obligation for the due and punctual payment of
the principal of and interest on all the Notes and the performance and
observance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(b) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Company in
connection with or as a result of such transaction as having been
incurred at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing; and
(c) the Company or such Person shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, conveyance, transfer or lease
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture complies with Article 9
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and that all conditions precedent herein provided for relating to such
transaction have been complied with.
SECTION 8.02 Successor Substituted.
Upon any consolidation of the Company with or merger of the Company
with or into any other Person or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety to any Person
in accordance with Section 8.01, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and in the event of any such conveyance or transfer, the Company (which term
shall for this purpose mean the Person named as the "Company" in the first
paragraph of this Indenture or any successor Person which shall theretofore
become such in the manner described in Section 8.01), except in the case of a
lease, shall be discharged of all obligations and covenants under this Indenture
and the Notes and may be dissolved and liquidated.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 9.01 Supplemental Indentures Without Consent of Noteholders.
Without the consent of any Noteholders, the Company, when authorized by
or pursuant to a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company contained herein and in the Notes; or
(b) to add to the covenants of the Company for the benefit of
the Noteholders of one or more series of Notes (and if such covenants
are to be for the benefit of only one series of Notes, stating that
such covenants are expressly being included solely for the benefit of
one specified series) or to surrender any right or power herein
conferred upon the Company; or
(c) to add any additional Events of Default (and if such
Events of Default are to be for the benefit of only one series of
Notes, stating that such Events of Default are being included solely
for the benefit of such series); or
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(d) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of
Section 6.09; or
(e) to cure any ambiguity or defect in or to correct or
supplement any provision herein which may be defective or inconsistent
with any other provision herein, or to make any other provisions with
respect to matters or questions arising under this Indenture; provided
that such action shall not adversely affect the interests of the
Noteholders in any material respect; or
(f) to secure the Notes of any series; or
(g) to add to or change any of the provisions hereof to such
extent as shall be necessary to permit or facilitate the issuance of
the Notes of any series; or
(h) to add to, change or eliminate any of the provisions
hereof in respect of one or any series of Notes, provided that any such
addition, change or elimination (i) shall neither (1) apply to any Note
of any series created prior to the execution of such supplemental
indenture and entitled to the benefit of such provision nor (2) modify
the rights of the Noteholder of any such Note with respect to such
provision or (ii) shall become effective only when there is no such
Note outstanding; or
(i) to establish the form or terms of Notes of any series but
only as permitted by Sections 2.01 and 3.01.
SECTION 9.02 Supplemental Indentures with Consent of Noteholders.
With the consent of the Noteholders of not less than a majority in
principal amount of the Outstanding Notes, by Act of said Noteholders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Noteholders under this Indenture;
provided, that no such supplemental indenture shall, without the consent of the
Holder of each Outstanding Note affected thereby:
(a) change the Stated Maturity of the principal of, or any
instalment of principal of or interest on, any Note, or reduce the
principal amount thereof or the rate of interest thereon, or change the
coin or currency in which any Note or the interest thereon is payable,
or impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date), or
(b) reduce the percentage in principal amount of the
Outstanding Notes, the consent of whose Holders is required for any
such supplemental indenture, or the consent of
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whose Holders is required for any waiver of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture, or
(c) modify any of the provisions of this Section or Section
5.13, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without
the consent of the Holder of each Outstanding Note affected thereby;
provided, that this clause shall not be deemed to require the consent
of any Noteholder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section and elsewhere, or the
deletion of this proviso, in accordance with the requirements of
Section 6.09 and 9.01(d), or
(d) modify any of the provisions of Section 10.10 or any of
the provisions of this Indenture relating to the subordination of the
Note in a manner adverse to the Holders thereof.
It shall not be necessary for any Act of Noteholders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 9.03 Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.11) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.04 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
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SECTION 9.05 Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
SECTION 9.06 Notice of Supplemental Indentures.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 9.02, the Company
shall give Notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 1.08, setting forth in general terms the
substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 10.01 Payment of Principal and Interest.
The Company covenants and agrees for the benefit of the Noteholders and
the Couponholders that it will duly and punctually pay the principal of and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 10.02 Maintenance of Office or Agency.
The Company will maintain in Luxembourg and in not less than one other
European city an office or agency where Notes may be presented or surrendered
for payment, where Notes may be surrendered for conversion or exchange and where
Notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The office of the Luxembourg Paying Agent at 43
Boulevard Royal, L-2955 Luxembourg and the corporate trust office of the
Principal Paying Agent at Mariner House, Pepys Street, London EC3N 4DA, England
shall be such offices or agencies of the Company, unless the Company shall
designate and maintain some other offices or agencies for one or more of such
purposes pursuant to the terms of that certain Paying and Conversion Agency
Agreement of even date herewith (the "Agency Agreement"). The Company will give
prompt written Notice to the Trustee of any change in the location of any such
offices or agencies. If at any time the Company shall fail to maintain any such
required offices or agencies or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, Notices and demands may be made
or served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
Notices and demands.
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The Company may also from time to time designate one or more other
offices or agencies (in or outside of Europe) where the Notes may be presented
or surrendered for any or all such purposes and may from time to time rescind
any such designation; provided, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in Europe for such purposes. The Company will give prompt written Notice to the
Trustee of any such designation or rescission and any change in the location of
any such other office or agency.
SECTION 10.03 Money for Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or interest on any of the Notes,
segregate and hold in trust for the benefit of the Persons entitled thereto a
sum sufficient to pay the principal or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided and
will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before 3:00 p.m. (London time) on the Business Day
immediately preceding each due date of the principal of or interest on any
Notes, deposit with a Paying Agent a sum sufficient to pay the principal or
interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal or interest, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
Pursuant to the terms of the Agency Agreement, each Paying Agent shall
agree with the Trustee, subject to the provisions of this Section, that such
Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of or interest on Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee Notice of any Default by the Company in
the making of any payment of principal or interest; and
(c) at any time during the continuance of any such Default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
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Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or interest on any
Note and remaining unclaimed for two (2) years after such principal or interest
has become due and payable shall be paid to the Company on Company Request, or
(if then held by the Company) shall be discharged from such trust; and the
Holder of such Note shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the Authorized
Newspapers, Notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
SECTION 10.04 Corporate Existence.
The Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate existence, rights
(charter and statutory) and franchises of the Company; provided, however, that
the Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer in
the best interests of the Company and its Subsidiaries as a whole and the
conduct of their collective businesses, and that the loss thereof is not
disadvantageous in any material respect to the Noteholders; and provided,
further, that nothing contained in this Section 10.04 shall prohibit any
transaction permitted by Article Eight.
SECTION 10.05 Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labour, materials and supplies which, if unpaid, might by
law become a Lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 10.06 Maintenance of Properties.
The Company will cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order (ordinary wear and tear excepted) and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be conducted at all times;
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provided, however, that nothing in this Section shall prevent the Company from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the judgment of the Company, desirable in the conduct of its business or
the business of any Subsidiary and not disadvantageous in any material respect
to the Noteholders, and provided, further, that nothing contained in this
Section 10.06 shall prohibit any transaction permitted by Article Eight.
SECTION 10.07 Insurance.
The Company will at all times keep all of the Company's and its
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the extent
that property of similar character is usually so insured by Corporations
similarly situated and owning like properties in similar geographic areas in
which the Company or such Subsidiary operates; provided that such insurance is
generally available at commercially reasonable rates, and provided further that
the Company or such Subsidiary may self-insure directly or through captive
insurers or insurance cooperatives, to the extent that the Company determines
that such practice is consistent with prudent business practices. Such insurance
shall be in such amount, on such terms, in such forms and for such periods as
are customary for similarly situated Persons in the Company's industry or in
insurance markets available to the Company.
SECTION 10.08 Statement by Officers as to Default.
The Company will deliver to the Trustee at its Corporate Trust Office,
within 120 days after the end of each fiscal year, a brief Officers' Certificate
including a statement by the officer executing such certificate that in the
course of performing his or her duties as an officer of the Company such officer
would normally obtain knowledge of (i) whether or not any Default exists in the
performance and observation of any terms, provisions and conditions of this
Indenture and (ii) whether or not the Company has otherwise kept, observed,
performed and fulfilled its obligations under this Indenture in all material
respects. Such Officers' Certificate shall further state, as to the officer
signing such certificate, to the knowledge of such officer, as of the date of
such Officers' Certificate, (i) whether or not any Default exists, (ii) whether
or not the Company during the preceding fiscal year kept, observed, performed
and fulfilled in all material respects each and every covenant and obligation of
the Company under this Indenture and (c) whether or not there was any Default in
the performance and observance of any of the terms, provisions or conditions of
this Indenture during such preceding fiscal year. If the officer signing the
Officers' Certificate knows of such a Default, whether then existing or
occurring during such preceding fiscal year, the Officers' Certificate shall
describe such Default and its status with particularity. The Company shall also
promptly notify the Trustee if the Company's fiscal year is changed so that the
end thereof is on any date other than the then current fiscal year end date. For
purposes of this Section 10.08, such compliance shall be determined without
regard to any period of grace granted by the Trustee or requirement of Notice
under this Indenture. The Company will deliver to the Trustee, forthwith upon
becoming aware of any default in the performance or observance of any covenant,
agreement or condition contained in this Indenture, or any Event of Default, an
Officers' Certificate specifying with particularity such Default or Event of
Default and further stating what action the Company has taken or is taking or
proposes to take with respect thereto.
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SECTION 10.09 Provision of Financial Statements.
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, the Company will, to the extent permitted under the Exchange Act,
file with the Trustee the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to such Sections 13(a) or 15(d) if the Company were so subject, such documents
to be filed with the Commission on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required so to
file such documents if the Company were so subject. The Company will also in any
event (x) within 15 days of each Required Filing Date file with the Trustee
copies of the annual reports, quarterly reports and other documents which the
Company has filed with the Commission or would have been required to file with
the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the
Company were subject to such Sections and (y) if filing such documents by the
Company with the Commission is not permitted under the Exchange Act, promptly
upon written request, supply copies of such documents to any prospective
Noteholder at the Company's cost.
SECTION 10.10 Limitation on Other Indebtedness.
Neither the Company nor any Subsidiary will create, incur, assume,
guarantee or in any other manner become directly or indirectly liable for the
payment of any Indebtedness that is senior in right of payment to the Notes,
except other Senior Indebtedness ranking pari passu with the Notes which may
rank senior to the Notes only to the extent of any collateral securing such
Senior Indebtedness.
SECTION 10.11 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Sections 10.05 through 10.07, 10.09 or
10.10 if before or after the time for such compliance the Holders of at least a
majority in principal amount of the Outstanding Notes, by Act of such
Noteholders, waive such compliance in such instance with such term, provision or
condition, but no such waiver shall extend to or affect such term, provision or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such term, provision or condition shall remain in full force
and effect.
SECTION 10.12 Restrictions on Charter Amendments.
The Company will not amend its Certificate of Incorporation or Bylaws
except as required by law or except to the extent that such amendment would not
have a material adverse effect on (a) the ability of the Company to perform its
obligations under this Indenture or the Notes or (b) the rights of the
Noteholders, except that neither (i) increases in the number of Shares and
issuance thereof with related securities, nor (ii) designations of Preferred
Stock of the Company, modifications of the terms of such designations and
issuance thereof with related securities, nor (iii)
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modification or expansion of the indemnity provisions provided by the Company to
its directors and officers, nor (iv) change of the Company's registered agent
shall be deemed an amendment hereunder.
SECTION 10.13 United States Withholding and Reporting Requirements.
To the extent permitted by law, the Company will provide to the
Trustee, the Paying Agents or to any Noteholder such statements, certificates or
other documentation concerning the organization or operations of the Company as
may be reasonably necessary to establish any exceptions or exemptions from
United States Federal income tax withholding and reporting requirements.
SECTION 10.14 Maintenance of Listings for Notes and Shares.
During the term of the Notes, the Company will maintain a listing of
the Notes on the Luxembourg Stock Exchange and a quotation for all the issued
Shares on Nasdaq, it being understood that if the Company is unable to obtain or
maintain such listing of Notes or Shares, to obtain and maintain a listing of
all the Notes or all the Shares issued on the exercise of the Conversion Rights
on such Alternative Stock Exchange as the Company may from time to time (with
the written consent of the Trustee) determine and will forthwith give notice to
the Noteholders in accordance with Section 1.08 of the listing, de-listing or
quotation or lack of quotation of the Notes or Shares (as a class) by any such
Alternative Stock Exchange.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 11.01 Right of Redemption.
(a) On giving notice pursuant to Section 11.05, the Company may redeem
all of the Notes for the time being outstanding at their principal amount,
together with interest accrued to the Redemption Date, in the event that prior
to the date of such Notice, Conversion Rights shall have been exercised and/or
purchases (and corresponding cancellations) have been effected in respect of 85%
or more in principal amount of the Notes.
(b) At any time after December 15, 2001, the Holder of any Note may at
its option, by completing, signing and depositing at the specified office of any
Paying Agent during normal business hours of such Agent, a Notice of redemption
in the form set forth as Exhibit E hereto (or for the time being current)
obtainable from any Paying Agent, specifying a date for redemption, together
with the Bearer Notes with all unmatured Coupons attached thereto to be
redeemed, require the Company to redeem in U.S. dollars all or some of the Notes
held by it at 110% of the aggregate principal amount of such Notes, plus
interest (if any) accrued to the date of redemption. Any such Notice of
redemption will be irrevocable, unless its revocation is
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approved in writing by the Company not later than five (5) days prior to the
date for redemption of the relevant Notes.
(c) Redemption shall be subject to the conditions specified in the form
of Note and, except as otherwise provided in Section 11.01 (b), at a Redemption
Price equal to 100% of the principal amount thereof, together with accrued and
unpaid interest to the Redemption Date, but only to the extent that all
unmatured Coupons are attached to such Notes.
SECTION 11.02 Applicability of Article.
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 11.03 Election to Redeem; Notice to Trustee.
The action of the Company to redeem any Notes pursuant to Section 11.01
shall be evidenced by a Board Resolution. In case of any redemption pursuant to
Section 11.01, the Company shall, at least 30 days and not more than 60 days
prior to the Redemption Date fixed by the Company (unless a shorter Notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Notes to be redeemed.
SECTION 11.04 [Intentionally omitted].
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SECTION 11.05 Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 1.08 not less than 30 days nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed.
All Notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed;
(d) that on the Redemption Date the Redemption Price (together
with accrued and unpaid interest, if any, to the Redemption Date
payable as provided in Section 11.07, but only with respect to Notes
with all unmatured Coupons attached) will become due and payable upon
each such Note, or the portion thereof, to be redeemed, and that
interest thereon will cease to accrue on and after said date;
(e) the place or places where such Notes are to be surrendered
for payment of the Redemption Price; and
(f) pursuant to Section 3.13, any ISIN or other identifying
numbers relating to the Notes.
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 11.06 Deposit of Redemption Price.
Not less than one Business Day prior to any Redemption Date, the
Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.03) an amount of money sufficient to pay the Redemption
Price of, and accrued and unpaid interest on, all the Notes which are to be
redeemed on that date.
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SECTION 11.07 Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes so to be
redeemed shall, on the Redemption Date, become due and payable at the Redemption
Price therein specified (together with accrued and unpaid interest, if any, to
the Redemption Date, subject to the delivery of all unmatured and matured but
unpaid Coupons), and from and after such date (unless the Company shall default
in the payment of the Redemption Price) such Notes shall cease to bear interest.
Upon surrender of any such Note for redemption in accordance with said Notice,
such Note shall be paid by the Company at the Redemption Price, together with
accrued interest, if any, to the Redemption Date, to the extent that all matured
and unpaid and unmatured Coupons, if any, are attached; provided, however, that
instalments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Notes, or one or more Predecessor
Notes, according to their terms.
If any Note called for redemption shall not be so paid upon surrender
by the Noteholder as prescribed hereunder thereof for redemption, the principal
shall, until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Notes. In the event that the Company shall default in making
payment in full in respect of any Note which shall have been called for
redemption prior to December 15, 2002, on the Redemption Dates the Conversion
Right attaching to such Note will continue to be exercisable (unless previously
exercised by the Trustee or the Company) up to, and including the close of
business (at the place where the Note is deposited in connection with the
exercise of the Conversion Right) on the date upon which the full amount of the
monies payable in respect of such Note has been duly received by the Trustee or
the Principal Paying Agent or, if earlier, December15, 2002.
SECTION 11.08 Surrender of Notes
Each Note should be presented for redemption together with all
unmatured Coupons relating to such Note, failing which the full amount of any
missing unmatured Coupon (or, in the case of payment not being made in full,
that proportion of the full amount of the missing unmatured Coupons which the
amount so paid bears to the total amount due) will be deducted from the amount
due for payment. Each amount so deducted will be paid in the manner mentioned
above against presentation and surrender (or, in the case of part payment only,
endorsement) of such missing Coupon at any time before the expiry of five (5)
years after the Relevant Date in respect of the relevant Note.
SECTION 11.09 Conversion on Redemption
(a) The Trustee may, at its absolute discretion (and without
any responsibility for any loss occasioned thereby), within the period
commencing on the date four (4) Business Days prior to, and ending at
the close of business on the Business Day prior to the Redemption Date,
of any of the Notes elect by Notice in writing to the Company to
convert as of such Redemption Date the aggregate number of Notes due
for conversion on such date any Unexercised Notes into Shares at the
Conversion Price applicable at such Redemption
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Date if all necessary consents (if any) have been obtained and the
Trustee is satisfied or is advised by a reputable independent
investment bank appointed by it that the net proceeds of an immediate
sale of the Shares arising from such conversion (disregarding any
liability (other than a liability of the Trustee) for taxation or the
payment of any capital, stamp, issue or registration duties consequent
thereon) would be likely to exceed by 5 percent or more the amount of
redemption monies and interest which would otherwise be payable in
respect of interest accrued and unpaid since the Interest Payment Date
immediately preceding such Redemption Date or if such date falls before
the first Interest Payment Date, since the Closing Date in respect of
such Unexercised Notes.
(b) Subject to applicable law, the Trustee shall arrange for
the sale on behalf of the Holders of the Unexercised Notes of the
Shares issued on such conversion as soon as practicable, and (subject
to any necessary consents being obtained and to the deduction by the
Trustee of any amount which it determines to be payable in respect of
its liability to taxation or the payment of any capital, stamp, issue
or registration duties (if any) and any costs incurred by the Trustee
in connection with that allotment and sale thereof) the net proceeds of
sale together with accrued and unpaid interest payable under Condition
8(B)(iv) of the Terms and Conditions of the Notes in respect of such
Unexercised Notes (if any) shall be held by the Trustee and distributed
by the Principal Paying Agent rateably to the Holders of such
Unexercised Notes against due presentation in accordance with Condition
7 of the Terms and Conditions of the Notes. The amount of such net
proceeds of sale shall be treated for all purposes as the full amount
due by the Company in respect of such Unexercised Notes.
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ARTICLE TWELVE
CONVERSION
SECTION 12.01 Conversion Right and Conversion Price.
(a) Subject to and upon compliance with the
provisions of this Article, at the option of the Noteholder, at any
time from and after the first Business Day following termination of the
Restricted Period and (i) up to the close of business on December122002
(but in no event thereafter), or (ii) if such Note shall have been
called for redemption pursuant to Article Eleven up to and including
two (2) Business Days prior to the Redemption Date any Note may be
converted at the principal amount thereof into fully paid and
non-assessable Conversion Shares at the Conversion Price.
