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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-25992
NETVANTAGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4324525
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
201 CONTINENTAL BLVD. SUITE 201, EL SEGUNDO, CA 90245
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(310) 726-4130
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
Class A Common Stock, par value $0.001
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period 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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 31, 1997 was $67,322,209. Included in this amount are
$62,238,415 for Class A Common Stock, $2,398,732 for Class B Common Stock and
$2,685,062 for Class E Common Stock.
The number of shares outstanding of each of the Registrant's classes of
Common Stock as of March 31, 1997: 9,867,112 shares of Class A Common Stock,
490,739 shares of Class B Common Stock, and 540,995 shares of Class E Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
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PART I
ITEM 1. BUSINESS.
GENERAL
NetVantage, Inc. ("NetVantage" or the "Company") is a leading provider of
Ethernet Workgroup switching products designed to increase the information
handling capacity of new and installed Local Area Networks or "LANs." Other
applications of use for the Company's switching products include connecting
LANs to each other to extend the network's scope and power and to provide
installed networks with the ability to connect to networking devices
incorporating new technologies such as Asynchronous Transfer Mode or "ATM,"
and Gigabit Ethernet. The Company's switching products require no special
skills to install, and require no changes to existing user network equipment,
wiring, hub equipment, software protocols or applications.
The Company markets its products worldwide exclusively through Original
Equipment Manufacturers ("OEMs"). Sales to the three largest customers
amounted to $8,003,350 (31%), $5,712,598 (22%), and $3,773,259 (14%) in 1996
and sales to the three largest customers amounted to $256,173 (20%), $254,705
(20%) and $206,454 (16%) in 1995. The three largest customers in 1996 were
different than the three largest customers in 1995.
The Company has devoted substantial resources to research and development,
with the belief that its future success is highly dependent on its ability to
enhance existing products, as well as to develop new products which meet both
the needs of its customers and maintain technological competitiveness in the
OEM market.
Also of significance to the Company is the on-going development and
expansion of its account base. Key to this development and expansion is high
visibility within the existing account base as well as significant continuing
field activity to expand the number of OEMs. As a result, the Company intends
to increase the size of its sales force to meet these objectives.
As cost is a fundamental decision criteria in the OEM Ethernet switching
market, manufacturing efficiencies and quality are also considered important
success factors. Shipping volumes continue to increase resulting in
substantial economies of scale from both a raw material and actual cost of
manufacturing perspective. Current contract manufacturing capacities are
expected to be adequate to meet anticipated volumes. To monitor quality
output, the Company retains salaried employees on-site at the contract
manufacturer's facility. Given the anticipated increase in product shipments,
the Company intends to increase its quality and test resources in order to
maintain continued high quality.
Any contemplated or planned increase in resources or investment is highly
dependent on several factors, including the growth of the Company's revenue,
new product delivery schedules, product acceptance in the marketplace, and
retention of existing employees coupled with the Company's ability to attract
appropriate, experienced personnel. Due to the anticipated increase in fixed
operating expenses, any of the above factors could adversely affect the
Company's revenues and thereby negatively impact the Company's operating
results.
To provide the necessary working capital to support the anticipated
significant growth of the Company, on October 24, 1996, the Company completed
the redemption of its Class A Warrants which resulted in the exercise of 99.9%
of the Class A Warrants and the issuance of 2,335,568 shares of Class A Common
Stock and the same number of Class B Warrants. In addition, as of October 24,
1996, 368,360 Class B Warrants were voluntarily exercised, resulting in the
issuance of 386,778 shares of Class A Common Stock. Total proceeds from the
exercise of all Class A Warrants on October 24, 1996 was approximately
$17,368,000.
The Company redeemed its remaining Class B Warrants on January 10, 1997.
Prior to the redemption date, more than 3.5 million (or greater than 99%) of
the outstanding Class B Warrants were exercised, resulting in gross proceeds
to the Company of approximately $27,000,000.
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The Company was originally incorporated in California on March 12, 1991. In
late 1994, the Company changed its state of incorporation from California to
Delaware. The statements contained in this report regarding matters that are
not statements of historical fact are forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results may differ materially from the statements made in this report
as a result of various factors, including those stated in "Risk Factors" and
elsewhere in this report and other factors which are listed from time to time
in other documents filed by the Company with the Securities and Exchange
Commission.