(b) Notes voluntarily converted following the
Restricted Period but prior to December 15, 1998, will be converted at
a five percent (5%) discount from the then effective Conversion Price.
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(c) In the event the Company at any time and from
time to time after the Restricted Period issues shares of Common Stock
or Common Stock Equivalents at a price less than the then effective
Conversion Price, the Conversion Price shall be deemed adjusted to the
price at which such shares of Common Stock or Common Stock Equivalents
were issued and the Noteholders shall have the right and option to
convert their Notes at such price (the "Temporary Conversion Price")
into shares of Common Stock for a period of sixty (60) calendar days
following notice by the Company of any such Temporary Conversion Price;
provided, however, that the foregoing shall not apply to any issuances
(i) pursuant to the conversion or exercise of issued and outstanding
shares of Common Stock or Common Stock Equivalents; (ii) pursuant to
the Notes; (iii) pursuant to conversion of any currently outstanding
securities of the Company (including any warrants) or any Warrants
issued pursuant to the Offering; (iv) pursuant to any plan adopted by
the Company for the purchase of stock in connection with any employee
compensation or benefit plan of the Company or any of its Subsidiaries
whether now in effect or hereafter created or amended, including, but
not limited to, the Company's 1995 Stock Plan, 1994 Stock Option Plan,
1995 Director Option Plan and 1995 Employee Stock Purchase Plan; (v)
pursuant to any compensation arrangement approved by the Board of
Directors of the Company with any director, officer or employee or
proposed director, officer, or employee of the Company or any
Subsidiary; (vi) pursuant to the incurrence of any Senior Indebtedness
secured primarily by the assets of the Company or any of its
Subsidiaries; (vii) where the shares are issued for a consideration
other than cash (including in connection with an acquisition of assets,
stock or a business) and the Board of Directors of the Company
determines in good faith that such transaction is fair from a financial
point of view and is in the best interests of the Company; and ; (viii)
where the number of shares of Common Stock pursuant to such issuance
will not exceed two percent (2%) of the number of shares of Common
Stock into which the Notes are then convertible. During the Restricted
Period, the Company will not issue shares of Common Stock or Common
Stock Equivalents at less than the Conversion Price, except as provided
under (i) through (viii) above. Notice of any such issuance shall be
given by the Company in accordance with Section 1.08 of the Trust
Indenture (which notice shall be irrevocable) by publication in two (2)
Authorized Newspapers, one of which is required to be a general leading
newspaper in Luxembourg, which is expected to be the Luxembourg Wort.
Upon any such conversion of any Note by a Noteholder pursuant to the
foregoing, payment will be made for interest accrued during the period
from the most recent Interest Payment Date to the Conversion Date.
Immediately after expiration of such sixty (60) day period, the
Conversion Price shall be deemed reset to the Conversion Price as in
effect immediately prior to such issuance of Common Stock or Common
Stock Equivalents, subject to any adjustments that would otherwise have
been made in such Conversion Price pursuant to Condition 7(C) during
the effectiveness of such Temporary Conversion Price.
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(d) If any time on or after June 15, 1999, the Market
Price of the shares of Common Stock on each day in any thirty (30)
consecutive day period, the first day of which falls on or after May 9,
1999, is equal to or greater than 160% of the Conversion Price, the
Company may at its option cause the Notes to be converted, in whole or
in part, at their principal amount, into fully paid and non-assessable
Conversion Shares at the Conversion Price. Upon any such conversion,
payment will be made to each Noteholder for interest accrued during the
period from the most recent Interest Payment Date to the Conversion
Date.
(e) The Conversion Price shall be adjusted in certain
instances as provided in Section 12.04.
(f) Except as otherwise provided in Sections 12.01(c) and (d)
, a holder of shares of Common Stock issued on conversion of Notes
shall not be entitled to any rights for any Record Date which precedes
the relevant Conversion Date.
SECTION 12.02 Exercise of Conversion Right.
(a) In order to exercise the Conversion Right, the Noteholder
to be converted shall provide Notice to the Conversion Agent that it
intends to exercise its Conversion Right and shall surrender such
Bearer Note or Notes and all unmatured Coupons, including the one for
the next due interest payment, to the Conversion Agent at its corporate
trust offices, or such other office of any Conversion Agent as
published in the Authorized Newspapers from time to time, accompanied
by written Notice (as set forth in Exhibit D hereto) to the Conversion
Agent that the Noteholder elects to convert such Note. A Conversion
Notice once delivered shall be irrevocable.
(b) Bearer Notes shall be deemed to have been converted on the
Conversion Date, and at such time, except as provided in this Section
12.02 below, the rights of the Noteholders as Noteholders shall cease,
and the Person or Persons entitled to receive the Common Stock issuable
upon conversion shall be treated for all purposes as the record holder
or holders of such Common Stock at such time. As promptly as
practicable on or after the Conversion Date, the Company shall issue
and shall deliver through the Conversion Agent at the Conversion
Agent's office or agency a certificate or certificates for the number
of full shares of Common Stock issuable upon such conversion. The
Conversion Agent shall deliver the share certificate or certificates in
accordance with the instructions set forth in the Notice of exercise of
Conversion Rights.
(c) Except as otherwise provided in Sections 12.01(c) and (d),
if the Conversion Date is a date other than an Interest Payment Date
the Company shall not pay and the Noteholder shall not be entitled to
receive any interest accrued on the Notes from the last Interest
Payment Date prior to the Conversion Date.
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(d) Except as otherwise provided in Condition 8(B)(iv), no
Noteholder will be entitled upon conversion thereof to any payment or
adjustment on account of interest on the Notes or dividends on the
shares of Common Stock issued in connection therewith.
SECTION 12.03 Calculation of Shares Issued on Conversion and Fractions
of Shares.
The number of Shares to be issued on conversion of a Note will be
determined by dividing the principal amount of the Note to be converted by the
Conversion Price in effect on the Conversion Date, with the result being rounded
down to the nearest whole number. No cash in lieu of or fractional shares of
Common Stock shall be issued upon conversion of Notes. If more than one Note
shall be surrendered for conversion at one time by the same Noteholder, the
number of full Shares which shall be issuable upon conversion thereof shall be
computed on the basis of the aggregate principal amount of the Notes (or
specified portions thereof) so surrendered.
SECTION 12.04 Adjustment of Conversion Price.
(a) Dividends or Distributions of Common Stock. In case the
Company shall pay or make a dividend or other distribution on its
Common Stock exclusively in Common Stock or shall pay or make a
dividend or other distribution on any other class of capital stock of
the Company which dividend or distribution includes Common Stock, the
Conversion Price in effect at the opening of business on the day next
following the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution, such
reduction to become effective immediately after the opening of business
on the day next following the date fixed for such determination. For
the purposes of this Section 12.04(a), the number of shares of Common
Stock at any time outstanding shall not include shares held in the
treasury of the Company.
(b) Dividends or Distributions of Rights, Warrants or Options
to Purchase Common Stock. In case the Company shall pay or make a
dividend or other distribution on its Common Stock consisting
exclusively of, or shall otherwise issue to all holders of its Common
Stock, rights, warrants or options entitling the holders thereof to
subscribe for or purchase shares of Common Stock at a price per share
less than the Market Price per share (determined as provided in Section
12.04(g)) of the Common Stock on the date fixed for the determination
of stockholders entitled to receive such rights, warrants or options,
the Conversion Price in effect at the opening of business on the day
following the date fixed for such determination shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination plus the number of
shares of Common Stock which the aggregate of the offering price of the
total number of shares of
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Common Stock so offered for subscription or purchase would purchase at
such Market Price and the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for
such determination plus the number of shares of Common Stock so offered
for subscription or purchase, outstanding at the close of business on
the date fixed for such reduction to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this paragraph (b), the number of
shares of Common Stock at any time outstanding shall not include shares
held in the treasury of the Company. The Company shall not issue any
rights, warrants or options in respect of shares of Common Stock held
in the treasury of the Company.
(c) Dividends or Distributions in Cash. In case the Company
shall, by dividend or otherwise, make a distribution to all holders of
its Common Stock exclusively in cash in an aggregate amount that,
together with (i) the aggregate amount of any other distributions to
all holders of its Common Stock made exclusively in cash within the 12
months preceding the date of payment of such distribution and in
respect of which no Conversion Price adjustment pursuant to this
Section 12.04(c) has been made and (ii) the aggregate of any cash plus
the fair market value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a
resolution of the Company's Board of Directors), as of the expiration
of the tender or exchange offer referred to below, of consideration
payable in respect of any tender or exchange offer by the Company or a
Subsidiary for all or any portion of the Common Stock concluded within
the 12 months preceding the date of payment of such distribution and in
respect of which no Conversion Price adjustment pursuant to paragraph
(f) of this Section 12.04 has been made, exceeds five percent (5%) of
the product of the Market Price per share (determined as provided in
Section 12.04(g)) of the Common Stock on the date fixed for
stockholders entitled to receive such distribution times the number of
shares of Common Stock outstanding on such date, the Conversion Price
shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
effectiveness of the Conversion Price reduction contemplated by this
paragraph (c) by a fraction of which the numerator shall be the Market
Price per share (determined as provided Section 12.04(g)) of the Common
Stock on the date of such effectiveness less the amount of cash so
distributed applicable to one share of Common Stock and the denominator
shall be such Market Price per share of the Common Stock, such
reduction to become effective immediately prior to the opening of
business on the day following the date fixed for the payment of such
distribution.
(d) All Other Distributions or Dividends. Subject to the last
sentence of this paragraph (d), in case the Company shall, by dividend
or otherwise, distribute to all holders of its Common Stock evidences
of its indebtedness, shares of any class of capital stock, securities,
cash or property (excluding any rights, warrants or options referred to
in Section 12.04(b), any dividend or distribution paid exclusively in
cash and any dividend or distribution referred to in Section 12.04(a),
the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect
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immediately prior to the effectiveness of the Conversion Price
reduction contemplated by this paragraph (d) by a fraction of which the
numerator shall be the Market Price per share (determined as provided
in paragraph (g) of this Section) of the Common Stock on the date of
such effectiveness less the fair market value (as determined in good
faith by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Company's Board of
Directors and shall, in the case of securities being distributed for
which prior thereto there is an actual or when issued trading market,
be no less than the value determined by reference to the average of the
Market Price over the period specified in the succeeding sentence), on
the date of such effectiveness, of the portion of the evidences of
indebtedness, shares of capital stock, securities, cash and property so
distributed applicable to one share of Common Stock and the denominator
shall be such Market Price per share of the Common Stock, such
reduction to become effective immediately prior to the opening of
business on the day next following the date fixed for the payment of
such distribution (such date to being referred to as the "Reference
Date"). If the Board of Directors determines the fair market value of
any distribution for purposes of this paragraph (d) by reference to the
actual or when issued trading market for any securities comprising such
distribution, it must in doing so consider the prices in such market
over the same period used in computing the Market Price per share
pursuant to paragraph (g) of this Section. For purposes of this
paragraph (d), any dividend or distribution that includes shares of
Common Stock or rights, warrants or options to subscribe for or
purchase shares of Common Stock shall be deemed instead to be (i) a
dividend or distribution of the evidences of indebtedness, cash,
property, shares of capital stock or securities other than such shares
of Common Stock or such rights, warrants or options (making any
Conversion Price reduction required by this paragraph (d)) immediately
followed by (ii) a dividend or distribution of such shares of Common
Stock or such rights, warrants or options (making any further
Conversion Price reduction required by Section 12.04(a) or (b)), except
(i) the Reference Date of such dividend or distribution as defined in
this Section 12.04(d) shall be substituted as "the date fixed for the
determination of stockholders entitled to receive such dividend or
other distribution", "the date fixed for the determination of
stockholders entitled to receive such rights, warrants or options" and
"the date fixed for such determination" within the meaning of Section
12.04(a) and (b) and (ii) any shares of Common Stock included in such
dividend or distribution shall not be deemed "outstanding at the close
of business on the date fixed for such determination" within the
meaning of Section 12.04(a)).
(e) Subdivision of Common Stock. In case outstanding shares of
Common Stock shall be subdivided into a greater number of shares of
Common Stock, the Conversion Price in effect at the opening of business
on the day following the day upon which such subdivision becomes
effective shall be proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a
smaller number of shares of Common Stock, the Conversion Price in
effect at the opening of business on the day following the day upon
which such combination becomes effective shall be proportionately
increased, such reduction or increase, as the case may be, to become
effective immediately after the opening of business on the day
following the day upon which such subdivision or combination becomes
effective.
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(f) Tender or Exchange Offer for Common Stock. In case a
tender or exchange offer made by the Company or any Subsidiary for all
or any portion of the Common Stock shall expire and such tender or
exchange offer shall involve an aggregate consideration having a fair
market value (as determined in good faith by the Board of Directors,
whose determination shall be conclusive and described in a resolution
of the Company's Board of Directors) at the last time (the "Expiration
Time") tenders or exchanges may be made pursuant to such tender or
exchange offer (as it may be amended) that, together with (i) the
aggregate of the cash plus the fair market value (as determined in good
faith by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Company's Board of
Directors), as of the expiration of the other tender or exchange offer
referred to below, of consideration payable in respect of any other
tender or exchange offer by the Company or a Subsidiary for all or any
portion of the Common Stock concluded within the preceding 12 months
and in respect of which no Conversion Price adjustment pursuant to this
paragraph (f) has been made and (ii) the aggregate amount of any
distributions to all holders of the Common Stock made exclusively in
cash within the preceding 12 months and in respect of which no
Conversion Price adjustment pursuant to Section 12.04(e) has been made,
exceeds five percent (5%) of the product of the Market Price per share
(determined as provided in Section 12.04(g)) of the Common Stock on the
Expiration Time times the number of shares of Common Stock outstanding
(including any tendered shares) on the Expiration Time, the Conversion
Price shall be reduced (but not increased) so that the same shall equal
the price determined by multiplying the Conversion Price in effect
immediately prior to the Expiration Time by a fraction of which the
numerator shall be (i) the product of the Market Price per share
(determined as provided in Section 12.04(g)) of the Common Stock at the
Expiration Time times the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) at the Expiration Time
minus (ii) the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based on the acceptance
(up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not withdrawn as
of the Expiration Time (the shares deemed so accepted, up to any such
maximum, being referred to as the "Purchased Shares") and the
denominator shall be the product of (i) such Market Price per share at
the Expiration Time times (ii) such number of outstanding shares at the
Expiration Time less the number of Purchased Shares, such reduction to
become effective immediately prior to the opening of business on the
day following the Expiration Time.
(g) Determination of Market Price. For the purpose of any
computation of the Market Price under this paragraph (g) and Section
12.04(b), (d) and (e), (i) if the "ex" date (as hereinafter defined)
for any event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion Price
pursuant to paragraph (a), (b), (c), (d), (e) or (f) above ("Other
Event") occurs on or after the tenth Stock Exchange Business Day prior
to the date in question and prior to the "ex" date for the issuance or
distribution requiring such computation (the "Current Event"), the
closing price for each Stock Exchange Business Day prior to the "ex"
date for such Other Event shall be adjusted
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by multiplying such closing price by the same fraction by which the
Conversion Price is so required to be adjusted as a result of such
Other Event, (ii) if the "ex" date for any Other Event occurs after the
"ex" date for the Current Event and on or prior to the date in
question, the closing price for each Stock Exchange Business Day on and
after the "ex" date for such Other Event shall be adjusted by
multiplying such closing price by the reciprocal of the fraction by
which the Conversion Price is so required to be adjusted as a result of
such Other Event, (iii) if the "ex" date for any Other Event occurs on
the "ex" date for the Current Event, one of those events shall be
deemed for purposes of clauses (i) and (ii) of this proviso to have an
"ex" date occurring prior to the "ex" date for the other event, and
(iv) if the "ex" date for the Current Event is on or prior to the date
in question, after taking into account any adjustment required pursuant
to clause (ii) of this proviso, the closing price for each Stock
Exchange Business Day on or after such "ex" date shall be adjusted by
adding thereto the amount of any cash and the fair market value on the
date in question (as determined in good faith by the Board of Directors
in a manner consistent with any determination of such value for
purposes of this Section 12.04(c) or (d), whose determination shall be
conclusive and described in a resolution of the Company's Board of
Directors) of the portion of the rights, warrants, options, evidences
of indebtedness, shares of capital stock, securities, cash or property
being distributed applicable to one share of Common Stock. For the
purpose of any computation under Section 12.04(f), the Market Price per
share of Common Stock on any date in question shall be deemed to be the
Market Price on the date selected by the Company commencing on or after
the latest (the "Commencement Date") of (i) the date 20 Stock Exchange
Business Days before the date in question, (ii) the date of
commencement of the tender or exchange offer requiring such computation
and (iii) the date of the last amendment, if any, of such tender or
exchange offer involving a change in the maximum number of shares for
which tenders are sought or a change in the consideration offered, and
ending not later than the date of the Expiration Time of such tender or
exchange offer (or, if such Expiration Time occurs before the close of
trading on a Stock Exchange Business Day, not later than the Stock
Exchange Business Day immediately preceding the date of such Expiration
Time); provided, however, that if the "ex" date for any Other Event
(other than the tender or exchange offer requiring such computation)
occurs on or after the Commencement Date and on or prior to the date of
the Expiration Time for the tender or exchange offer requiring such
computation, the closing price for each Stock Exchange Business Day
prior to the "ex" date for such Other Event shall be adjusted by
multiplying such closing price by the same fraction by which the
Conversion Price is so required to be adjusted as a result of such
other event. For purposes of this paragraph, the term "ex" date, (i)
when used with respect to any issuance or distribution, means the first
date on which the Common Stock trades regular way on the relevant
exchange or in the relevant market from which the closing price was
obtained without the right to receive such issuance or distribution,
(ii) when used with respect to any subdivision or combination of shares
of Common Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time at which
such subdivision or combination becomes effective, and (iii) when used
with respect to any tender or exchange offer means the first date on
which the Common Stock trades
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regular way on such exchange or in such market after the Expiration
Time of such tender or exchange offer.
(h) Further Reductions for Federal Income Tax. The Company may
make such reductions in the Conversion Price, in addition to those
required by Section 12.04 (a), (b), (c), (d), (e) and (f), as it
considers to be advisable in order that any event treated for Federal
income tax purposes as a dividend of stock or stock rights shall not be
taxable to the recipients.
(i) Adjustments to be Carried Forward. No adjustment in the
Conversion Price shall be required unless such adjustment would require
an increase or decrease of at least five percent (5%) in the Conversion
Price; provided, however, that any adjustments which by reason of this
paragraph (i) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
SECTION 12.05 Notice of Adjustments of Conversion Price
Whenever the Conversion Price is adjusted as herein provided the
Company shall compute the adjusted Conversion Price in accordance with Section
12.04 and shall prepare a certificate signed by the Chief Financial Officer of
the Company setting forth the adjusted Conversion Price and showing in
reasonable detail the facts upon which such adjustment is based, and such
certificate shall forthwith be delivered to the Trustee, the Paying Agent and
the Conversion Agent, and the Company shall cause Notice thereof to be published
in accordance with Section 1.08 within ten (10) Business Days of the effective
date of such adjustment.
SECTION 12.06 Notice of Certain Corporate Action
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable (i) otherwise than
exclusively in cash or (ii) exclusively in cash in an amount that would
require a Conversion Price adjustment pursuant to Section 12.04(c); or
(b) the Company shall authorize the granting to the holders of
its Common Stock of rights, warrants or options to subscribe for or
purchase any shares of capital stock of any class or of any other
rights (excluding employee stock options); or
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding shares of
Common Stock), or of any consolidation or merger to which the Company
is a party and for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all of the
assets of the Company; or
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(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(e) the Company or any Subsidiary of the Company shall
commence a tender or exchange offer for all or a portion of the
Company's outstanding shares of Common Stock (or shall amend any such
tender or exchange offer);
then the Company shall cause to be mailed to the Trustee, the Paying Agent and
the Conversion Agent and to be published in the manner provided under Section
1.08 hereof within ten (10) Business Days after the date on which Notice is sent
to the holders of the Company's Common Stock, a Notice stating (i) the date on
which a record is to be taken for the purpose of such dividend, distribution or
granting of rights, warrants or options, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled to such
dividend, distribution, rights, warrants or options are to be determined, or
(ii) the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such re-classification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up,
or (iii) the date on which such tender offer commenced, the date on which such
tender offer is scheduled to expire unless extended, the consideration offered
and the other material terms thereof (or the material terms of any amendment
thereto).
SECTION 12.07 Company to Reserve Common Stock.
The Company shall at all times reserve and keep available, free from
pre-emptive or similar rights, out of its authorized but unissued Common Stock,
solely for the purpose of effecting the conversion of Notes, the whole number of
Shares then issuable upon the conversion in full of all Outstanding Notes.
SECTION 12.08 Taxes on Conversions.
The Company will pay any and all taxes that may be payable in respect
of the issue or delivery of Shares on conversion of Notes pursuant hereto. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of Shares in a name
other than that of the Holder of the Notes to be converted, and no such issue or
delivery shall be made unless and until the Person requesting such issue has
paid to the Company the amount of any such tax, or has established to the
satisfaction of the Company that such tax has been paid.
SECTION 12.09 Cancellation of Converted Bearer Notes
All Notes delivered for conversion to the Conversion Agent shall be
cancelled by the Company, and shall not under any circumstances be reissued.
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SECTION 12.10 Provisions in Case of Reclassification Consolidation,
Merger or Sale of Assets
In the event that the Company shall be a party to any transaction,
including without limitation any (i) recapitalization or reclassification of the
Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination of the Common Stock), (ii) any consolidation of the Company with, or
merger of the Company into, any other person, any merger of another person into
the Company (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of all of the outstanding shares of Common
Stock of the Company), (iii) any sale or transfer of all or substantially all of
the assets of the Company, or (iv) any compulsory share exchange pursuant to
which the Common Stock is converted into the right to receive other securities,
cash or other property, then lawful provision shall be made as part of the terms
of such transaction whereby the Holder of each Note then outstanding shall have
the right thereafter to convert such Note only into the kind of common stock
receivable upon such transaction by a holder of Common Stock (at an adjusted
Conversion Price equal to (a) the Conversion Price determined pursuant to
Section 12.04 as though all such securities, cash or property (other than common
stock) had been distributed in a dividend covered by Section 12.04(d) with an
"ex" date on the date of such transaction divided by (b) the number of shares
(or fraction thereof) of common stock receivable upon such transaction in
respect of each share of Common Stock). The Person formed by such consolidation
or resulting from such merger or which acquired such assets or which acquired
the Company's Shares, as the case may be, shall execute and deliver to the
Trustee on behalf of each of the Noteholders an amendment to this Indenture as
provided for under Article Nine. Such amendment shall provide for adjustments
which, for events subsequent to the effective date of such amendment, shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Article and shall provide for the assumption by such other Person, if any,
of the Company's obligations under this Indenture and the Notes. The above
provisions of this Section 12.10 shall similarly apply to successive
transactions of the foregoing type.
The Trustee shall not have any duty to determine when any adjustment
provided for in this Article should be made, the manner in which any such
adjustment should be made or what any such adjustment should be.
SECTION 12.11 Proposed Amendments to Regulation S
Notwithstanding anything contained herein to the contrary, in the event
that Regulation S is amended to require a lengthening of the Restricted Period
for securities sold under Regulation S and such amendments are deemed applicable
to the Notes, the Notes may not be converted prior to the earlier of (i) the end
of the new Restricted Period, as so required by such amendments or (ii) the
registration of the Shares by the Company as described below. If the Restricted
Period has been lengthened because such amendments have been adopted and are
deemed applicable to the Notes, the Company will register the issuance or resale
of the Shares issuable upon conversion of the Notes under the Securities Act as
soon as practicable after the Company is eligible to use the Form S-3 for such
registration (which is expected to be on or about February 7,
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1998) and maintain the effectiveness of a registration statement with the
Commission on an appropriate form covering such Shares until such time as an
exemption from registration is available for the resale of such Shares.
In the event that any amendments to Regulation S are deemed to be
applicable to the Notes, Notice of such amendments will be given to the
Luxembourg Stock Exchange and to the Noteholders by publication in two
Authorized Newspapers in accordance with Section 1.08.
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 13.01 Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 13.02 or Section 13.03 be
applied to all Outstanding Notes upon compliance with the conditions set forth
below in this Article. The Company shall promptly give Notice of such election
to the Trustee.
SECTION 13.02 Legal Defeasance and Discharge.
Upon the Company's exercise under Section 13.01 of the option
applicable to this Section 13.02, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Notes on the
date the conditions set forth in Section 13.04 are satisfied (hereinafter,
"legal defeasance"). For this purpose, such legal defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Notes, which shall thereafter be deemed to be
"Outstanding" only for the purposes of Section 13.05 and the other Sections of
this Indenture referred to in (A) and (B) below, and to have satisfied all its
obligations under such Notes, including the obligation to pay interest on the
Notes, and this Indenture insofar as such Notes are concerned (and the Trustee,
at the expense of the Company, shall execute proper instruments acknowledging
the same), except for the following which shall survive until otherwise
terminated or discharged hereunder: (A) the rights of Holders of Outstanding
Notes to receive, solely from the trust fund described in Section 13.04 and as
more fully set forth in such Section, payments in respect of the principal of
and interest on such Notes when such payments are due, (B) the Company's
obligations with respect to such Notes under Sections 3.04, 3.05, 3.08, 10.02
and 10.03 and with respect to the Trustee under Section 6.06, (C) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and (D) this
Article. Subject to compliance with this Article, the Company may exercise its
option under this Section 13.02 notwithstanding the prior exercise of its option
under Section 13.03 with respect to the Notes.
SECTION 13.03 Covenant Defeasance.
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Upon the Company's exercise under Section 13.01 of the option
applicable to this Section 13.03, the Company shall be released from its
obligations under any covenant contained in Sections 10.04 through 10.14 with
respect to the Outstanding Notes on and after the date the conditions set forth
in Section 13.04 are satisfied (hereinafter, "covenant defeasance"), and the
Notes shall thereafter be deemed not to be "Outstanding" for the purposes of any
request, demand, authorization, direction, declaration, Notice, consent, waiver
or Act of Noteholders (and the consequences of any thereof) in connection with
such covenants, but shall continue to be deemed "Outstanding" for all other
purposes hereunder. For this purpose, such covenant defeasance means that, with
respect to the Outstanding Notes, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 5.01(d), but, except as specified above, the remainder of this Indenture
and such Notes shall be unaffected thereby.
SECTION 13.04 Conditions to Legal Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
13.02 or Section 13.03 to the Outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 6.07 who shall agree to comply with the
provisions of this Article applicable to it) as trust funds in trust
for the purpose of making the following payments, specifically pledged
as security for, and dedicated solely to, the benefit of the Holders of
such Notes, (A) money in an amount, or (B) U.S. Government Obligations
which through the scheduled payment of principal and interest in
respect thereof in accordance with their terms will provide, not later
than one day before the due date of any payment, money in an amount, or
(C) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge, and which shall be applied by the Trustee (or other
qualifying trustee) to pay and discharge, the principal of and interest
on the Outstanding Notes on the Stated Maturity (or Redemption Date, if
applicable) of such principal or instalment of interest; provided that
the Trustee shall have been irrevocably instructed to apply such money
or the proceeds of such U.S. Government Obligations to said payments
with respect to the Notes; and provided further that, upon the
effectiveness of this Section 13.04, the money or U.S. Government
Obligations deposited shall not be subject to the rights of the
Noteholders pursuant to the provisions of this Article. Before or after
such a deposit, the Company may give to the Trustee, in accordance with
Section 11.03 hereof, a Notice of its election to redeem all of the
Outstanding Notes at a future date in accordance with Article Eleven
hereof, which Notice shall be irrevocable. Such irrevocable redemption
Notice, if given, shall be given effect in applying the foregoing.
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(b) No Default or Event of Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit or,
insofar as paragraphs (f) and (g) of Section 5.01 hereof are concerned,
at any time during the period ending on the 91st day after the date of
such deposit (it being understood that this condition shall not be
deemed satisfied until the expiration of such period).
(c) No event or condition shall exist that pursuant to the
provisions of Section 13.02 or 13.03 would prevent the Company from
making payments of the principal of or interest on the Notes on the
date of such deposit or at any time during the period ending on the
91st day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such
period).
(d) Such legal defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a default under any
material agreement or instrument to which the Company is a party or by
which it is bound.
(e) In the case of an election under Section 13.02, the
Company shall have delivered to the Trustee an Opinion of Counsel
stating that the Holders of the Outstanding Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of
such defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred.
(f) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the legal
defeasance under Section 13.02 or the covenant defeasance under Section
13.03 (as the case may be) have been complied with.
SECTION 13.05 Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 10.03, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee) (collectively for purposes of
this Section 13.05, the "Trustee") pursuant to Section 13.04 in respect of the
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal and interest, but
such money and U.S. Government Obligations need not be segregated from other
funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section
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13.04 or the principal and interest received in respect thereof other than any
such tax, fee or other charge which by law is for the account of the Holders of
the Outstanding Notes.
Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or U.S. Government Obligations held by it as provided in Section 13.04
which, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, are in excess of the amount thereof which would then be required to be
deposited to effect an equivalent legal defeasance or covenant defeasance, as
applicable, in accordance with this Article.
SECTION 13.06 Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 13.05 by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Company's obligations under
this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 13.02 or 13.03, as the case may be,
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with Section 13.05; provided,
however, that no action taken in good faith by the Company after a deposit of
money or U.S. Government Obligations or both pursuant to Section 13.05 and prior
to the revival and reinstatement of obligations under this Indenture and the
Notes pursuant to this Section 13.06 shall constitute the basis for the
assertion of an Event of Default pursuant to Section 5.01; and provided,
further, that if the Company makes any payment of principal of or interest on
any Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Obligations held by the Trustee or Paying
Agent.
ARTICLE FOURTEEN
SENIORITY OF NOTES
SECTION 14.01 Seniority of the Notes.
The Company's obligations under the Notes and the Coupons and hereunder
do and will rank at all times at least pari passu with all other present and
future Senior Indebtedness of the Company, except to the extent of any
collateral securing such Senior Indebtedness, and shall be superior in rank to
all existing and future Subordinated Obligations. The Company covenants and
agrees that, except with respect to any Lien, the Indebtedness represented by
the Notes and the Coupons and the payment of the principal of and interest on
each and all of the Notes and Coupons are hereby expressly made pari passu to
all other present and future Senior Indebtedness.
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ARTICLE FIFTEEN
IMMUNITY OF INCORPORATORS,
STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 15.01 Liability Solely Corporate.
No recourse shall be had for the payment of the principal of or
interest on any Notes or any part thereof, or for any claim based thereon or
otherwise in respect thereof, or of the indebtedness represented thereby, or
upon any obligation, covenant or agreement of this Indenture, against any
incorporator, or against any stockholder, officer or director, as such, past,
present or future, of the Company, or of any predecessor or successor Person,
either directly or through the Company or any such predecessor or successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, it being expressly agreed
and understood that this Indenture and all the Notes are solely corporate
obligations, and that no personal liability whatsoever shall attach to, or be
insured by, any such incorporator, stockholder, officer or director, as such,
past, present or future, of the Company or of any predecessor or successor
Person, either directly or through the Company or any such predecessor or
successor Person, because of the indebtedness hereby authorized or under or by
reason of any of the obligations, covenants, promises or agreements contained in
this Indenture or in any of the Notes or to be implied herefrom or therefrom;
and that any such personal liability is hereby expressly waived and released as
a condition of, and as part of the consideration for, the execution of this
Indenture and the issue of the Notes; provided, however, that nothing herein or
in the Notes contained shall be taken to prevent recourse to and the enforcement
of the liability, if any, of any stockholder or subscriber to capital stock of
the Company upon or in respect of shares of capital stock not fully paid up.
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
MULTIMEDIA ACCESS CORPORATION
By:
Name:
Title:
MARINE MIDLAND BANK,
as Trustee
By:
Name:
Title:
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THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY OTHER FEDERAL OR STATE
SECURITIES OR BLUE SKY LAWS, AND HAVE BEEN ISSUED IN A MANNER INTENDED TO COMPLY
WITH THE CONDITIONS CONTAINED IN REGULATION S UNDER THE ACT. PRIOR TO THE END OF
THE RESTRICTED PERIOD (AS DEFINED HEREIN), NO OFFER, SALE, TRANSFER, PLEDGE OR
OTHER DISPOSITION (COLLECTIVELY, A "DISPOSAL") OF THE WARRANTS REPRESENTED BY
THIS CERTIFICATE MAY BE MADE (A) IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT
OR BENEFIT OF, ANY "U.S. PERSON" (AS DEFINED IN REGULATION S) UNLESS (I) SUCH
WARRANTS ARE REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES OR
BLUE SKY LAWS OR (II) MULTIMEDIA ACCESS CORPORATION (THE "COMPANY") RECEIVES A
WRITTEN OPINION OF UNITED STATES LEGAL COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO IT TO THE EFFECT THAT SUCH DISPOSAL IS EXEMPT FROM SUCH
REGISTRATION REQUIREMENTS OR (B) OUTSIDE THE UNITED STATES TO, OR FOR THE
ACCOUNT OR BENEFIT OF, ANY PERSON WHO IS NOT A "U.S. PERSON" UNLESS PRIOR TO
SUCH DISPOSAL (I) THE BENEFICIAL OWNER OF SUCH SHARES AND THE PROPOSED
TRANSFEREE SUBMIT CERTAIN CERTIFICATIONS TO THE COMPANY (FORMS OF WHICH ARE
AVAILABLE FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICES) AND (II) THE
COMPANY RECEIVES THE LEGAL OPINION DESCRIBED IN (A)(II) ABOVE.
No. A-001
WARRANTS TO PURCHASE
COMMON STOCK OF MULTIMEDIA ACCESS CORPORATION
Initial Issuance on December 9, 1997
Void after 5:00 p.m. New York Time, December 9, 2002
THIS CERTIFIES THAT, for value received, RAUSCHER PIERCE & CLARK (GUERNSEY)
LIMITED or registered assigns (the "Holder") is the registered holder of
warrants (the "Warrants") to purchase from Multimedia Access Corporation, a
Delaware corporation (the "Company"), at any time or from time to time beginning
on December 9, 1998 and until 5:00 p.m., New York time, on December 9, 2002 (the
"Expiration Date"), subject to the conditions set forth herein, at the initial
exercise price of $4.625 per share (the "Initial Exercise Price"), subject to
adjustment as set forth herein (the "Exercise Price"), up to an aggregate of
eighty-six thousand four hundred eighty-six (86,486) fully paid and
non-assessable common shares, par value $.0001 per share (the "Common Stock"),
of the Company (the "Shares") upon surrender of this certificate (the
"Certificate") and payment of the Exercise Price multiplied by
1
<PAGE>
the number of Shares being purchased at the principal office of the Company
presently located at 2665 Villa Creek Drive, Suite 200, Dallas, Texas 75234,
United States of America.
2
<PAGE>
1. Exercise of Warrants.
(a) The exercise of any Warrants represented by this
Certificate is subject to the conditions set forth below in paragraph 4,
"Compliance with U.S. Securities Laws."
(b) Subject to compliance with all of the conditions
set forth herein,the Holder shall have the right to purchase from the Company
the number of Shares which the Holder may at the time be entitled to purchase
pursuant hereto, upon surrender of this Certificate to the Company at its
principal office, together with the form of election to purchase attached hereto
duly completed and signed, and upon payment to the Company of the Exercise Price
multiplied by the number of Shares in respect of which Warrants are then
exercised.
(c) No Warrant may be exercised after 5:00 p.m., New
York time, on the Expiration Date, after which time all Warrants evidenced
hereby shall be void, unless exercised prior thereto.
(d) Payment of the Exercise Price multiplied by the
number of Shares in respect of which Warrants are exercised shall be made in
cash by wire transfer of immediately available funds or by certified check or
banker's draft payable to the order of the Company, or any combination of the
foregoing.
(e) The Warrants represented by this Certificate are
exercisable at the option of the Holder, in whole or in part (but not as to
fractional Shares). Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the Holder a new
certificate of like tenor representing such number of unexercised Warrants.
(f) Upon surrender of this Certificate to the Company
at its principal office and upon payment of the Exercise Price multiplied by the
number of Shares in respect of which Warrants are then exercised, the Company
shall cause to be delivered promptly to or upon the written order of the Holder
and in such name or names as the Holder may designate, a share certificate or
share certificates for the number of whole Shares purchased upon the exercise of
the Warrants. Such share certificate or share certificates representing the
Shares shall be free of any restrictive legend. The Company shall ensure that no
"stop transfer" or similar instruction or order with respect to the Shares
purchased upon exercise of the Warrants shall be in effect at Continental Stock
Transfer & Trust Company, or any successor transfer agent for the
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Common Stockof the Company (the "Transfer Agent").
2. Elimination of Fractional Interests. The Company shall not be
required to issue share certificates representing fractions of Shares and shall
not be required to issue scrip
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or pay cash in lieu of fractional interests. All fractional interests shall be
eliminated by rounding any fraction to the nearest whole number of Shares.
3. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the issuance and delivery of the Shares upon the
exercise of the Warrants; provided, however, that the Company shall not be
required to pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any Warrant or any Shares in any name
other than that of the Holder, which transfer taxes shall be paid by the Holder.
4. Compliance with U.S. Securities Laws. The Warrants and the Shares
issuable upon the exercise of the Warrants have not been registered under the
United States Securities Act of 1933, as amended (the "Securities Act"), or any
other federal or state securities or blue sky laws, and the Warrants may not be
exercised within the United States or by, or on behalf of, any "U.S. person" (as
defined in Regulation S under the Securities Act) unless the Warrants and the
Shares have been registered under the Securities Act and any applicable state
securities or blue sky laws or exemptions from the registration requirements
under the Securities Act and any applicable state securities or blue sky laws
are available. Accordingly, prior to the end of the Restricted Period (as
defined below), (i) the Warrants may not be exercised within the United States
and any Shares issuable upon the exercise thereof may not be delivered within
the United States except in circumstances constituting an "offshore transaction"
(as defined in Regulation S under the Securities Act) and otherwise complying
with Regulation S, or unless such Shares have been registered under the
Securities Act and any applicable state securities or blue sky laws or
exemptions from the registration requirements under the Securities Act and any
applicable state securities or blue sky laws are available, and (ii) it is a
condition to the exercise of the Warrants that the exercising Holder must
deliver to the Company (A) a written certification that such Holder is not a
"U.S. person" (as defined in Regulation S under the Securities Act) and that the
Warrants are not being exercised on behalf of, or for the account or benefit of,
a "U.S. person" (as defined in Regulation S under the Securities Act), or (B) a
written opinion of United States legal counsel, in form and substance
satisfactory to the Company, to the effect that the Warrants and the Shares have
been registered under the Securities Act and any applicable state securities or
blue sky laws or are exempt from the registration requirements under the
Securities Act and any applicable state securities or blue sky laws. "Restricted
Period" means the period commencing on the date hereof and continuing for a
period of 40 days, it being understood that (i) in the event Regulation S under
the Securities Act is amended and such amendment is deemed applicable to the
Warrants, the term "Restricted Period" with respect to the Warrants and the
Shares shall be subject to extension as then required by Regulation S as
amended, and (ii) in the event additional Notes are issued pursuant to the Trust
Indenture (as defined herein), the term
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"Restricted Period" with respect to the Warrant and the Shares shall be extended
for a period of forty (40) days after such additional issuance.