PRODUCTS
In mid-1994, the Company introduced an 8 port 10MB Ethernet switch and began
commercial shipments of this product in late 1994. In the same year, the
Company began development of a Token Ring Switch. In early 1996, the Company
decided to halt further development of the Token Ring Switch and focus the
Company's resources on the larger, faster growing Ethernet switching market.
In December 1995, the Company introduced a 16 port 10MB Ethernet switch with
1 high speed 100MB uplink, to potential OEM customers. Significant shipments
of the product began in March of 1996. Throughout 1996, the Company released a
number of new products derived from the original 16 port plus 1 uplink
product. These products include an 8 port 10MB Ethernet switch with 1 high
speed 100MB uplink, and the introduction of fiber interfaces on the high speed
uplinks. This product set accounted for substantially all of the Company's
1996 revenues.
PRODUCT DEVELOPMENT
During the years ended December 31, 1996, 1995 and 1994, the Company
incurred research and development expenses of $4,312,927, $2,192,536 and
$847,872, respectively. The Company expects to expend substantial funds in the
future for research and development.
On April 30, 1996, the Company acquired all of the outstanding capital stock
of MultiMedia LANs, Inc. ("MultiMedia"), and merged MultiMedia into the
Company. As a result, the Company acquired significant Application Specific
Integrated Circuit or "ASIC" expertise. The fundamental advantage of ASIC
development to the Company is higher levels of component integration resulting
in reduced costs to manufacture product.
In the spring of 1996, the Company began work on its first ASIC, code named
"Coyote." The Coyote ASIC is a 100Mbps Media Access and Direct Memory
controller with customized features for Ethernet switching. The purpose of
Coyote is to consolidate several high speed uplink components into a single
chip resulting in a significant reduction in the cost of goods sold. The
Company completed testing of Coyote on December 30, 1996.
The Coyote ASIC is expected to be integrated into the high speed uplinks of
the core 8 and 16 port 10MB switches shipping to OEMs in early 1997. The
product line is also expected to be expanded by adding a second high speed
uplink to both the 8 and 16 port models.
In the fall of 1996, the Company expanded its ASIC development expertise,
staffing two remote design centers. Concurrent with this expansion, the
Company started the development of two new ASIC-based families of Ethernet
switches, internally named "Cougar" and "Cyclone." Both products feature high
levels of system integration. Specifically, the entire switching fabric of
both products will be integrated into a single chip.
Technology for both Cougar and Cyclone was derived from a parallel
development, code named "Corvette." Corvette is a 100MB high performance
Ethernet switch developed in Field Programmable Gate Array or FPGA technology.
As a result of problems with the FPGAs, the release of Corvette has been
delayed indefinitely.
Cougar is a 24 port 10MB Ethernet switch with up to 4 high speed 100MB
uplinks. The product can be either managed or unmanaged and has a number of
configuration options to meet OEM customer requirements. Cougar has low per
port costs and is targeted at the low-cost, high performance desktop and
Workgroup Ethernet switching market. The Company also intends to target the
Cougar product family in the shared media hub replacement market, a market
which the Company believes will grow substantially over the next three years.
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Cyclone is a multiple configuration product platform that features high
speed, high performance 10/100 Mbps Ethernet switching with Gigabit and/or ATM
uplink support. Other configurations include full Gigabit switching. Cyclone
supports industry standards for virtual LANs ("VLAN"), multimedia traffic
prioritization ("QoS") and network management ("RMON"). The Company
anticipates that both the Cougar and the Cyclone switches will be initially
released in the fourth quarter of 1997. Together, the Cougar and Cyclone are
expected to form a comprehensive suite of products for Ethernet Workgroup and
desktop switching. However, no assurance can be given that the Company's
products will be developed on schedule and will be accepted by the market.
SALES AND MARKETING
Between the period from April 1995 to November 1995, the Company attempted
to develop a value-added reseller and reseller distribution channel. In
November 1995, the Company changed its strategic marketing emphasis electing
to distribute its products to OEMs, and discontinued its efforts to market
through other distribution channels.