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5. Transfer of Warrants.
(a) The Warrants shall be transferable only on the
books of the Company maintained at the Company's principal office upon delivery
of this Certificate with the form of assignment attached hereto duly completed
and signed by the Holder or by its duly authorized attorney or representative,
or accompanied by proper evidence of succession, assignment or authority to
transfer. The Company may, in its discretion, require, as a condition to any
transfer of Warrants, a signature guarantee, which may be provided by a
commercial bank or trust company, by a broker or dealer which is a member of the
National Association of Securities Dealers, Inc., or by a member of a national
securities exchange, The Securities and Futures Authority Limited in the United
Kingdom, or The International Stock Exchange in London, England. Upon any
registration of transfer, the Company shall deliver a new warrant certificate or
warrant certificates of like tenor and evidencing in the aggregate a like number
of Warrants to the person entitled thereto in exchange for this Certificate,
subject to the limitations provided herein, without any charge except for any
tax or other governmental charge imposed in connection therewith.
(b) Subject to the restriction specified on the first
page of this Certificate, the Warrants may be transferred only to: (i) any
corporation, partnership, joint venture or other entity which is a successor by
merger or consolidation to Rauscher Pierce & Clark (Guernsey) Limited, Rauscher
Pierce & Clark, Inc. and Rauscher Pierce & Clark Limited (collectively the
"Permitted Transferees") or the Holder; (ii) any purchaser of substantially all
of the assets of any of the Permitted Transferees or the Holder; (iii) any
officer, director, employee or agent of any of the Permitted Transferees or the
Holder; or (iv) any of the stockholders of any of the Permitted Transferees, or
the stockholders or partners of their respective transferees, but only in the
event of the liquidation, dissolution or winding up of any Permitted Transferee.
(c) Notwithstanding anything in this Certificate to
the contrary, neither any of the Warrants nor any of the Shares issuable upon
exercise of any of the Warrants shall be transferable, except upon compliance by
the Holder with any applicable provisions of the Securities Act and any
applicable state securities or blue sky laws.
6. Exchange and Replacement of Warrant Certificates; Loss or Mutilation
of Warrant Certificates.
(a) This Certificate is exchangeable without expense,
upon the
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surrender hereof by the Holder at the principal office of the Company,
for a new warrant certificate of like tenor and date representing in the
aggregate the right to purchase the same number of Shares in such denominations
as shall be designated by the Holder at the time of such surrender.
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(b) Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Certificate and, in case of such loss, theft, destruction or mutilation of
an indemnity from the Holder satisfactory to it, and reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of this Certificate, if mutilated, the Company will make and
deliver a new warrant certificate of like tenor, in lieu thereof.
7. Initial Exercise Price; Adjustment of Exercise Price and Number of
Shares.
(a) Initial Exercise Price. The Warrants are
exercisable at the Initial Exercise Price per Share, subject to adjustment from
time to time as provided herein.
(b) Adjustment to Initial Exercise Price. The Initial
Exercise Price per Share shall be adjusted in the event(s) that there occurs a
reduction in the Conversion Price under the terms of the 8% Senior Convertible
Notes Due 2002 (the "Notes") issued by the Company pursuant to that certain
Trust Indenture dated as of December 1, 1997 (the "Trust Indenture") between the
Company and Marine Midland Bank, as trustee, to the effect that the Initial
Exercise Price hereunder shall be equivalent to the Conversion Price as the same
may be adjusted upon the occurrence of certain events which are set forth in the
Terms and Conditions of the Notes; provided, that in the event that none of the
Notes shall remain outstanding at any time during the term hereof, the
Conversion Price shall continue to be adjusted from time to time in accordance
with the Terms and Conditions of the Notes as if such Notes remained outstanding
and provided, further, that if a Temporary Conversion Price is in effect at any
time under the Indenture, the Holder hereof shall have the right and option to
notify the Company in writing that it elects to adjust the Exercise Price to
such Temporary Conversion Price, whereupon this Warrant will not be exercisable
for a period of one (1) year thereafter, it being understood that the Holder
shall be entitled to give the Company only one such notice during the term of
this Warrant and that, in no event, shall either the Warrants otherwise be
subject to adjustment for a Temporary Conversion Price nor shall the term of
this Warrant ever be deemed extended by virtue of the foregoing. Defined terms
used under this Section 73(b) unless otherwise stated shall have the meanings as
set forth in the Trust Indenture.
8. Registration Rights.
(a) Piggyback Registration. If, at any time during
the five (5) years beginning on the initial issuance date of the Warrants
represented by this Certificate, the Company proposes to prepare and file any
new registration statement under the Securities Act covering the public sale of
Common Stock of the Company for cash (in any case, other than in
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<PAGE>
connection with an employee benefit plan, a dividend reinvestment plan or
pursuant to a registration statement Form S-8 or any successor form)
(collectively, a "Registration Statement"), it will give written notice by
certified or registered mail, at least thirty (30) days prior to the filing of
each such Registration Statement, to the Holder of its intention to do so. If
the Holder notifies the Company within fifteen (15) days after receipt of any
such notice of such Holder's desire to include in such proposed Registration
Statement any shares of Common Stock (i) issued or issuable to the Holder upon
exercise of the Holder's Warrants, and (ii) that are owned by the Holder (the
"Registrable Shares") (which notice shall specify the number of Registrable
Shares owned by the Holder, the number intended to be disposed of by the Holder
and the intended method of disposition of such Registrable Shares), the Company
shall use reasonable efforts to include, to the extent possible, in such
Registration Statement the number of Registrable Shares which the Company has
been so requested to register by the Holder, at the Company's sole cost and
expense and at no cost or expense to the Holder, except that the Holder shall
pay (i) all underwriters', broker-dealers', placement agents' and similar
selling discounts, commissions and fees relating to the Holder's Registrable
Shares, (ii) all registration and filing fees imposed under the Securities Act,
by any stock exchange or under applicable state securities or blue sky laws
based on the Holder's Registrable Shares, (iii) all transfer, franchise, capital
stock and other taxes, if any, applicable to the Holder's Registrable Shares,
and (iv) any costs and expenses of legal counsel, accountants or other advisors
retained by the Holder (collectively, the "Holder's Expenses"), all of which
shall be paid by the Holder; provided, that:
(i) anything in this Section 8 to the contrary
notwithstanding, if the Company's securities so
registered for sale are to be distributed in an
underwritten offering and the managing underwriter shall
advise the Company in writing that, in its opinion, the
amount of securities to be offered should be limited in
order to assure a successful offering, the amount of
Registrable Shares to be included in such Registration
Statement shall be so limited and shall be allocated
among the persons selling such securities in the
following order of priority: (A) first to be registered
will be the securities the Company proposes to sell, (B)
next to be registered will be the securities subject to
any demand or other piggyback registration rights granted
by the Company before the initial issuance date of the
Warrants, and (C) next to be registered will be the
Registrable Shares and any other shares of Common Stock
subject to similar piggyback registration rights granted
by the Company as of the initial issuance date of the
Warrants in proportion, as nearly as practicable, to the
number of shares of Common Stock desired and eligible to
be sold by each holder of such shares of Common Stock;
and
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(ii) anything in this Section 8 to the
contrary notwithstanding, the Company shall not be
required to include any of the Holder's Registrable
Shares in a registration statement if in the written
opinion of legal counsel to the Company the securities
for which registration is requested may be sold publicly
without registration under the Securities Act; and
(iii) if the securities or blue sky laws
of any jurisdiction in which the securities so registered
are proposed to be offered would require the Holder's
payment of greater registration expenses than those
otherwise required by this Section 8 and if the Company
shall determine, in good faith, that the offering of such
securities in such jurisdiction is necessary for the
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<PAGE>
successful consummation of the registered offering, then
the Holder shall either agree to pay the portion of the
registration expenses required by the securities or blue
sky laws of such jurisdiction to be paid by the Holder or
withdraw his request for inclusion of his Registrable
Shares in such registration; and
(iv) notwithstanding the provisions of
this Section 8(a), the Company shall have the right at
any time and for any reason or for no reason after it
shall have given written notice pursuant to this Section
(irrespective of whether a written request for inclusion
of any such securities shall have been made) to elect not
to file any such proposed Registration Statement, or to
withdraw the same after the filing but prior to the
effective date thereof and, thereupon, shall be relieved
from its obligation to proceed with such registration.
If the Holder's Registrable Shares are included
in the Registration Statement, the Holder shall furnish the Company in writing
with such appropriate information in connection with the sale of such Shares,
including, without limitation, information about the Holder, the Registrable
Shares, other securities of the Company owned by the Holder, and the plan of
distribution, as the Company shall reasonably request or as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Agreement. In addition, if the offering is underwritten, the
Company shall have the exclusive right to select the underwriter. The Holder
shall execute and deliver all documents reasonably requested by the underwriter
and any other documents customary in similar offerings, including, without
limitation, underwriting agreements, custody agreements, powers of attorney,
indemnification agreements, and agreements restricting other sales of
securities.
The rights and obligations under Sections 8(a)
and (b) shall terminate at the earlier of (i) five (5) years after the initial
issuance date of the Warrants, or (ii) the date all of the Holder's Registrable
Shares have been transferred by the Holder, except for transfers in accordance
with Section 5(b) above.
(b) Covenants of the Company With Respect to
Registration. The Company covenants and agrees as follows:
(i) The Company shall pay all costs, fees and expenses
in connection with all Registration Statements filed
pursuant to Section 8(a) including, without limitation,
the Company's legal and accounting fees, printing
expenses, filing
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fees and other expenses, except that the Holder shall pay
all of the Holder's Expenses (as defined in Section
8(a)).
(ii) The Company will use its reasonable efforts to
qualify or register the Registrable Shares included in a
Registration Statement for offering and sale under the
securities or blue sky laws of such states of the
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United States as are reasonably requested by the Holder;
provided, however, that the Company shall not be required
to (i) qualify or register the Registrable Shares in any
jurisdiction in which the Company would be required to
qualify as a broker or dealer in securities under the
securities or blue sky laws of such jurisdictions, (ii)
qualify generally to do business as a foreign corporation
in any jurisdiction wherein it is not already so
qualified, (iii) subject itself to taxation in any such
jurisdiction, or (iv) consent to general service of
process in any such jurisdiction.
(c) Indemnification.
(i) To the extent permitted by law, the
Company shall indemnify and hold harmless each Holder of
the Registrable Shares to be sold pursuant to any
Registration Statement (such Holder being hereinafter
referred to as a "Distributing Holder"), each underwriter
(an "Underwriter") and each person, if any, who controls
such Distributing Holder or Underwriter within the
meaning of Section 15 of the Securities Act and each
director of such Distributing Holder and Underwriter,
against all loss, claim, damage, expense or liability (or
actions in respect thereof) to which any of them may
become subject under the Securities Act or otherwise,
arising out of or based upon any untrue statement or
alleged untrue statement of any material fact contained
in any such Registration Statement or any preliminary
prospectus or final prospectus constituting part thereof
or any amendments or supplements thereto, or arising out
of or based upon the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances under which they were made,
not misleading, and will reimburse the Distributing
Holder and Underwriter and each such controlling person
and director of the Distributing Holder and Underwriter
for any legal or other expenses reasonably incurred by
any of them in connection with investigating or defending
any such loss, claim, damage, liability or action as such
expenses are incurred (including reasonable attorneys'
fees); provided, however, that (A) the Company will not
be liable in any such case to the extent that any such
loss, claim, damage, expense or liability arises out of
or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made therein in
reliance upon and in conformity with written information
furnished to the Company by, or on behalf of, such
Distributing Holder, any other Distributing Holder or any
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such Underwriter specifically for use therein, and (B)
such indemnity shall not inure to the benefit of such
Distributing Holder or Underwriter (or such controlling
person or director of the Distributing Holder or
Underwriter) if any such loss, claim, damage, expense or
liability arises out of or is based upon (i) any
Distributing Holder's or the Underwriter's
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failure to deliver timely a copy of the final prospectus
(or the final prospectus as then amended, revised or
supplemented), or (ii) any such untrue statement or
omission of a material fact that was corrected in the
final prospectus (or the most recent amendment, revision
or supplement thereto) and any Distributing Holder or the
Underwriter failed to deliver it in a timely manner.
(ii) To the extent permitted by law,
each Distributing Holder shall, severally and jointly,
indemnify and hold harmless the Company, its directors,
officers, employees and agents, each Underwriter and each
person, if any, who controls any of the foregoing within
the meaning of Section 15 of the Securities Act, against
all loss, claim, damage, expense or liability (or actions
in respect thereof) to which any of them may become
subject under the Securities Act or otherwise, arising
out of or based upon any untrue statement or alleged
untrue statement of any material fact contained in any
such Registration Statement or any preliminary prospectus
or final prospectus constituting part thereof or any
amendments or supplements thereto, or arising out of or
based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading,
and will reimburse the Company and each such director,
officer, employee, agent, Underwriter or controlling
person for any legal or other expenses reasonably
incurred by any of them in connection with investigating
or defending any such loss, claim, damage, liability or
action as such expenses are incurred (including
reasonable attorneys' fees) in each case to the extent,
but only to the extent, that (A) such untrue statement or
alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written
information furnished to the Company by, or on behalf of,
such Distributing Holder or any other Distributing Holder
specifically for use therein, or (B) such loss, claim,
damage, expense or liability arises out of or is based
upon (i) any Distributing Holder's failure to deliver in
a timely manner a copy of the final prospectus (or the
final prospectus as then amended, revised or
supplemented), or (ii) any such untrue statement or
omission of a material fact that was corrected in the
final prospectus (or the most recent amendment, revision
or supplement thereto) and any Distributing Holder failed
to deliver it in a timely manner. Notwithstanding the
foregoing, such indemnity shall not inure to the benefit
of such Underwriter (or such
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controlling person of the Underwriter) if any such loss,
claim, damage, expense or liability arises out of or is
based upon (i) the Underwriter's failure to deliver in a
timely manner a copy of the final prospectus (or the
final prospectus as then amended, revised or
supplemented), or (ii) any
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such untrue statement or omission of a material fact that
was corrected in the final prospectus (or, the most
recent amendment, revision or supplement thereto) and the
Underwriter failed to deliver it in a timely manner.
(iii) Promptly after receipt by an
indemnified party under this paragraph 8(c) of notice of
the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against
the indemnifying party under this paragraph 8(c), notify
the indemnifying party in writing of the commencement
thereof; provided, however, that the omission so to
notify the indemnifying party will not relieve the
indemnifying party from any liability that it may have to
any indemnified party otherwise than under this paragraph
8(c) except to the extent such indemnifying party is
materially prejudiced by such lack of notice. In case any
such action is brought against any indemnified party and
it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may elect
by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such
indemnified party, to assume the defence thereof, with
counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the
defence thereof, the indemnifying party will not be
liable to such indemnified party under this paragraph
8(c) for any legal or other expenses subsequently
incurred by such indemnified party in connection with the
defence thereof other than reasonable costs of
investigation requested by the indemnifying party or as
otherwise required by law. If the indemnifying party does
not elect to assume the defence of any such claim, action
or proceeding, the indemnifying party shall not be liable
for any settlement thereof which is effected without its
prior written consent. No indemnifying party shall,
without the prior written consent of the indemnified
party, agree to the settlement of any such claim, action
or proceeding if the effect thereof would be to find the
indemnified party has violated the Securities Act, the
United States Securities Exchange Act of 1934, as
amended, or any state securities or blue sky laws.
(iv) If recovery is not available under
the foregoing indemnification provisions of this
paragraph 8(c) for any reason other than as specified
therein, the parties entitled to indemnification by the
terms thereof shall be entitled to contribution toward
the amount paid or payable
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by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in
subparagraph 8(c)(i) or 8(c)(ii) above, except that no
person found to be liable for fraudulent
misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be
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entitled to contribution from any person who was not also
found to be liable for such fraudulent misrepresentation.
In determining the amount of contribution to which the
respective parties are entitled, there shall be
considered the relative benefits received by each party
from the offering of the securities, the parties'
relative knowledge and access to information concerning
the matter with respect to which the claim was asserted,
the opportunity to correct and prevent any untrue
statement, or omission of a material fact, and any other
equitable considerations appropriate under the
circumstances, including, without limitation, the
relative fault of the parties. The amount paid by an
indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence
of this subparagraph 8(c)(iv) shall be deemed to include
any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or
defending any action or claim that is the subject of this
subparagraph 8(c)(iv) (including reasonable attorneys'
fees).
9. Notices to Warrant Holders. Nothing contained in this Certificate
shall be construed as conferring upon the Holder the right to vote or to consent
or to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the exercise or expiration of the Warrants, any of the following events shall
occur:
(i) the Company shall take a record of
the holders of its shares of Common Stock for the purpose
of entitling them to receive a dividend or distribution
payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books
of the Company; or
(ii) the Company shall offer to all the
holders of its Common Stock any additional shares of
capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe
therefor; or
(iii) a dissolution, liquidation or
winding up of the Company (other than in connection with
a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as
an entirety shall be
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proposed; or
(iv) there shall be any capital
reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company
with another entity under which the Company is not the
survivor corporation;
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then, in any one or more of said events, the Company shall give written notice
of such event on the same date as the Company gives notice to the stockholders
entitled to such dividend, distribution, convertible or exchangeable securities
or subscription rights, options or warrants, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend or distribution, or the issuance of any convertible or exchangeable
securities or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
10. Reservation and Listing of Securities.
(a) The Company covenants and agrees that at all
times during the period the Warrants are exercisable, the Company shall reserve
and keep available, free from preemptive rights, out of its authorized and
unissued shares of Common Stock or out of its authorized and issued shares of
Common Stock held in its treasury, solely for the purpose of issuance upon
exercise of the Warrants, such number of Shares as shall be issuable upon the
exercise of the Warrants.
(b) The Company covenants and agrees that, upon
exercise of the Warrants in accordance with their terms and payment of the
Exercise Price therefor, all Shares issued or sold upon such exercise shall not
be subject to the preemptive rights of any stockholder and when issued and
delivered in accordance with the terms of the Warrants shall be duly and validly
issued, fully paid and non-assessable, and the Holder shall receive good and
valid title to such Shares free and clear from any adverse claim (as defined in
the applicable Uniform Commercial Code), except such as have been created by the
Holder.
(c) As long as the Warrants shall be outstanding, the
Company shall use its reasonable efforts to cause all Shares issuable upon the
exercise of the Warrants to be quoted by or listed on any national securities
exchange or other securities listing service on which the shares of Common Stock
of the Company are then listed.
11. Survival. All agreements, covenants, representations and warranties
herein shall survive the execution and delivery of this Certificate and any
investigation at any time made by or on behalf of any party hereto and the
exercise, sale and purchase of the Warrants and the Shares (and any other
securities or properties) issuable on exercise hereof.
-22-
<PAGE>
12. Remedies. The Company agrees that the remedies at law of the
Holder, in the event of any default or threatened default by the Company in the
performance of or compliance with any of the terms hereof, may not be adequate
and such terms may, in
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<PAGE>
addition to and not in lieu of any other remedy, be specifically enforced by a
decree of specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
13. Registered Holder. The Company may deem and treat the registered
Holder hereof as the absolute owner of this Certificate and the Warrants
represented hereby (notwithstanding any notation of ownership or other writing
hereon made by anyone), for the purpose of any exercise of the Warrants, of any
notice, and of any distribution to the Holder hereof, and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
14. Notices. All notices and other communications from the Company to
the Holder of the Warrants represented by this Certificate shall be in writing
and shall be deemed to have been duly given if and when personally delivered,
two (2) business days after sent by overnight courier or ten (10) days after
mailed by certified, registered or international recorded mail, postage prepaid
and return receipt requested, or when transmitted by telefax, telex or telegraph
and confirmed by sending a similar mailed writing, if to the Holder, to the last
address of such Holder as it shall appear on the books of the Company maintained
at the Company's principal office or to such other address as the Holder may
have specified to the Company in writing.
15. Headings. The headings contained herein are for convenience of
reference only and are not part of this Certificate.
16. Governing Law. This Certificate shall be deemed to be a contract
made under the laws of the State of Delaware and for all purposes shall be
governed by, and construed in accordance with, the laws of said state, without
regard to the conflict of laws provisions thereof.
-24-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly executed
by its duly authorized officer under its corporate seal.
Dated December 9, 1997
MULTIMEDIA ACCESS CORPORATION
By:
------------------------------
Name: William S. Leftwich
Title: Chief Financial Officer
-25-
<PAGE>
MULTIMEDIA ACCESS CORPORATION
FORM OF ELECTION TO PURCHASE
(To be executed by the registered
Holder if such Holder desires to exercise Warrants)
The undersigned registered Holder hereby irrevocably elects to
exercise the right of purchase represented by this Warrant Certificate for, and
to purchase, __________________ Shares hereunder, and herewith tenders in
payment for such Shares, cash, a wire transfer, a certified check or a banker=s
draft payable to the order of Multimedia Access Corporation in the amount of
__________________, all in accordance with the terms hereof. The undersigned
requests that a share certificate for such Shares be registered in the name of
and delivered to:
- -------------------------------------------------------------------------------
(Please Print Name, Address and Social Security Number or
other Identifying Number, as applicable)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
and, if said number of shares shall not be all the Shares purchasable hereunder,
that a new Warrant Certificate for the balance remaining of the Shares
purchasable hereunder be registered in the name of the undersigned Warrant
Holder or his Assignee as below indicated and delivered to the address stated
below.
DATED: _________________
Name of Warrant Holder: --------------------------------------------------------
(Please Print)
Address: -----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature: ---------------------------------------------------------------------
Note: The above signature must correspond in all respects with the name of the
Holder as specified on the face of this Warrant Certificate, without alteration
or enlargement or any changes whatsoever, unless the Warrants represented by
this Warrant Certificate have been assigned.
IN CONNECTION WITH THIS ELECTION TO PURCHASE, THE WARRANT HOLDER MUST DELIVER TO
THE COMPANY (I) A WRITTEN CERTIFICATION THAT SUCH HOLDER IS NOT A "U.S. PERSON"
(AS DEFINED IN REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THAT THE WARRANTS ARE NOT BEING EXERCISED ON
BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A "U.S. PERSON" (AS DEFINED IN
REGULATION S UNDER THE SECURITIES ACT), OR (II)
LAWS.
-26-
<PAGE>
A WRITTEN OPINION OF UNITED STATES LEGAL COUNSEL, IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE WARRANTS AND THE SHARES OF
COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR ARE
EXEMPT FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT AND ANY
APPLICABLE SECURITIES OR BLUE SKY
-27-
<PAGE>
MULTIMEDIA ACCESSCORPORATION
FORM OF ASSIGNMENT
(To be executed by the registered
Holder if such Holder desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers to:---------------------------------------------------("Assignee")
(Please Print Name, Address and Social Security Number or other Identifying
Number, as applicable, of Transferee)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Warrants to purchase up to --------------------------- Shares represented by
this Warrant Certificate No.-- , together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint -------------------,
Attorney, to transfer such Warrants on the books of the Company, with full power
of substitution in the premises. The undersigned requests that if said number of
Shares shall not be all of the Shares purchasable under this Warrant Certificate
that a new Warrant Certificate for the balance remaining of the Shares
purchasable under this Warrant Certificate be registered in the name of the
undersigned Warrant Holder.
DATED: ------------------
Name of registered Holder:------------------------------------------------------
Signature of registered Holder:-------------------------------------------------
Note: The above signature must correspond in all respects with the name of the
Holder as specified on the face of this Warrant Certificate, without alteration
or enlargement or any change whatsoever. The above signature of the registered
Holder must be guaranteed by a commercial bank or trust company, by a broker or
dealer which is a member of the National Association of Securities Dealers, Inc.
or by a member of a national securities exchange, the Securities and Futures
Authority Limited in the United Kingdom or the International Stock Exchange in
London, England. Notarized or witnessed signatures are not acceptable as
guaranteed signatures.
Signature Guaranteed:
- ---------------------------------------
Authorized Officer
- ---------------------------------------
Name of Institution
IN CONNECTION WITH THIS ASSIGNMENT OF WARRANTS, THE ASSIGNEE MUST DELIVER TO THE
COMPANY (I) A WRITTEN CERTIFICATION THAT SUCH ASSIGNEE IS NOT A "U.S. PERSON"
(AS DEFINED IN REGULATION S UNDER THE
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<PAGE>
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
THAT THE WARRANTS ARE NOT BEING ACQUIRED ON BEHALF OF, OR FOR THE ACCOUNT OR
BENEFIT OF, A "U.S. PERSON" (AS DEFINED IN REGULATION S UNDER THE SECURITIES
ACT), OR (II) A WRITTEN OPINION OF UNITED STATES LEGAL COUNSEL, IN FORM AND
SUBSTANCE SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT THE WARRANTS AND THE
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE
SKY LAWS OR ARE EXEMPT FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES
ACT AND ANY APPLICABLE SECURITIES OR BLUE SKY LAWS.
-29-
LEASE
STATE OF NORTH CAROLINA
COUNTY OF WAKE
CAROLANTIC REALTY, INC.
THIS LEASE, made this the 8th day of October ,1997, by and between:
AIRPORT BOULEVARD PARTNERS, LLC having, a notice address of
POST OFFICE BOX 33313
RALEIGH, NORTH CAROLINA 27636 hereinafter called "LANDLORD", AND
MULTIMEDIA ACCESS CORPORATION
A DELAWARE CORPORATION having a notice address of
600 AIRPARK BOULEVARD, SUITE 900
MORRISVILLE, NORTH CAROLINA 27560 hereinafter called "TENANT";
WITNESSETH:
Upon the terms and conditions hereinafter set forth, the Landlord leases to
Tenant and the Tenant leases from Landlord, the property hereinafter described:
1. DEMISED PREMISES. The property hereby leased to Tenant (the
"Demised Premises") is that area shown on Exhibit A hereto attached, which
consists of approximately 10,037 square feet, WHICH INCLUDES 269 SQUARE FEET OF
COMMON CORRIDOR SPACE located at 600 AIRPARK BOULEVARD, SUITE 900, MORRISVILLE
(27560) Raleigh , North Carolina, together with the common areas, if any, in the
building(s) and on the lot(s) where the Demised Premises are located (said
building(s) and lot(s), including the Demised Premises, being hereafter called
the "Landlord Property") described on Exhibit A attached hereto.
2. TERM.
2. 1. Initial Term. The Commencement Date of this Lease shall be the
earlier of the date that Tenant opens for business in any part of the Demised
Premises, or January 1, 1998 . This Lease shall terminate (unless extended as
herein provided) at midnight on DECEMBER 31, 2002.
2.3. Year. The initial term of this Lease and any properly exercised
extension periods are hereafter together called the "Lease Term". The first
"Calendar Year" of this Lease shall begin on January I of the year of the
Commencement date, and end December 31 of that same year.
3. USE. Tenant shall occupy the Demised Premises on commencement of
the Lease Term and thereafter continuously use the Demised Premises only for
GENERAL OFFICES FOR A COMPUTER DEVELOPMENT COMPANY purposes, but for none other
without Landlord's prior written consent. Tenant shall remain open for business
during normal business hours for other businesses of a similar nature during the
full Lease Term. In no event shall Tenant make any use of the Demised Premises
which: (a.) violates any governmental laws, rules or regulations; (b.) violates
any recorded restrictive covenants applicable to the Demised Premises; (c.) is
or might constitute a nuisance; or (d.) makes hazard, liability, casualty,
property, or other required insurance unavailable to Landlord on Landlord's
Property. Tenant shall not permit its agents, employees, contractors, or
invitees to place damaging loads on the parking lots and drives located thereon.
4. RENT.
4.1. Minimum Rent. For the purposes of this Lease, all Minimum Rent
payable under Section 4. and 5. of this Lease and all Additional Rent payable
under Section 6. of this Lease are hereafter together called "Rent." All Rent
payable by Tenant shall be paid without previous demand by landlord, and
without setoff or deduction. Subject to any adjustments provided in Section 5.
hereof, Tenant shall pay Minimum Rent during the Lease Term in the amount of
$8,364.17 per month, payable in advance on or before the
<PAGE>
first day of each calendar month during the Lease Term, unless the Lease Term
commences other than on the first day of the month, in which event Minimum Rent
at the above rate prorated until the end of the first calendar month of the
Lease Term, shall be due and payable on the Commencement Date, and on the first
day of each month thereafter.
4.2. Late Fees - Bad Check Fees. In addition to such remedies as may be
provided under Section 15. of this Lease, Landlord shall be entitled to a late
charge for each monthly Minimum Rent payment which is past due more than ten
(10) days, equal to four percent (4%) of such past due Minimum Rent payment. In
addition to said late charge, Landlord shall be entitled to receive a service
charge of five percent (5%) of the amount of any rent check given by Tenant to
Landlord which is not honored when first presented for payment by Landlord.
5. RENT ADJUSTMENTS.
THE MINIMUM RENT SHALL BE INCREASED BY THREE PERCENT (3%) BEGINNING WITH THE
THIRTEENTH (13 TH) MONTH FOLLOWING THE ANNIVERSARY OF THE COMMENCEMENT DATE.
THE NEW RATE OF RENT AS DETERMINED BY THE ABOVE ADJUSTMENT SHALL BE PAYABLE IN
MONTHLY INSTALLMENTS BEGINNING ON THE FIRST DAY OF THE THIRTEENTH (13'H) MONTH
OF THE INITIAL TERM OF THIS LEASE AND ON THE FIRST DAY OF EVERY MONTH
THEREAFTER. THE SAID RATE SHALL BE INCREASED BY AN ADDITIONAL THREE PERCENT
(3%) UPON EACH SUBSEQUENT TWELVE (12) MONTH PERIOD IN ACCORDANCE WITH THE
AFORESAID PROCEDURE WITH THE NEW RENT PAYABLE MONTHLY FOR THE BALANCE OF SAID
TWELVE (12) MONTH PERIOD. At least fifteen ( 15) days prior to each requested
rent adjustment, Landlord shall furnish to Tenant a written statement of the
additional Minimum Rent payable from said Adjustment Date through the day
immediately prior to the following Adjustment Date, or the end of the Lease
Term, as applicable.
6. TICAM EXPENSES.
6.1. Defined. For the purposes of this Lease, "TICAM Expenses" (Taxes,
Insurance, and Common Area Maintenance Expenses) shall mean and include: all
costs and expenses incurred by Landlord attributable to the ownership,
operation, maintenance, and management of the Landlord Property, including, but
not limited to, (a.) the cost during the Lease Term, as reasonably amortized by
Landlord, with interest on the unamortized amount at the rate of ten percent (
10%) per annum, of any capital improvements made to the Landlord Property after
the shell and core of the Landlord Property have been substantially completed
which are intended to keep the Landlord Property in compliance with all
governmental laws, ordinances, rules and regulations applicable to the Landlord
Property, and which laws, ordinances, rules, or regulations where first enacted
or amended, or were first made applicable to the Landlord Property, after the
Commencement Date; (b.) all ad valorem taxes, (C) ) hazard and liability
insurance premiums, (d.) common area maintenance; and (e.) the following
additional expenses (if none put "None") CARDBOARD RECYCLING DUMPSTER SERVICE
AND COLD WATER.
6.2. Tenant Prorata Share. Tenant agrees to pay to Landlord, as
Additional Rent, Tenant's Proportionate Share of all TICAM Expenses. Tenant's
Proportionate Share of TICAM Expenses shall be calculated by dividing the square
footage of the Demised Premises by the total net rentable square footage of the
Landlord Property (68,000 square feet). As of the date hereof, only the first of
two building HAS BEEN COMPLETED, WHICH CONTAINS 34,000 SQUARE FEET UNTIL SUCH
TIME AS THE SECOND BUILDING IS COMPLETED, TENANT'S PROPORTIONATE SHARE OF TICAM
EXPENSES WILL BE 29.5%. AT SUCH TIME AS THE SECOND BUILDING OF LANDLORD'S
PROPERTY IS COMPLETED, TENANT'S PROPORTIONATE SHARE WILL BE 14.8%.
6.3. Monthly TICAM Expense Payment. Tenant shall pay to Landlord in
advance with each monthly Minimum Rent payment, a sum equal to one-twelfth
(1/12th) of the amount estimated by Landlord as Tenant's TICAM Expenses for the
Calendar Year in which such Minimum Rent payment is due. For the
2
<PAGE>
first Calendar Year the amount of the estimated monthly TICAM Expenses under
this Lease shall be $1,388.45 per month.
6.4. Annual Adjustment. Each Calendar year of the Lease Term, within
thirty (30) days after delivery of a statement of the actual TICAM Expenses for
the Calendar Year just concluded, Tenant shall pay to Landlord the amount by
which such estimated TICAM Expenses payments are less than the actual TICAM
Expenses due from Tenant, and Landlord shall likewise refund any excess of
estimated TICAM Expenses payments over actual TICAM Expenses within said thirty
(30) day period.
7. UTILITIES. Tenant shall promptly pay all charges for utilities
serving the Demised Premises, including, without limitation, electricity,
telephone, gas, water, and sewer. In the event any utilities are not separately
metered for Tenant, Tenant shall pay its proper prorata portion of such
utilities in common with others using off the same meter.
8. TENANT'S ACCEPTANCE AND MAINTENANCE OF DEMISED PREMISES
8. 1. "As-Is " Condition. Except for Punch List items described in any
Attachment appended hereto, Tenant's occupancy of the Demised Premises
represents to the Landlord that Tenant has examined and inspected the same,
finds them to be as represented by the Landlord, and satisfactory for Tenant's
intended use; and evidences Tenant's acceptance of the Demised Premises in all
respects "AS IS" and "WHERE IS".
8.2. Landlord Maintenance. Landlord's only obligations with respect to
the repair and maintenance of the Demised Premises under this Section shall be:
(a.) for repairs necessitated by structural defects in the original construction
of the Landlord Property, or by the negligence or willful acts of Landlord or
another tenant of the Landlord Property, or any of their agents, employees,
invitees, or contractors; (b.) to assign all warranties and use reasonable best
efforts to assist Tenant in enforcing any and all warranties provided by any
contractor, subcontractor, mechanic or materialmen with respect to the Demised
Premises; (c.) for maintenance, upkeep and repair of the roof and structural
portions of the Demised Premises (excluding, however, plate glass and doors of
every description); (d.) for repairs of all paved areas, including, without
limitation, all driveways, curbs and parking areas; and for replacement of items
required to be replaced under Section 8.3.(d.) below.
8.3. Tenant Maintenance. Tenant shall take good care of the Demised
Premises and the Landlord's personal property, fixtures, and appurtenances
therein and thereon during the Lease Tenn, and shall perform all maintenance and
make all repairs to the Demised Premises thereon necessary to keep the same in
good order and condition, excepting only. (a.) Landlord's obligations set forth
above; (b.) ordinary wear and tear; (c.) loss or damage resulting from fire,
casualty or condemnation; and (d.) complete replacement of, or repairs to, any
mechanical system, which repair would cost in excess of forty percent (40%) of
the original cost of said system. Tenant shall pay the first Two Hundred Dollars
($200.00) of all costs associated with each repair required of the Landlord
under Section 8.3.(d.), and the Landlord shall pay the balance.
8.4. Maintenance Contracts. Tenant during the entire Lease Term shall
enter into and maintain, at its expense, a maintenance contract covering the
HVAC system located in or serving exclusively the Demised Premises with a
service contractor acceptable to and approved by Landlord, which contract shall
provide for routine maintenance, including, but not limited to, timely changing
of all filters (at recommended intervals), adjustment and inspection of air
handling mechanisms and control equipment, performance of necessary lubrication,
and testing and other such normal maintenance procedures.
8.5. Tenant's Liability. Subject to the provisions of Section 9.7.
hereof, all damage or injury to the Demised Premises or the remainder of the
Landlord Property caused by any willful act or negligence of Tenant, its agents,
employees, licensees, contractors, invitees or visitors, shall be repaired by
Landlord at Tenant's sole expense, and Tenant shall reimburse Landlord for all
costs and expenses thus incurred by Landlord within thirty (30) days after
receipt of invoice from Landlord.
8.6. Tenant Alterations and Trade Fixtures. Tenant shall not make any
alterations or changes to the Demised Premises without Landlord's prior written
consent. Tenant shall be permitted to install trade fixtures in the Demised
Premises, and. absent a Default by Tenant hereunder, to remove said trade
fixtures from the Demised Premises upon the termination of this Lease. If Tenant
does remove such trade fixtures, Tenant shall return the Demised Premises ,to
the same condition as existed at the time of original entry, ordinary wear and
tear excepted. Provided, however, Tenant shall not remove permanent improvements
made by Tenant to the Demised Premises; and all such improvements shall belong
to Landlord at the termination of this Lease, and shall not be damaged in the
removal of Tenant's trade fixtures. If Tenant does not remove the trade fixtures
at the Lease Term, Landlord shall have the option either to declare such
fixtures abandoned and Landlord the owner thereof, or to demand that tenant
promptly remove the same at Tenant's expense, returning the Demised Premises to
the condition required herein.
8.7 Licensed Contractors. Tenant shall not permit any work to be
performed anywhere within the Landlord Property except by duly licensed
contractors, each of whom must carry adequate general public liability,
builder's risk, and workman's compensation insurance, certificates of which
shall be furnished Landlord prior to the commencement of any such work on the
3
<PAGE>
Landlord Property. At no time may Tenant do any work that results in a claim of
lien against Tenant's or Landlord's interest in the Demised Premises, and Tenant
shall release of record irom the Landlord Property under N.C.G.S. 44A- 16 any
lien so filed, within thirty (30) days after such lien has been filed.
8.8. No Dangerous Condition. Tenant shall not permit or allow any act
or deed to be performed on the Demised Premises which is likely to cause injury
to any person or to the Landlord Property. Tenant shall, at all times, keep the
Demised Premises and the entryways, parking areas, sidewalks and delivery areas
(if any) adjoining the Demised Premises in a clean, neat, and orderly condition
and free from rubbish, dirt, snow, standing water and ice.