The Company currently markets its products exclusively on an OEM basis to
domestic and foreign customers, through a sales staff primarily located at the
Company's El Segundo office. The Company signed its first OEM contract
agreement with Hewlett Packard in February of 1996. Since then, the Company
has grown its OEM account base from two in the first quarter of 1996 to
nineteen in the fourth quarter of 1996. The Company continues to expand its
account base.
COMPETITION
The Company faces competition on three fronts: from companies that market
their own switches on an OEM basis, including Accton, D-Link, Network
Peripherals and Xylan; from companies that develop commercial switching
silicon which facilitates the development of LAN switches, including AMD,
Galileo and Texas Instruments; and from internal switch development by the
Company's existing OEM customers. Many of the Company's current and potential
competitors have significantly greater financial, technical, marketing and
other resources and larger installed customer bases.
To improve its competitive position in the market, continuous development
and introduction of new products and product features must be achieved in a
timely and cost effective manner, so as to keep pace with competitors'
offerings, technological developments and changing industry standards.
There can be no assurance that the Company will be able to identify,
develop, manufacture, market or support its products successfully or that the
Company will be able to respond effectively to technological changes, revised
industry standards or product announcements by competitors. Delays in new
product introductions or product enhancements, or the introduction of
unsuccessful products, could adversely affect the Company.
MANUFACTURING AND MATERIALS
The Company designs all of the hardware sub-assemblies used in its products
and employs the services of an ISO-9002 certified manufacturer to build and
test these sub-assemblies. Final assembly, configuration and testing of the
Company's products is performed by the same contract manufacturer which
utilizes burn-in, automated testing and comprehensive inspection to assure the
quality of the finished products. The Company also conducts Ongoing
Reliability Testing to ensure that all products meet the reliability
requirements of its customers.
The Company's manufacturing operations consist of the procurement of
components and the assembly, testing and quality assurance of finished goods
for shipment to its customers. The Company utilizes a one source distributor
to procure, stock and kit for assembly the bulk of its raw materials.
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Although the Company generally uses standard parts and components for its
products, certain components are currently available only from single or
limited sources. The Company believes that it will be able to obtain adequate
supplies in a timely manner from these existing sources or that any shortages
experienced will be no worse than other competitors will face. No assurance
can be given that these shortages will not occur or that the Company will not
experience an increase in price or interruption in availability of one or more
of its components that would adversely affect the Company's operating results
and business.
There can be no assurance that the Company will effectively manage its
contract manufacturer or that such manufacturer will meet the Company's future
requirements for timely delivery of products of sufficient quality and
quantity.
PROPRIETARY RIGHTS
The Company does not have any patents; however, the Company has filed a
patent application relating to the Company's core switching technology. This
patent has been approved and is awaiting issuance. The Company relies on a
combination of patent, trade secret, copyright and trademark law,
nondisclosure agreements and technical measures to establish and protect its
proprietary right in its products.
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this report in evaluating the Company and its
prospects:
Recurring Losses; Fluctuations in Quarterly Operating Results
The Company's net loss for the year ended 1996 was approximately $9.9
million, with net losses since its inception totaling approximately $21.4
million. The future success of the Company is dependent upon, among other
things, the Company's ability to successfully develop and market its products,
obtain necessary capital, control costs and achieve a sustainable operating
profit. There can be no assurance that the Company will ever become
profitable.
During the second half of 1996, the Company experienced a rapid growth in
revenues, principally due to the introduction and customer acceptance of a new
family of products and its decision to focus solely on the OEM market for
distribution of its products. A significant portion of the Company's revenues
have been, and will continue to be, derived from substantial orders placed by
a few OEM customers. Sales to the three major customers amounted to $8,003,350
(31%), $5,712,598 (22%), and $3,773,259 (14%) in 1996 and sales to the three
major customers amounted to $256,173 (20%), $254,705 (20%) and $206,454 (16%)
in 1995. Due to, among other things, the Company's limited customer base, the
rapidly changing nature of the markets for its products and the likelihood of
increased competition, there can be no assurance that the Company's rate of
growth in revenues will continue or increase in the future.