8.9 Access by Landlord. Landlord shall have the right, either itself or
through its authorized agents, to enter the Demised Premises at all reasonable
times to examine the same, to show them to prospective tenants for other spaces
in the Landlord Property or for the demised Premises, to allow inspection by
mortgagees, and to make such repairs, alterations, or changes as Landlord deems
necessary.
9. INDEMNIFICATION AND INSURANCE.
9. 1. Liability Insurance. Subject to the terms of section 9.7. hereof,
Tenant shall indemnify Landlord and save Landlord harmless from and against all
claims, actions, damages, liability and expenses in connection with loss of
life, bodily injury, and damage to property occurring in or about the Demised
Premises, occasioned wholly or in part by any act or omission of Tenant, its
agents, licensees, contractors, customers, invitees or employees. Tenant shall,
at all times, maintain in effect a comprehensive general public liability policy
applicable to the Demised Premises through an insurance company approved by
Landlord, with combined single limits of liability of at least ONE MILLION AND
00/100 DOLLARS ($1,000,000.00). SUCH POLICY SHALL BE FURNISHED TO LANDLORD PRIOR
TO THE COMMENCEMENT DATE TOGETHER WITH A CERTIFICATE FROM THE COMPANY WHICH
ISSUED THE POLICY CERTIFYING THAT THE POLICY IS IN EFFECT AND THAT LANDLORD AND
LANDLORD'S MANAGING AGENT WILL RECEIVE A COPY OF ANY TERMINATION, CANCELLATION
DATE OR LAPSE NOTICE SENT BY THE INSURANCE COMPANY TO TENANT. AT LEAST FIFTEEN
(15) DAYS PRIOR TO THE LAPSE, TERMINATION, OR CANCELLATION DATE OF SUCH POLICY,
OR ANY RENEWAL OR REPLACEMENT POLICY, TENANT SHALL DELIVER TO LANDLORD A RENEWAL
OR REPLACEMENT POLICY TOGETHER WITH A CERTIFICATE AS REQUIRED HEREIN FROM THE
NEW ISSURER.
9.2. Litigation and Attorney Fees. In case Landlord shall be made a
party to any litigation commenced by or against Tenant, or its partners,
officers, directors, agents, contractors, customers or employees, Tenant shall
protect and hold Landlord harmless therefrom, and shall pay all costs, expenses,
and reasonable attorneys' fees incurred or paid by Landlord in connection with
such litigation.
9.3. Tenant's Property and Insurance Thereon. Tenant shall properly
maintain and care for its property on the Demised Premises, and shall also
carry, at Tenant's expense, hazard insurance with extended coverage, insuring
against loss or damage to Tenant's property situated in or about the Demised
Premises to the full reasonable insurable value thereof with insurers acceptable
to Landlord.
9.4. Thirty (30) Day Notice. All policies of insurance to be maintained
by Tenant under this Lease shall provide that: (a.) they may not be canceled or
amended except upon not less than thirty (30) days' prior written notice to
Landlord and any mortgagee of Landlord of which such insurer has actual notice;
and (b.) coverage may not be denied thereunder, nor may the amount payable
thereunder be diminished, by any negligent act or omission of Landlord or
Tenant, or their successors or assigns.
9.5. Landlord's Insurance. Landlord shall maintain during the Lease
Term a Commercial Package Policy of casualty insurance (or the successor to such
coverage) on Landlord's interest in the Landlord Property for the full
replacement cost of the Landlord Property, and with agreed amount and inflation
cost endorsements; provided, however, Landlord shall not be obligated to insure
any furniture, equipment or other personal property placed in the Demised
Premises by or at the expense of Tenant.
9.6. Tenant Increases Landlords Insurance. If because of anything done,
caused to be done, permitted, or omitted by Tenant, the premium rate for any
casualty insurance maintained by Landlord shall be raised, Tenant agrees that
the amount of the increase in premium for insurance maintained by Landlord shall
be paid by Tenant to Landlord within fifteen (15) days after receipt of written
demand from Landlord, and shall be in addition to all other payments to be made
by Tenant under this Lease. In addition, if Landlord shall demand that Tenant
remedy such condition within thirty (30) days after receipt of written demand
from Landlord. Such policy shall be furnished to Landlord prior to the
Commencement Date together with a certificate from the company which issued the
policy certifying that the policy is in effect and that Landlord and Landlord's
managing Agent will receive a copy of any termination, or cancellation date of
such policy, or any renewal or replacement policy, Tenant shall deliver to
Landlord a renewal or replacement policy together with a certificate as required
herein from the new insurer.
9.7 Mutual Waiver of Subrogation. Each party waives all claims
arising in any manner in its (the Injured Party's) favor and against the other
party for loss or damage to the Injured Party's property located within or
4
<PAGE>
constituting a part or all of the Landord's Property. This waiver applies to the
extent the loss or damage is covered by: (a.) the Injured Party's insurance; or
(b.) the insurance the Injured Party is required to carry under this Lease,
whichever is greater. This waiver also applies to each party's directors,
officers, employees, shareholders, partners, and agents, but does not apply to
claims caused by Landlord's, Tenant's, or such other parties' willful
misconduct. All policies of insurance maintained by either Landlord or Tenant
under the terms of this Lease shall contain a provision whereby the insurer
waives all rights of subrogation against Landlord or Tenant.
10. CASUALTY LOSS.
10.1. Landlord's Duty to Restore. If the Demised Premises shall be
partially damaged by fire or other casualty insured under insurance policies
which Landlord maintains under this Lease ("Landlord's POLICIES"), AND IF
LANDLORD'S LENDER(S) SHALL PERMIT SUCH INSURANCE PROCEEDS TO be so used, then,
upon LANDLORD'S RECEIPT OF THE INSURANCE PROCEEDS, LANDLORD shall, EXCEPT AS
OTHERWISE PROVIDED HEREIN, PROMPTLY repair and restore the same (exclusive of
Tenant's property) substantially to the condition thereof existing immediately
prior to such damage or destruction; limited, however, to the extent of the
insurance proceeds received by Landlord for such casualty. If, by reason of such
occurrence: (a.) the Demised Premises is rendered wholly untenantable; (b.) the
Demised Premises is damaged in whole or in part as a result of a risk which is
not covered by Landlord's Policies; (c.) Landlord's lender(s) shall not permit a
sufficient amount of the insurance proceeds to be used for restoration purposes;
(d.) the Demised Premises is damaged in whole or in part during the final Lease
Year of the Lease Term (including any then properly exercised extension
periods); or (e.) the improvements included in the Landlord Property are damaged
(whether or not the Demised Premises is damaged) to an extent of fifty percent
(50) or more of their then fair market value; Landlord may elect either to
repair the damage, or to cancel this Lease by written notice of cancellation
given to Tenant within sixty (60) days after the date of such casualty; and
thereupon this Lease shall terminate, and Tenant shall vacate and surrender the
Demised Premises to Landlord within fifteen ( 15) days after receipt of such
notice. If no such notice is given by Landlord within said sixty (60) day
period, then Landlord shall restore the Demised Premises, as provided above. In
addition, Tenant may also terminate this Lease, by written notice to Landlord at
any time between the one hundred eighty-first (181 st) and one hundred
ninety-fifth (195th) days after the occurrence of any such casualty, if Landlord
shall fail to restore the damaged portions of the Demised Premises within one
hundred eighty ( 180) days after such casualty. However, if Landlord is
prevented by any cause beyond its reasonable control, from completing the
restoration within said one hundred eighty ( 180) day period, and if Landlord
shall provide Tenant with written notice of such cause for delay within fifteen
(15) days after the occurrence thereof, then Landlord shall have an additional
period beyond said one hundred eighty (180) days, equal to the period Landlord
is delayed by causes beyond its reasonable control, in which to restore the
damaged areas of the Demised Premises; and Tenant may not elect to terminate
this Lease until said additional period has expired with Landlord having failed
to complete such restoration. In such case, Tenant's fifteen (15) day right of
termination shall begin to run upon the expiration of Landlord's additional
period for restoration. Upon the termination of this Lease, Tenant's liability
for the Rent and other charges reserved hereunder shall cease as of the
effective date of the termination of this Lease.
10.2. Tenant's Insurance. Unless this Lease is terminated as
aforesaid, Tenant shall promptly repair or replace Tenant's property in the
Demised Premises to at least the condition which existed prior to the casualty
to the Demised Premises, and the proceeds of all insurance carried by Tenant on
its said property shall be held and disbursed for the purposes of such repair
or replacement, to the extent required for such purposes.
10.3. Rent Abatement. Except as hereafter provided to the contrary,
if by reason of such casualty the Demised Premises is rendered wholly
untenantable, the Rent and other charges payable by Tenant shall be fully
abated, or if only partially damaged, such Rent and other charges shall be
abated proportionately as to that portion of the Demised Premises rendered
untenantable, in either event (unless the Lease is terminated, as aforesaid)
from the date of such casualty until fifteen (15) days after notice by Landlord
to Tenant that the Demised Premises have been substantially restored, or until
Tenant has resumed its business operations in the Demised Premises, whichever
shall occur sooner. Tenant shall continue the operation of Tenant's business in
the Demised Premises or any part thereof not so damaged during any such period,
to the extent reasonably practicable from the standpoint of prudent business
management, and, except for such abatement of Rent and other charges as herein
above set forth, nothing herein contained shall be construed to abate Tenant's
obligations hereunder. Provided, however, and subject to the terms of Section
9.7. hereof, Tenant shall reimburse Landlord, within thirty (30) days after the
completion of such restoration. for the full cost of such restoration if any
such damage or casualty shall be caused by the GROSS negligence or other
wrongful act or omission of Tenant, or of Tenant's subtenants, concessionaires,
licensees, contractors employees , agents, or invites, and there shall be no
abatement of Rent or other charges which are Tenant's obligation under this
Lease. Except for the abatement of the Rent and other charges herein above set
forth, Tenant shall not be entitled to , and hereby waives, all claims against
Landlord for any compensation or damage for loss of use of the whole or any part
of the Demised Premises, and for any inconvenience or annoyance occasioned by
such damage, destruction, repair, or restoration.
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11. ENVIRONMENTAL COMPLIANCE.
11.1 Tenant's Responsibility. Tenant covenants and agrees that the
demised Premises will, at all times during its use or occupancy thereof, be
kept and maintained so as to comply with all now existing or hereafter enacted
or issued statutes, laws, rules, ordinances, orders, permits, and regulations of
all state, federal, local, and other governmental and regulatory authorities,
agencies, and bodies applicable to the Demised Premises pertaining to
environmental matters, or regulating, prohibiting or otherwise having to do with
asbestos, radon, PCBs and all other toxic, radioactive, or hazardous wastes or
materials, including, but not limited to, the Federal Clean Air Act, the Federal
Water Pollution Control Act, and the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as from time to time amended (all
hereafter collectively called "Laws"). No material shall be installed anywhere
else within the Landlord's Property, by Tenant, or any employee, agent, or
contractor of Tenant, which contains any asbestos or other toxic or hazardous
waste or substance; or which causes, or could cause all or any of Landlord
Property to be in violation of any Laws: (a.) when such material is installed;
(b.) while such material remains thereon; or (c ) when such material is
disturbed or removed.
11.2. Tenant's Liability. Tenant shall hold Landlord free, harmless,
and indemnified from any penalty, fine, claim, demand, liability, cost, or
charge whatsoever which Landlord does or may incur by reason of Tenant's failure
to comply with this Section; including, but not limited to: (a.) the cost of
bringing the Landlord's Property into compliance with all Laws; (b.) the
reasonable cost of all appropriate tests and examinations of the Landlord
Property to confirrn that the same has been brought into compliance with all
Laws; and (c.) the reasonable fees and expenses of Landlord's attorneys,
engineers, and consultants incurred by Landlord in enforcing and confirming
compliance with this Section.
11.3. Inspections by Landlord. Landlord and its engineers,
technicians, and consultants (collectively the "Auditors") may, from time to
time as Landlord deems appropriate, conduct periodic tests and examinations
("Audits") of the demised Premises to confirm and monitor Tenant's compliance
with this Section. Such Audits shall be conducted in such manner as to minimize
the interference with Tenant's permitted activities on the demised Premises;
however, in all cases, the Audits shall be of such nature and scope as shall be
reasonably required by then existing technology to confirm Tenant's compliance
with this Section. Tenant shall fully cooperate with the Auditors in the conduct
of such Audits. The cost of such Audits shall be paid by Landlord unless a
Default has occurred under this Lease, or unless an Audit shall disclose a
material failure of Tenant to comply with this Section, in either of which cases
the cost of such Audit, and the cost of all subsequent Audits made during the
Lease Term and within thirty (30) days thereafter (not to exceed two [2] such
Audits in any consecutive twelve [ 12] month period), shall be paid for by
Tenant within thirty (30) days of receipt by Tenant of invoices for such audits.
11.4. Limitation on Tenant Liability. Provided, however, the foregoing
covenants and undertakings of Tenant contained in this Section shall not apply
to any condition or matter constituting a violation of any Law: (a.) which
existed prior to the commencement of Tenant's use or occupancy of any portion of
the demised Premises, and was not caused, in whole or in part, by Tenant or
Tenant's agents, employees, officers, partners, contractors, or invitees; or
(b.) to the extent such violation is caused by, or results from, the acts or
neglects of Landlord, other tenants in the Landlord Property, or Landlord's or
such other tenants' employees, officers, partners, contractors, guests or
invitees.
11.5. Tenant's Liability After Termination of Lease. The covenants
contained in this Section shall survive the expiration or termination of this
Lease, and shall continue for so long as Landlord, or its successors and
assigns, may be subject to any expense, liability, charge, penalty, or
obligation against which Tenant has agreed to indemnify Landlord under this
Section.
12. RULES AND REGULATIONS. Tenant shall comply with all applicable
laws, ordinances and regulations affecting the Demised Premises, and general
rules and regulations for tenants of the Landlord Property as may be developed
from time to time by Landlord and delivered to Tenant.
13. SUBORDINATION - ATTORNMENT. This Lease shall be subordinate to any
mortgage or deed of trust (both hereafter a "Mortgage") which may heretofore or
hereafter be placed against the demised Premises by Landlord, unless the
mortgagee or beneficiary thereunder (both hereafter a "mortgagee") requests
that this Lease be superior to its Mortgage, in which event this Lease shall be
superior. In the event any proceedings are brought for foreclosure of any
Mortgage on the Demised Premises, Tenant will attorn to the purshaser at a
foreclosure sale, and
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any assignee thereof, and recognize such purchaser or assignee as Landlord under
this Lease provided such purchaser or assignee agrees not to disturb Tenant's
possession or rights under this Lease or in the Demised Premises, so long as
Tenant is not in Default under the terms of this Lease. Tenant shall execute,
within five (5) days after Landlord's request, such instruments evidencing such
attornment and subordination of this Lease and related matters as andlord or its
mortgagee shall request; and, as often as requested, shall sign estoppel
certificates confirming any factual matter requested which is true and is within
Tenant's knowledge regarding this Lease, the Demised Premises, or Tenant's use
thereof. Tenant agrees to give any such mortgagee of whom Tenant has been
informed written notice of any Default or failure to perform by Landlord under
this Lease. Such mortgagee shall have a reasonable period of time after such
notice, in all events at least thirty (30) days, to cure any Default; and Tenant
shall accept such cure if timely made by such mortgagee. Further, Tenant agrees
to permit any such mortgagee, purchaser, or their successors and assigns, on
acquiring Landlord's interest in the Demised Premises or the Lease, to become
substitute Landlord hereunder, with liability only for such Landlord obligations
under this Lease as accrue after Landlord's interest is so acquired.
14. SIGNS. Tenant may not erect, install or display any sign or
advertising material upon the Landlord Property without the prior written
consent of Landlord. UPON APPROVAL BY LANDLORD OF TENANT'S SIGNS, LANDLORD WILL
PROVIDE TENANT A $500.00 ALLOWANCE TOWARD THE COST OF SUCH SIGNAGE.
15. DEFAULT.
15. 1. Remedies. If Tenant fails to pay any Rent or other sums payable
by Tenant as provided in this Lease within ten ( 10) days after the due date
thereof; or breaches any other agreement or obligation herein set forth, and
fails to cure such breach within ten ( 10) days after delivery of written notice
thereof from Landlord; then a "Default" by Tenant shall have occurred under this
Lease, and, in addition to any other legal right or remedy which Landlord may
have for such Default, Landlord may, at its sole election and without further
notice to Tenant, exercise one or more or all of the following remedies:
(a.) Re-enter the Demised Premises and Correct or repair any
condition which shall constitute a failure on Tenant's part to perform or abide
by the terms of this Lease, and Tenant shall reimburse Landlord within fifteen (
15) days of receipt of invoice by Tenant for any expenditures made by Landlord
in making such corrections or repairs;
(b.) Re-enter the Demised Premises and Remove therefrom Tenant
and all Tenant property, and place or store such Tenant property in any public
warehouse or place of safekeeping selected by Landlord, at the sole expense and
risk of Tenant, all of which property Tenant shall be deemed to have abandoned
and forfeited to Landlord if Tenant shall not claim and remove such property and
pay all reasonable storage charges applicable thereto within thirty (30) days
after delivery of written notice to remove from Landlord;
(c.) Re-let the Demised Premises or any part thereof for such
periods, and at such rentals and other terms and conditions as Landlord, in its
sole discretion, may deem advisable, and Landlord may make alterations or
repairs to the demised Premises which it may deem necessary or appropriate to
facilitate such re-letting; and Tenant shall pay on demand all costs of such
re-letting including the cost of any such repairs to the demised Premises. If
this Lease shall not have been terminated, Tenant shall continue to pay all Rent
due under this Lease up to and including the date of beginning of payment of
rent by any subsequent tenant of part or all of the Demised Premises, and
thereafter Tenant shall pay monthly during the remainder of the Lease Term the
difference, if any, between the rent collected from any such subsequent tenant
or tenants and the Rent reserved in this Lease, but Tenant shall not be entitled
to receive any excess of any such rents collected over the Rents reserved
herein; or
(d.) Terminate this Lease, which termination shall be effected
by delivery to Tenant of written notice of such termination; and upon such
termination, Landlord shall recover from Tenant all damages Landlord may suffer
by reason of such termination, including, without limitation, the cost,
including legal expenses and reasonable attorneys' fees, of recovering
possession of the demised Premises, and the cost of any repairs to the demised
Premises which are reasonably necessary to prepare the same for reletting.
15.2. No Waiver of Rights. No course of dealing between Landlord and
Tenant, or any delay on the part of Landlord in exercising any rights it may
have under this Lease, shall operate as a waiver of any of the rights of
Landlord hereunder, nor shall any waiver of a prior Default operate as a waiver
of any subsequent Default or Defaults, and no
<PAGE>
express waiver shall affect any condition, covenant, rule or regulation other
than the one specified in such waiver, and that one only for the time and in
the manner specifically stated.
15.3. Remedies are Cumulative. The exercise by Landlord of any one or
more of the remedies provided in this Lease shall not prevent the subsequent
exercise by Landlord of any one or more of the other remedies herein provided.
All remedies provided for in this Lease are cumulative, and may, at the
election of Landlord, be exercised alternatively, successively, or in any other
manner, and are in addition to any other rights provided by law.
15.4 Written Termination. No exercise of any right or remedy by
Landlord under this Lease shall effect a termination thereof unless Landlord
shall elect to terminate this Lease by written notice to Tenant; Provided,
however, this Lease shall be deemed terminated upon delivery of such notice of
termination.
15.5 Attorney's Fees. Tenant shall be liable to Landlord for all
reasonable attorney's fees and expenses incurred by Landlord in enforcing all
rights and remedies afforded to Landlord under this Lease.
16. QUIET ENJOYMENT. If Tenant promptly complies with all of its
obligations hereunder, it shall peacefully have possession of the Demised
Premises during the Lease Term, provided that no action of Landlord in its work
in the remainder of the Landlord Property, or in repairing or restoring the
Demised Premises, shall be deemed a breach of this covenant, or give Tenant any
right to terminate or modify this
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Lease. In addition, Landlord shall not be liable to Tenant for injury or damage
resulting from acts or omissions of parties other than Landlord occupying or
using any part of the remainder of the Landlord Property.
17. CONDEMNATION. If the whole or at least twenty percent (20%) of the
Demised Premises are taken by any governmental body, whether by Court action or
by settlement in lieu thereof, and if the property so taken renders the
remainder of the Demised Premises unfit for the use thereof by Tenant, then
Tenant shall have the option to terminate this Lease by written notice to
Landlord within sixty (60) days of such taking. If the Tenant shall not elect to
terminate, or if the taking does not include at least twenty percent (20%) of
the Demised Premises, there shall be an adjustment of the Rent reflecting, on a
pro rata basis, any reduction in Tenant's leased space. All of the condemnation
award, except for damage to or the taking of Tenant's property and Tenant's
relocation award, if any, shall be the exclusive property of Landlord.
18. NO TERMINATION BY SALE. No transfer or assignment of Landlord's
interest in the Demised Premises of this Lease shall terminate this Lease, or
modify or amend the terms hereof, unless Tenant shall agree thereto in writing .
The term "Landlord" as used in this Lease means only the owner of the fee title
to the Landlord Property. The current Landlord, upon any transfer or conveyance
of its interest in the demised Premises, shall be entirely freed and relieved
of all covenants and obligations of the Landlord hereunder, provided that the
transferee of Landlord's interest in the Landlord Property has assumed and
agreed to carry out any and all covenants and obligations of Landlord hereunder.
19. NO PERSONAL LIABILITY. The liability of Landlord and any partners,
agents, employees, stockholders, officers, or directors of Landlord shall be
limited to Landlord's interest in the Landlord Property. No other assets of
Landlord or any such other party shall be liable for, or subject to, any
liabilities pertaining to this Lease.
20. HOLDING OVER. This Lease shall automatically terminate on the last
day of the Lease Term without the requirement of notice from either party.
Provided, however, if Tenant shall continue to occupy the demised Premises
after the last day of the Lease Term with the prior written approval of
Landlord, such occupancy shall be on a month to month basis, and shall otherwise
be upon the same terms and conditions as herein set forth, except that either
party may terminate such month to month tenancy upon 30 days prior written
notice to the other party.
21. TENANT'S ASSIGNMENT - SUBLEASE. Tenant shall not transfer,
mortgage, encumber, assign, or sublease all or any part of the demised
Premises, without Landlord's prior written consent.
22. MISCELLANEOUS. (a.) This Lease shall be binding upon the
respective parties hereto, and upon their heirs, executors, successors and
assigns. (b.) This Lease supersedes and cancels all prior negotiations between
the parties, and all changes in this Lease shall be in writing and signed by the
party affected by such change. (c.) The singular shall include the plural, and
the masculine or neuter includes the other. (d.) Each party hereto which is a
corporation or partnership (hereafter an "Organization") warrants and represents
to the other party hereto that the Organization, and any of its partners or
constituent members which are partnerships or corporations, are each valid and
existing legal entities, in good standing and duly authorized to transact
business in North Carolina, and, if different, their states of organization; and
that all persons executing this Lease on behalf of an Organization, or any
partner or constituent member thereof, have been duly authorized to do so.
Further, the execution of this Lease has been duly authorized by all appropriate
action of each Organization. (e.) The Demised Premises are leased subject to all
recorded easements, restrictions, and rights of way legally affecting the same.
23. RECORDING. This Lease shall not be recorded, but, at the request
of either party and at such party's expense, a memorandum hereof, containing
such information as is necessary to provide adequate record notice of the
existence of the Leasee and the terms hereof, including whether options to renew
or purchase exist, shall be prpared and records in the county where the Demised
Premises are located.
24. NOTICES. Any notices which Landlord or Tenant is required or
desires to be given to the other shall be deemed sufficiently given or rendered
if in writing and delivered personally, or sent by certified or registered mail,
postage or fees prepaid, to the address listed for such party at the beginning
of the Lease, or to such other address as the intended recipient shall have
previously provided to the sender by like notice. All such notices or other
communications shall be deemed delivered, given, and received on the earlier of:
(a) the date of actual delivery: or (b) two (2) business days after mailing by
certified or registered mail, all
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regardless of refusal to accept delivery or inability to deliver due to the
recipient having failed to keep the sender informed of the recipient's current
address.
25. COMMISSIONS.
25.1. Initial Term. No commission shall be payable by Tenant in
connection with this Lease. Landlord shall pay to Carolantic Realty, Inc.,
within ten (10) days after the Commencement Date, a commission of 6% of the
Minimum Rent payable for the initial term of the Lease, of which commission
Carolantic Realty, Inc. shall promptly forward (if none, put "NONE") 50% of
said commission to JIM CLARK OF EQUITY AND INVESTORS MANAGEMENT CORPORATION,
hereinafter called "Co-Broker."
25.2. Option Periods. On or before the first day of each exercised
extension period, Landlord shall pay to Carolantic Realty, Inc. a commission of
six percent (6%) of the Minimum Rent payable for such extension period, of which
commission Carolantic Realty, Inc. shall promptly forward NONE % (if none, put
"None") of said commission to Co-Broker.
26. SECURITY DEPOSIT. Landlord acknowledges receipt from Tenant of the
sum of $8,364.17, which sum Landlord shall retain, without any interest payable
to the Tenant, as security for the performance by Tenant of each of its
obligations hereunder. After a Default by Tenant under this Lease, Landlord may,
at its option, apply said deposit to cure Tenant's Default; but if, prior to the
termination of this Lease, Landlord depletes said deposit, Tenant shall
immediately restore the amount so used by Landlord. Unless the Landlord uses the
same to cure a Default of Tenant, or at the conclusion of the Lease Term to
restore the demised Premises to its condition on the Commencement Date,
reasonable wear and tear excepted, Landlord shall, within thirty (30) days of
the termination of the Lease, refund to Tenant the balance of the deposit that
the Landlord holds.
27. PAYMENTS. All Rent and other charges (which total $9,752.62 per
month as of the first full regular month's payment called for in this lease)
shall be payable by Tenant to and addressed to:
AIRPORT BOULEVARD PARTNERS, LLC
POST OFFICE BOX 33312
RALEIGH, NORTH CAROLINA 27636
or to such other payee and such other address as Landlord shall designate by
prior written notice to Tenant.
28. OTHER PROVISIONS. The following additional provisions are attached hereto
and by this reference made a part hereof (if none, insert "None" in the blank
space which follows):
28.1. Parking. Tenant shall have the right to thirty-eight unassigned (38)
parking spaces in the parking lots, as shown on Exhibit A, which surrounds the
Landlord's Property.
28.2. First Right of Refusal. During the initial term of this Lease, in the
building where the Demised Premises are located, upon receipt of notice from
other building tenants of such tenant's intent to vacate, Landlord will notify
Tenant of such vacancy. Tenant upon notice from Landlord shall have 30 days
exclusive right to negotiate mutually agreeable terms to take such space. After
the 30 day period this right is null and void.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly
executed in duplicate originals, all as of the day and year first above written.
TENANT: MULTIMEDIA ACCESS CORPORATION LANDLORD: AIRPORT BOULEVARD PARTNERS,
LLC
(By:)Signature: (SEAL) (By:)Signature: (SEAL)
-------------------- ----------------------
(By:)Signature: (SEAL) (By:)Signature: (SEAL)
-------------------- ------------------------
Printed Name: William S. Leftwich Printed Name
-------------------- ------------------------
Chief Financial Officer
9
DEED OF OFFICE LEASE
MADE AND EXECUTED this 27th day of February 1997, by and between The Air Force
Association (hereinafter called "Landlord") and MultiMedia Access Corporation
(hereinafter called "Tenant").
WITNESSETH
That in consideration of the mutual covenants, promises and agreements
herein contained, the parties do hereby covenant, promise, and agree to and with
each other as follows:
1. PREMISES. Landlord does hereby grant, demise and lease, and Tenant does
hereby take and hire from Landlord, the Premises known as; Suite 160 containing
approximately 613 square feet of rentable area, measured in accordance with the
WDCAR method situated on the first floor of the Air Force Association Building,
located at 1501 Lee Highway, Arlington, Virginia 22209 ("Building"). Said
premises shall be completed in accordance with Exhibit "A" (Plans) utilizing
Landlord's selection of building standard materials and finishes.
2. TERM AND POSSESSION. The term of this lease shall be three (3) years,
commencing upon substantial completion of the tenant improvements estimated to
be on the fifteenth day of March, 1997, and fully ending at Midnight on the
fourteenth day of March, 2000. If possession is given to Tenant on any day other
than the first day of the month, Tenant shall pay Landlord the pro rated rental
for the balance of such calendar month, and the stated term above provided shall
commence on the first day of the next calendar month.
If delivery of possession of the premises shall be delayed beyond the
date specified above for the commencement of the term of this lease, through no
fault of the Landlord, Landlord shall not be liable to the Tenant for any damage
resulting from such delay and the Tenant's obligation to pay rent shall be
suspended and abated until possession of the premises is delivered. In the event
of such a delay, it is understood and agreed that the commencement of the term
of this lease shall also be postponed until delivery of possession and that the
termination date of the term shall be correspondingly extended.
3. RENT. The basic annual rental for the demised premises for the first lease
year shall be Eleven Thousand Thirty Four and 00/100 Dollars ($11,034.00),
payable in equal monthly installments of Nine Hundred Nineteen and 50/100
Dollars ($919.50) on the first day of each calendar month, in advance, without
demand and without any deduction or set off whatsoever to and at the office of
Leggat McCall Properties Management of Metropolitan Washington, Inc., having an
address of 2800 Shirlington Road, Suite 700, Arlington, Virginia 22206, or its
successors or assigns. Any installment of rent which is not paid within ten (10)
days after the due date shall be subject, at Landlord's option, to a late charge
equal to five percent (5%) of the amount due, which shall be payable as
additional rent.
4. INITIAL PAYMENT. Tenant, concurrently with the execution of this Lease, has
deposited with Landlord the sum of One Thousand Eight Hundred Thirty Nine and
00/100 Dollars ($1,839.00), of which Nine Hundred Nineteen and 50/100 Dollars
($919.50) shall apply to the first month's rent, and Nine Hundred Nineteen and
50/100 Dollars ($919.50) shall apply to the Security Deposit under this Lease.
5. USE. The demised Premises shall be used for general office use and for no
other purpose. Tenant shall not permit any business to be operated in or from
the Demised Premises by any concessionaire or licensee without prior written
consent of Landlord.
6. OPERATING EXPENSES/REAL ESTATE TAXES. Tenant shall pay its pro rata share of
the increase in "Operating Expenses and Real Estate Taxes" (defmed below) during
the terin of this lease as additional rental (hereinafter, "OE Rent").* OE Rent
shall be determined in the following manner:
(a) The base year, for the purposes of this paragraph, is defined as the
calendar year 1997.
(b) After the end of each calendar year, Landlord shall furnish Tenant with a
statement setting forth the Operating Expenses and Real Estate Taxes for the
preceding calendar year, and the Operating Expenses and Real Estate Taxes for
the base year. Tenant shall receive an invoice showing its pro rata share of the
Increase in Operating Expenses and Real Estate Taxes for the most recent
calendar year over the base year, which amount shall be Tenant's OE Rent with
respect to such year. Tenant shall pay the OE Rent to Landlord within ten (10)
days from date of receipt of the invoice.
(c) In addition to paragraph (b) above, Landlord shall have the right to collect
OE Rent in twelve (12) monthly installments over the course of each year, on the
first (I st) day of each month. The monthly installments shall be in an amount
reasonably estimated by Landlord to pay the OE Rent due for such year, taking
into account payments previously made during such year. After the end of the
calendar year, tenant shall receive a statement showing the actual Operating
Expenses and real Estate Taxes for that year and the amount paid by Tenant by
installments during such year. If Tenant's pro rata share of the actual increase
is greater than the amount paid by Tenant by installments during such year ,
Tenant shall within ten (10) days of receipt of the statement remit the the
excess to Landlord. If Tenant has paid during such year an amount greater than
its share of actual Operating expense and Real Estate Taxes increases, Landlord
shall credit such excess against the estimated operating expense adjustments
<PAGE>
next due.
(d) The adjustment described in paragraph (c) shall be made each ensuing year.
Tenant shall continue to pay the estimated OE Rent each month until Landlord
notifies Tenant of any change in the amount of the OE Rent.
(e) If the lease contains any period less than a full calendar year, then the
amounts payable under either paragraph (b) or (c) shall be prorated for the
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period of time the lease is in effect.
(f) The Term "Operating Expenses and Real Estate Taxes" whether being used with
respect to the base year or any subsequent calendar year, shall mean all those
costs and expenses incurred during such calendar year in operating and
maintaining (including cleaning, protecting, servicing and repairing) the
building (including the premises) as detennined by Landlord on an accrual basis.
Such costs and expenses shall include, but not be limited to, real estate taxes,
utilities, trash removal, telephone service, insurance, security janitorial
service and supplies, labor costs (including social security taxes,
contributions and fringe benefits), charges under maintenance and service
contracts, management fees, business taxes and licenses and all other costs and
expenses of operating and maintaining the building (including the cost of any
capital improvements which are made by Landlord for the purpose of reducing
Operating Expenses and Real Estate Taxes, provided that the cost of each such
capital improvement, together with any financing charges incurred in connection
therewith, shall be amortized over the useful life thereof and only that portion
attributable to such calendar year shall be included in Operating Expenses).
Operating Expenses and Real Estate Taxes shall not include (i) payments of
principal and interest on any mortgages, deeds of trust or other encumbrances
upon the building, (ii) leasing commissions, and (iii) costs of preparing,
improving or altering space for any new or renewal tenant.
g) The first payment of increases shall occur on the anniversary of the
Commencement Date. All subsequent payment of increases shall occur at the
beginning of the calendar year.
h) OE Rent is to be calculated on a basis reflecting operating expenses as if
the building were ninety-five percent (95%) occupied each year.
i) Controllable Operating Expenses shall be defined as all Operating Expenses
exclusive of all taxes, insurance and utilities.
OE Rent for Controllable Operating Expenses shall not increase more than five
percent (5%) in any given year.
7. ANNUAL ESCALATION. Beginning at the commencement of the second (2nd) lease
year, and annually thereafter, the base rental rate will be escalated by three
percent (3%).
8. SERVICES. Landlord shall provide heating/air conditioning, elevator service
and management Monday through Friday, 8 a.m. to 6 p.m., Federal Holidays
excluded. After hours HVAC is currently available at a rate of $45.00 per hour,
which may change from time to time. Full cleaning service is provided after
hours. Access to the building, garage and elevator service is available
twenty-four (24) hours per day, year round, barring any extraordinary and
unforeseen circumstances, and excepting emergency situation. Landlord shall not
be liable for any stoppage or interruption of any of said services caused by
riots, strikes, labor disputes or unavoidable accidents, nor for the stoppage or
interruption of any such services for the purpose of making needful repairs.
9. FIXTURES. Landlord shall have the right to approve the plans for the design
of the interior of the demised Premises, which approval shall not be
unreasonably withheld. After such approval is obtained, Tenant may install any
furniture, fixtures and machinery necessary to conduct his business, and the
same shall remain his property, provided they be removed before the expiration
of the term. In the event any damage is done to said premises in said removal,
Tenant will promptly reimburse Landlord for the cost of such repairs as are
necessary to restore said premises to their original condition. Any furniture,
fixtures and machinery not so removed before expiration of his term or any
extension thereof shall be deemed to have been abandoned by Tenant and shall
become Landlord's property. Landlord shall have a lien upon Tenant's property in
the Demised Premises to secure Tenant's performance of its obligations. After
Tenant is in possession, and Tenant makes changes to the premises, hen cost of
restoring said premises to its original condition is the obligation of the
Tenant.
10. REPAIRS. Tenant accepts the premises as being in a tenantable and good
condition. Tenant shall take good care of the premises, and they shall not be
altered, repaired or changed without written consent of Landlord. All
alterations, additions and improvements made in and to the premises shall,
unless otherwise provided by written agreement, be the property of Landlord, and
shall remain upon and be surrendered with the premises. All damage or injury
done to the premises by Tenant, or by any person who may be in or upon the
premises with the consent of Tenant, shall be paid for by Tenant. Tenant shall,
at the termination of this lease, surrender the premises to Landlord in as good
2
<PAGE>
condition as reasonable and proper use thereof will permit. Landlord reserves
the right to enter upon said premises at all reasonable times to make repairs
that may be considered necessary for the preservation of said leased premises or
the said building and for that purpose, to erect in or about said leased
premises any necessary scaffolding or other temporary structures. Landlord shall
not be liable to Tenant for any damage or inconvenience thereby suffered. Tenant
may not change locks without Landlord's consent. No signs (temporary or
otherwise) other than building standard signs may be installed on any exterior
suite doors.
11.FIRE RISK. Tenant will not do , or permit anything to be done, in or upon the
premises, or bring or keep, or permit anything to be brought or kept, into or on
the premises, which shall increase the rate of fire insurance on the building of
which the Demised Premises form a part, or on the property located therein, If
by reason of Tenant's failure to comply with these terms, the fire insurance
rate shall at any time be higher than it would be otherwise, Tenant shall
reimburse Landlord for such increase and the amount thereof shall be deemed to
be, and be paid as, additional rent.
12.ASSIGNMENT AND SUBLETTING. Tenant will not assign, transfer, mortgage or
encumber this lease without obtaining the prior written consent of Landlord: nor
shall any assignment or transfer of this lease be effectuated by operation of
law or otherwise without the prior written consent of Landlord. Consent will not
be unreasonably withheld excepting, however, Tenant will not assign this lease,
sublet the premises, or permit occupancy or use of the premises or any part
however, Tenant will not assign this lease, sublet the premises, or permit
occupancy or use of the premises or any par thereof by another party or parties,
without giving Landlord thirty (30) days written notice of Tenant's bona fide
proposed assignment or proposed subletting of all or any part of the premises.
Within thirty (30) days from receipt of said notice, Landlord shall have the
right, at its option, either to i) recapture the Premises and release Tenant
from its lease for such space or ii) allow tenant to sublet all or any part of
the Premises. Landlord shall have the right to withhold consent if any
prospective subtenant is not financially approved or whose business detracts
from the character of the Building. In the event Landlord does not exercise
either its right of recapture or its right to consent to the sublease of all or
part of said Premises within thirty (30) days from receipt of said notice,
Tenant may proceed with such assignment or subleasing. The consent by Landlord
to any assignment, transfer or subletting to any party other than the Landlord,
shall not be construed as a waiver or release of Tenant from the terms of any
covenant or obligation under this lease, nor shall the collection or acceptance
of rent from any such assignee, transferee, subtenant or occupant constitute a
waiver of, or release of Tenant from, any covenant or obligation under this
lease, nor shall the collection or acceptance of rent from any such assignee,
transferee, subtenant or occupancy constitute a waiver of, or release of Tenant
form, any covenant or obligation contained in this lease, nor shall such
assignment of subletting be construed to relieve Tenant from giving Landlord
said thirty (30) days notice or from obtaining the consent in writing of
Landlord to any ftirther assignment of subletting. In the event that Tenant
defaults hereunder, Tenant hereby assigns to Landlord the rent due from any
subtenant of Tenant and hereby authorizes each such subtenant to pay said rent
directly to Landlord.