Additionally, the Company's operating results, especially when viewed on a
quarter-to-quarter basis, are affected by a wide variety of factors,
including, among other things, the Company's success in the timely
development, introduction and shipping of its current and new products; the
mix of products sold; the Company's ability to reduce operating expenses and
to retain and recruit personnel; competition and changes in the demand for the
Company's and competitors' products; price reductions for the Company's and
competitors' products; changes in the levels of inventory held by the
Company's OEM customers; the level of usage of similar internally developed
products by the Company's OEM customers; the timing of orders from and
shipments to its OEM customers; and general economic conditions. The Company
typically operates with a relatively small backlog. As a result, quarterly
revenues and operating results generally depend on the volume and timing of,
and ability to fulfill orders received within the quarter, which are difficult
to forecast. A significant portion of the Company's expense levels are
relatively fixed in advance, based largely on the Company's forecasts of
future sales. If sales are below expectations in any given quarter, the
adverse impact of the shortfall on the Company's operating
5
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results may be magnified by the Company's inability to adjust spending to
compensate for the shortfall. In addition, the Company currently intends to
increase its funding of product development, increase its sales and market
development activities and add sales and marketing personnel. Accordingly,
there can be no assurance that the Company will ever be able to achieve
profitability in the future, whether annually or on a quarter-to-quarter
basis.
Based on the foregoing, the Company believes that its revenues and operating
results are likely to vary significantly in the future and that period-to-
period comparisons of its revenues and results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance. Further, it is likely that in the future the Company's revenues
or operating results will from time to time be below the expectations of
public market analysts and investors. In such event, the price of the
Company's Common Stock is likely to be materially adversely affected. See
"Risk Factors--Fluctuations in Market Price of the Company's Securities."
Product Development and Timely Introduction of New and Enhanced Products
From its inception until mid-1996, the Company was primarily engaged in
research and development and, as a result, has had limited marketing
experience to date. The market for the Company's current products is
characterized by rapidly changing technologies, evolving industry standards,
frequent new product introductions and short product life cycles. Accordingly,
the Company believes that its future success will depend on its ability to
enhance its existing products and to develop and introduce in a timely fashion
new products that achieve market acceptance. There can be no assurance that
the Company will be able to identify, develop, manufacture or market such
products successfully or that the Company will be able to respond effectively
to technological changes, industry standards revisions or product
announcements by competitors. Delays in new product introductions or product
enhancements, or the introduction of unsuccessful products, could have a
material adverse effect on the Company and its results of operations. The
Company's revenues are dependent on, among other things, the acceptance of its
products by its OEM customers, and no assurance concerning their acceptance
can be given. From time to time, the Company may announce new products,
capabilities or technologies that have the potential to replace the Company's
existing product offerings. There can be no assurance that announcements of
new product offerings will not cause its customers to defer purchasing
existing Company products, materially and adversely affecting the Company and
its results of operations.
The Company has experienced delays in the development of its new products
and certain enhancements of existing products. There can be no assurance that
the Company will be successful in developing and marketing, on a timely basis
or at all, competitive products, product enhancements and new products that
respond to technological change, changes in customer requirements and emerging
industry standards, or that the Company's products will now or in the future
adequately address the changing needs of the marketplace. The inability of the
Company, due to resource constraints or technological or other reasons, to
develop and introduce, new products or product enhancements in a timely manner
could have a material adverse affect on the Company and its results of
operations.
Competition
Competition in the market in which the Company competes is characterized by
rapidly changing technologies, evolving industry standards, in-house or
proprietary solutions, frequent new product introductions, and rapid changes
in customer requirements. To maintain and improve its competitive position,
the Company must develop and introduce, in a timely and cost-effective manner,
new products and product features that keep pace with competitors' offerings,
technological developments and changing industry standards. The principal
competitive factors in the Company's market are price performance, feature
performance, customer support, and quality. There can be no assurance that the
Company will be able to identify, develop, manufacture or market products
successfully or that the Company will be able to respond effectively to
technological changes or product announcements by its competitors. Delays in
new product introductions or product enhancements or the introduction of
unsuccessful products could materially and adversely effect the Company and
its results of operations.
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Many of the Company's current and potential competitors have longer
operating histories and have greater financial, technical, sales, marketing
and other resources than the Company. Moreover, the Company's current and
potential competitors may respond more quickly than the Company to new or
emerging technologies or changes in customer requirements. In addition, as the
market develops, a number of companies with significantly greater resources
than the Company could attempt to increase their presence in the market by
acquiring or forming strategic alliances with competitors of the Company,
resulting in increased competition to the Company. There can be no assurance
that the Company will be able to compete successfully with such competitors.
Risks Associated with Software
The development, enhancement and implementation of the Company's products
entail risks of product defects or failures. The Company has in the past
discovered software bugs in certain of its products. Although to date, the
Company has not experienced material adverse effects resulting from any such
bugs, there can be no assurance that errors will not be found in existing or
new products, which may result in delay or loss of revenue, loss of market
share, failure to achieve market acceptance, or may otherwise adversely impact
the Company's business, operating results and financial condition.
Dependence on Single-Source Suppliers and Contract Manufacturers
Although the Company generally uses standard parts for its hardware
products, certain components, circuit boards, connectors, mechanical
assemblies and power supplies are presently available only from a single
source or from limited sources. The Company generally purchases single or
limited source components pursuant to purchase orders and has no guaranteed
supply arrangements with these suppliers. In addition, the availability of
many of these components to the Company is dependent in part on the Company's
ability to provide its suppliers with accurate forecasts of its future
requirements. The Company has generally been able to obtain adequate supplies
of parts and components in a timely manner from existing sources and endeavors
to maintain inventory levels adequate to guard against interruptions in
supplies. The Company believes that there are alternative suppliers or
alternative components for all of the components contained in its products.
However, any extended interruption in the supply of any of the key components
currently obtained from a single or limited source or the time necessary to
transition a replacement supplier's product or a replacement component into
the Company's products could disrupt its operations and have a material
adverse affect on the Company and its operating results. The Company purchases
certain components from suppliers outside the United States; however, all such
purchases are denominated in U.S. dollars and the Company believes all such
components or alternate components are available from suppliers within the
United States. The Company may also be subject to increases in component
costs, which could also have a material adverse effect on the Company and its
operating results.
The Company shifted to an outsourcing strategy for the manufacture of its
products during l996. The Company relies on a single independent contractor to
manufacture all of its products to its specifications. Any difficulties
experienced by the Company's manufacturer, on which the Company is solely
dependent for the supply of its products, could materially adversely affect
the Company and its operating results.
Limited Number of Customers
The Company currently markets its products to a limited number of OEM
customers, which purchase the Company's products under purchase orders. In
addition to the Company's products, such customers may also use products that
are developed internally or purchased from third parties, that compete with
the Company's products. The Company seeks to retain and attract customers by
providing a high quality, feature rich product at a price that makes the
Company's products the most cost effective and attractive alternative.
However, there can be no assurance that the Company will be successful in
retaining or attracting customers. The loss of a significant customer or a
limited number of smaller customers could have a material adverse affect on
the Company and its results of operations.
Management of Growth
The Company is currently experiencing rapid growth and expansion, which has
placed, and will continue to place, a significant strain on its
administrative, engineering and operational resources and increased demands on
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its systems and controls. This growth has resulted in a continuing increase in
the level of responsibility for both existing and new management personnel.
The Company anticipates that its continued growth will require it to recruit
and hire a substantial number of new engineering, sales and marketing and
managerial personnel. There can be no assurance that the Company will be
successful at hiring or retaining these personnel. The Company's ability to
manage its growth successfully will also require the Company to continue to
expand and improve its operational, management and financial systems and
controls. If the Company's management is unable to manage growth effectively,
the Company's business, results of operations and financial condition may be
materially and adversely affected.
Recent Management Changes; Dependence on Key Personnel
Over the last two years, the Company has experienced significant changes in
its Board of Directors, management and certain other key employees.
Resignations included, among others, M. Charles Fogg, from the positions of
President, Chief Executive Officer and Director, in March of 1996; Roel
Pieper, from his position as a Director, in February of 1996; Thomas G. Wiley,
from his position as a Director, in March of 1996; Thomas V. Baker, from the
positions of Chief Financial Officer, Secretary and Director, in January of
1997; and Errol Ginsberg, from his position as Vice President of Engineering,
in March of 1997. There are currently two vacancies on the Company's five-
person Board of Directors.
The Company's success depends to a significant degree upon the continued
contributions of its existing key management, sales, marketing, research and
development and manufacturing personnel, many of whom would be difficult to
replace. If certain of these employees were to leave, the Company could be
materially and adversely effected. The Company believes its future success
will also depend largely upon its ability to attract and retain highly skilled
software and hardware engineers, managerial, and sales and marketing
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting and retaining the
necessary personnel.
Risks Associated with Intellectual Property
The Company regards its products as proprietary and relies primarily on a
combination of statutory and common law copyright, trademark, trade secret
laws, customer licensing agreements, employee and third-party nondisclosure
agreements and other methods to protect its proprietary rights. The Company
generally enters into confidentiality and invention assignment agreements with
its employees and consultants. Additionally, the Company enters into
confidentiality agreements with certain of its customers and potential
customers and limits access to, and distribution of, its proprietary
information. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use the Company's technologies without
authorization, or to develop similar technologies independently. If
unauthorized use or misuse of the Company's products were to occur to any
substantial degree, the Company's business, financial condition and results of
operations could be materially adversely affected. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
technology.
While the Company has not received claims alleging infringement of the
proprietary rights of third parties which the Company believes would have a
material adverse effect on the Company's business, financial condition or
results of operations, nor is it aware of any similarly threatened claims,
there can be no assurance that third parties will not claim that the Company's
current or future products infringe the proprietary rights of others. Any such
claim, with or without merit, could result in costly litigation or might
require the Company to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company, or at all.
Fluctuations in Market Price of the Company's Securities
The Company's securities have experienced significant price volatility and
such volatility may occur in the future, particularly as a result of quarter-
to-quarter variations in the actual or anticipated financial results of the
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Company or of other companies in the industry or announcements by the Company
or its competitors regarding new product introductions or other developments
affecting the Company. In addition, the market has experienced extreme price
and volume fluctuations that have affected the market price of many technology
companies' stocks and that have been unrelated or disproportionate to the
operating performance of these companies. These broad market fluctuations may
adversely affect the price of the Company's securities.
EMPLOYEES
As of December 31, 1996, the Company employed 51 persons, of whom 30 were
primarily engaged in engineering and engineering services, 9 in manufacturing
and quality assurance, 7 in sales, marketing, customer support and related
activities, and 5 in administration. None of the Company's employees is
currently represented by a labor union.
ITEM 2. PROPERTIES.
The Company's principal offices are located at 201 Continental Blvd., Suite
201, El Segundo, California, consisting of approximately 12,000 square feet of
office space under a five-year lease expiring in May 2001. In November 1996,
the Company signed a two-year lease for 1613 square feet of office space in
Sunnyvale, California. In December 1996, the Company also signed a three-year
lease agreement for 750 square feet of office space in Allentown,
Pennsylvania. Total annual rent for the Company is approximately $271,000.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
On the dates indicated below, the Company's Units, Class A Common Stock,
Class A Warrants and Class B Warrants commenced trading on the Small Cap
Market of the Nasdaq Stock Market ("Nasdaq") under the symbols NETVU, NETVA,
NETVW and NETVZ, respectively. On October 24, 1996, all Class A Warrants, that
were not previously exercised, were redeemed by the Company, and trading
subsequently ceased on the Units and the Class A Warrants. On January 7, 1997,
the Company's Class A Common Stock and Class B Warrants commenced trading on
the Nasdaq National Market. On January 10, 1997, all Class B Warrants, that
were not previously exercised, were redeemed by the Company, and trading
subsequently ceased on the Class B Warrants. The following table sets forth
the high and low sales prices for each quarter of 1995 and 1996, as reported
by Nasdaq. The quotations below reflect interdealer prices, without retail
mark-up, mark-down or commission and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
LOW HIGH
------- --------
<S> <C> <C>
UNITS
Second Quarter (commencing May 3, 1995)................ $ 5.50 $ 8.25
Third Quarter 1995..................................... $ 6.625 $20.00
Fourth Quarter 1995.................................... $11.25 $17.75
First Quarter 1996..................................... $12.00 $16.25
Second Quarter 1996.................................... $11.00 $25.00
Third Quarter 1996..................................... $21.00 $37.50
Fourth Quarter 1996.................................... $33.00 $45.00
CLASS A COMMON STOCK
Second Quarter (commencing May 3, 1995)................ $ 4.00 $ 5.50
Third Quarter 1995..................................... $