13. REQUIREMENTS OF LAW. Tenant will, at its own cost, promptly comply with and
carry out all orders, requirements or conditions now or hereafter imposed upon
it by ordinances, laws, and/or regulations of the municipality or the county in
which the Premises are located, whether required of Landlord or otherwise, in
the conduct of Tenant's business; except that Landlord shall comply with any
orders affecting structural walls and columns. Tenant will indemnify and save
Landlord harmless from all penalties, claims or demands resulting from Tenant's
failure or negligence in this respect.
14. SUBORDINATION. This lease, and Tenant's rights hereunder, shall be, at
Landlord's option, subject and subordinate to the lien of any bona fide
mortgages or deeds of trust that may now or at any time hereafter be placed
against the Demised Premises by Landlord to secure money borrowed from any
recognized financial institution. Tenant agrees, at any time hereafter, to
execute any instruments, releases or other documents that may be required for
this purpose, including but not limited to:
(a) Offset Statement: Within ten (10) days after request therefor by
Landlord, or in the event that upon any sale, assignment or hypothecation
of the Demised Premises and/or the land thereunder by Landlord an offset
statement shall be required from Tenant; Tenant agrees to deliver, in
recordable form, a certificate to any proposed mortgagee or purchaser, or
to Landlord, certifying (if such be the case) that this Lease is in full
force and effect and that there are no defenses or offsets thereto, or
stating those claimed by Tenant.
(b) Attornment Statement: Tenant shall, in the event any proceedings are
brought for the foreclosure of, or in the vent of exercise of the power of
sale under any mortgage made by the Landlord covering the Demised Premises,
attorn to the purchaser upon any such foreclosure or sale and recognize
such purchaser as the Landlord under this lease.
15. SIGNS. Any sign, lettering, picture, notice or advertisement installed
within Tenant's premises and/or which is visible to the public shall be
installed at Tenant's cost and in such a manner, character and style as Landlord
<PAGE>
may approve in writing. In advertising or other publicity, without Landlord's
prior written consent, Tenant shall not use the name nor pictures of the
building except as the address of its business.
3
<PAGE>
16. RECEIVERSHIP. In the event Tenant shall be adjudicated a bankrupt, or a
receiver or trustee of his property and assets be appointed after Tenant has
exhausted his legal remedies in opposing such receivership, or if Tenant shall
make an assignment or other conveyance for the benefit of his creditors, or if
Tenant shall voluntarily file Petition of Bankruptcy in any Federal or State
proceeding, or if Tenant shall suffer or permit a final judgment or decree for
the payment of money to be entered against him and execution to issue thereon
and be levied upon his interest in this Lease, and such execution and levy be
not dismissed within ten (10) days after the date of such execution and levy.
Upon the happening of any such event, the term hereby demised shall, at
Landlord's option, cease and terminate.
17. CASUALTY DAMAGE AND DESTRUCTION. Tenant shall give immediate notice to
Landlord in case of fire or acts of God in the Demised Premises or in the
building of which they are a part, or of defects therein, or in any fixtures or
equipment. If the premises shall be partially damaged by fire or acts of God,
and Tenant can reasonably carry on its business in said premises, the same shall
be repaired or restored by Landlord, at his expense, as speedily as practicable,
due allowance being made for the time taken for the settlement of insurance
claims. Until the repairs shall be made, the minimum rental shall be reduced in
proportion to the portion of the premises that is unusable. In the event of
destruction (meaning damage to the extent of seventy-five percent (75%) or more
of its usefulness) of said premises by fire or other cause insured against,
Landlord shall have the option to restore the same promptly in accordance with
the provisions hereof, or to cancel and terminate this Lease upon notice to
Tenant at any time within thirty (30) days after the date of such destruction.
18. DEFAULT. If Tenant shall fail to make any rental payment as aforesaid, or
shall vacate or abandon the Demised Premises during the term hereof, or fail to
take possession and operate its business, or break or violate any of the within
covenants, conditions, agreements or rules and regulations, and if such breach
be not corrected within ten (10) days after notice by Landlord to Tenant of such
breach, then and in any of the said events , the whole sum to be paid as rental
throughout the entire term, of this Lease may, at the option of the Landlord
become immediately due and payable, and this Lease and all things herein
contained shall, at Landlord's option, cease and determine and shall operate as
a Notice to Quit, any other Notice to Quit being hereby expressly waived.
Landlord shall have the right, at its option, to take possession of the Demised
Premises and let the same as agent of Tenant and at Tenant's risk and Tenant's
default. No re-entry by Landlord shall relieve Tenant from liability for the
difference between the rent herein reserved and the net rent actually received
by Landlord during the term remaining after such default occurs, or from any
other obligation of Tenant under the terms hereof. Nothing in this paragraph
shall deem to waive any other right or remedy of the Landlord. Tenant shall
reimburse Landlord's legal fees. If Tenant shall fail to make any rental
payments as aforesaid, or shall vacate or abandon the demised Premises during
the term hereof, or fail to take possession within twenty (20) days of the
Commencement Date and operate its business, or break or violate any of the
within covenants, conditions, agreements or rules or regulations, and if such
breach be not corrected within thirty (30) days after notice by Landlord to
Tenant of such breach, excepting any monetary defaults, then and in any of the
said events, the whole sum to be paid as rental throughout the entire term of
this lease, may, at the option of the Landlord become immediately due and
payable, and this Lease and all things herein contained shall, at Landlord's
option, cease and determine and shall operate as a Notice to Quit, any other
Notice to Quit being hereby expressly waived. Landlord shall have the right, at
its option, to take possession of the Demised Premises and let the same as Agent
of Tenant and at Tenant's risk and Tenant's default. No re-entry by Landlord
shall relieve Tenant from liability for the difference between the rent herein
reserved and the net rent actually received by Landlord during the term
remaining after such default occurs or from any other obligation of Tenant under
the terms hereof. Nothing in this paragraph shall deem to waive any other right
or remedy of the landlord. Tenant shall reimburse Landlord's reasonable legal
fees. Notwithstanding anything in this section to the contrary, Tenant shall
have thirty (30) days to cure any non-monetary defaults and ten (10) days to
cure any monetary defaults.
19. TENANT'S PROPERTY. All property in said premises shall be and remain at
Tenant's sole risk. Landlord shall not be liable for loss or damage to property
of Tenant or others arising from theft, fire, explosion, bursting, overflowing,
or leaking of the roof or of water, sewer or steam pipes, or from heating or
plumbing fixtures, or from electric wires or fixtures, or from any other cause
whatsoever, unless such damage shall be caused by the willful act, or gross
neglect of Landlord to make such repairs as are required herein.
20. CONDEMNATION. If the Demised Premises or any part thereof shall be taken
pursuant to the power of eminent domain, Tenant hereby assigns to Landlord any
rights which Tenant may have to any portion of any award made as a result of
such taking. If the whole of the demised Premises shall be acquired, or in the
event of a partial taking which shall render the Demised Premises unsuitable for
Tenant's business, then the term of this Lease shall cease and terminate as of
the date the public authority assumes possession thereof, provided, however,
that if such taking is for a temporary period but not exceeding eighteen (18)
months, neither party may terminate this lease, but all rent shall abate during
such period. Tenant shall have no claim against Landlord nor the condemning
authority for the value of any unexpired term of this Lease.
4
<PAGE>
In the event of a partial taking or condemnation which is not extensive enough
to render the Demised Premises unsuitable for Tenant's business, then Landlord
shall promptly restore the demised Premises to a condition comparable to its
condition at the time of such condemnation less the portion lost in the taking,
and this Lease shall continue in full force and effect, providing, however, that
the minimum rent and all additional rent shall be reduced by proportion which
the amount of Demised Premises taken bears to the initial Floor Area of the
Demised Premises.
21. NUISANCES. Tenant shall not permit any objectionable noise or offensive
odors or sounds to be emitted from the premises, nor do or permit anything
tending to create a nuisance or to disturb any occupants of neighboring
premises, nor do anything tending to injure the reputation of the Building.
Tenant shall not conduct nor allow upon the premises any activities which are
contrary to law.
22. RULES AND REGULATIONS. The rules and regulations appended to this Lease as
Exhibit C are hereby made a part of this Lease, and Tenant agrees to comply with
and observe the same. Tenant's failure to keep and observe said rules and
regulations shall constitute a breach of the terms of this Lease in the same
manner as if the same were contained herein as covenants. Landlord reserves the
right from time to time to amend or supplement said rules and regulations and to
adopt additional rules and regulations applicable to the Demised Premises.
Notice of such additional rules and regulations, and amendments and supplements,
if any, shall be given to Tenant, and Tenant agrees to comply with and observe
all such rules and regulations and amendments thereto and supplements thereof.
23. HOLDOVER. Should Tenant remain in possession of the premises after the
expiration of this Lease, Tenant shall be deemed to be a Tenant from
month-to-month, but subject to all of the terms, conditions, and oblations
hereof insofar as the same may be applicable to a month-to-month tenancy, and
shall pay rental for each such monthly period a sum equal to one hundred fifty
percent (150%) of the last monthly rental.
24. INTERPRETATION. In the event any covenant or condition herein contained is
held to be invalid or void by any court of competent jurisdiction, the validity
of any such covenant or condition shall in no way affect any other covenant or
condition herein contained. Time and each of its terms, covenants and conditions
are hereby declared to be the essence of this contract.
25. NOTICES. Any notices required or given hereunder by Landlord shall be deemed
to have been given if sent by registered or certified mail to Tenant, addressed
to the premises. Any notices required or given hereunder by Tenant to Landlord
shall be deemed to have been given if sent by registered or certified mail to
Landlord's rental agent.
5
<PAGE>
26. BINDING EFFECT. The terms, conditions and agreements herein contained shall
be kept and performed by the respective parties hereto and will be binding upon
them and each of their successors and assigns, and no waiver of any breach of
any agreement, condition or covenant herein contained shall be construed to be a
waiver of the said condition, covenant or agreement itself, or of subsequent
breach thereof, or of this agreement.
27. ADDITIONAL RENT. Tenant shall pay as additional rent all sums of money or
charges required to be paid by Tenant under this Lease, whether or not the same
shall be designated "additional rent" and all remedies applicable to the
nonpayment of rent shall be applicable thereto. Any additional rent that relates
to any delayed performance, any nonperformance, or any default by Tenant, or any
act or omission which would, together with notice or lapse of time or both,
constitute a default be Tenant, shall be deemed payable on the first day of the
month next following such occurrence:
28. ATTORNEYS FEES. In the event it becomes necessary for Landlord to obtain the
services of an attorney and take legal action against Tenant in connection with
the breach of conditions herein set forth on the part of Tenant, Tenant
covenants and agrees that in addition to all other relief allowed by law that
Tenant will pay reasonable attorney's fees plus the clerk's fees, the marshal's
fees, and any and all additional costs that may be incurred in the event that
legal action becomes necessary.
29. ACCESS BY LANDLORD. Landlord or Landlord's agents shall have the right to
enter the Demised Premises during normal business hours to examine the same, and
to show them to prospective purchasers or tenants of the building, and to make
such repairs, alterations, improvements, or additions as Landlord may deem
necessary or desirable, and Landlord shall be allowed to take all material into
and upon said premises that may be required therefor without the same
constituting an eviction of Tenant in whole or in part, and the rent reserved
shall in no way abate while said repairs, alterations, improvements or additions
are being made by reason of loss or interruption of business of Tenant, or
otherwise. If Tenant shall not be personally present to open and permit an entry
into said premises, at any time, when for any reason an entry therein shall be
necessary or permissible, Landlord of Landlord's agents may enter the same by a
master key.
30. FORCE MAJEURE. In the event that either party hereto shall be delayed, or
hindered in, or prevented from, the performance of any act required hereunder by
reason of strikes, lock-outs, labor troubles, inability to procure material,
failure of power, restrictive governmental laws or regulations, riots,
insurrection, war or other reason of a like nature not the fault of the party
delayed in the performing work or doing acts required under the terms of this
Lease, then performance of such act shall be excused for a period equivalent to
the period of such delay. The provisions of this Section shall not operate to
excuse Tenant from prompt payment of rent, additional rent, or other payment
required by the terms of this Lease.
31. QUIET ENJOYMENT. Upon payment by Tenant of the rents herein provided, and
upon the observance and performance of all the covenants, terms and conditions
on Tenant's part to be observed and performed, Tenant shall peaceably and
quietly hold and enjoy the Demised Premises for the term hereby demised without
hindrance or interruption by Landlord or any other person or persons lawfully or
equably claiming by, through or under Landlord, subject, nevertheless, to the
terms and conditions of this Lease.
32. ENTIRE AGREEMENT. This Lease and the Exhibits, and Additional Provisions, if
any attached hereto and forming a part hereof, set forth all the covenants,
promises, agreements, conditions and understandings between Landlord and Tenant
concerning the Demised Premises and there are no covenants, promises,
agreements, conditions or understandings, either oral or written, between them
other than are herein set forth. Except as herein otherwise provided, no
subsequent alteration, amendment change or addition to this Lease shall be
binding upon Landlord or Tenant unless reduced to writing and signed by them.
33. NO PARTNERSHIP. Landlord does not in any way or for any purpose become a
partner of Tenant in the conduct of its business, or otherwise, or joint
adventurer or a member of a joint enterprise with Tenant.
34. DEFINITION OF PRO RATA. Tenant's pro rata share shall be calculated upon the
number of rentable square feet within the building in which the Demised Premises
are located. TENANT'S PRO RATA SHARE OF OPERATING EXPENSES AND REAL ESTATE TAXES
IS 0.95% BASED UPON THE BUILDING'S TOTAL RENTABLE AREA OF 64,241 SQUARE FEET.
35. CAPTIONS. The captions and section numbers appearing in this Lease are
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope of intent of such sections in this Lease or in any way
affect this Lease.
36. TOXIC SUBSTANCES. To the best of Landlord's knowledge, neither Landlord nor
any preceding owners of the property have used the property or any portion
thereof for the production, disposal or storage of any hazardous waste or any
toxic substances, and Landlord is not aware of any such prior use or of any
proceeding or inquiry by a governmental authority with respect to the presence
<PAGE>
of such waste or substance on the property or the movement thereof from or to
adjoining property. To the best of Landlord's knowledge, there is no asbestos in
the Building.
37. INSURANCE.
6
<PAGE>
Insurance to be Maintained by Tenant. Tenant, at Tenant's own cost and expense,
will provide and keep in full force and effect during the term of this Lease,
public liability insurance with limits of not less than Two Million Dollars
($2,000,000) covering injuries to persons, including death, and loss or damage
to real and personal property. Such insurance may be provided under Tenant's
blanket comprehensive liability insurance policy. During the term of this Lease,
Landlord shall be named as an additional insured under such insurance. A
certificate evidencing such insurance coverage shall be delivered to Landlord
not less than fifteen (15) days prior to the commencement of the Term hereof or
the date when Tenant shall enter into possession, whichever occurs later. Such
certificate of insurance will provide for thirty (30) days advance notice in the
event of cancellation.
7
<PAGE>
INSURANCE TO BE MAINTAINED BY LANDLORD. Landlord shall carry comprehensive
property damage insurance for the Building.
WAIVER OF SUBROGATION. Any insurance carried by Tenant with respect to the
Premises shall include a clause or endorsement denying to the insurer rights of
subrogation against Landlord to the extent rights have been waived by Tenant
prior to occurrence of injury or loss.
38. WAIVER OF JURY TRIAL. Landlord and Tenant by this Section waive trail
by jury in any action, proceeding or counterclaim brought by either of the
parties to this Lease against the other on any matters whatsoever arising out
of or in any way connected with this Lease, the relationship of Landlord and
Tenant, Tenant's use or occupancy of the Premises, or any other claims
(including without limitation claims for personal injury or property damage),
and any emergency statutory or any other statutory remedy.
IN WITNESS WHEREOF, the parties have signed these presents and affixed
their seals the day and year indicated below.
<TABLE>
<S> <C>
WITNESS: TENANT: MULTIMEDIA ACCESS CORPORATION
- -----------------------------
By: /s/ Glenn A. Norem, CEO
--------------------------------------------
Printed Name and Title
- -----------------------------
/s/ Glenn A. Norem (SEAL)
--------------------------------------------
Signature
Date Signed 27 Feb 97
--------------------------------------------
WITNESS: LANDLORD: THE AIR FORCE ASSOCIATION
By Leggat McCall Properties Management, Agent
- -----------------------------
By: /s/ John A. Shaud, Exec. Dir.
--------------------------------------------
Printed Name and Title
- -----------------------------
/s/ John A. Shaud (SEAL)
--------------------------------------------
Signature
Date Signed 24 Mar 97
--------------------------------------------
</TABLE>
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF MULTIMEDIA ACCESS CORPORATION AND
SUBSIDIARIES AS OF DECEMBER 31, 1997 AND THE RELATED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,117,202
<SECURITIES> 0
<RECEIVABLES> 1,260,230
<ALLOWANCES> 65,000
<INVENTORY> 1,762,186
<CURRENT-ASSETS> 6,341,001
<PP&E> 1,428,360
<DEPRECIATION> 550,920
<TOTAL-ASSETS> 8,211,415
<CURRENT-LIABILITIES> 1,793,151
<BONDS> 5,000,000
0
0
<COMMON> 900
<OTHER-SE> 1,417,364
<TOTAL-LIABILITY-AND-EQUITY> 8,211,415
<SALES> 3,269,331
<TOTAL-REVENUES> 3,360,703
<CGS> 1,695,922
<TOTAL-COSTS> 1,695,922
<OTHER-EXPENSES> 3,050,315
<LOSS-PROVISION> 67,619
<INTEREST-EXPENSE> 290,492
<INCOME-PRETAX> (5,827,405)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,827,405)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,827,405)
<EPS-PRIMARY> (0.75)
<EPS-DILUTED> (0.75)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF MULTIMEDIA ACCESS CORPORATION AND
SUBSIDIARIES AS OF DECEMBER 31, 1996 AND THE RELATED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-01-1996
<EXCHANGE-RATE> 1
<CASH> 18,539
<SECURITIES> 0
<RECEIVABLES> 228,564
<ALLOWANCES> 43,000
<INVENTORY> 310,133
<CURRENT-ASSETS> 1,064,770
<PP&E> 786,422
<DEPRECIATION> 325,527
<TOTAL-ASSETS> 1,691,258
<CURRENT-LIABILITIES> 7,472,088
<BONDS> 0
0
0
<COMMON> 532
<OTHER-SE> (5,781,362)
<TOTAL-LIABILITY-AND-EQUITY> 1,691,258
<SALES> 901,262
<TOTAL-REVENUES> 1,095,012
<CGS> 393,918
<TOTAL-COSTS> 393,918
<OTHER-EXPENSES> 2,203,187
<LOSS-PROVISION> 42,777
<INTEREST-EXPENSE> 513,979
<INCOME-PRETAX> (4,393,965)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,393,965)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,393,965)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
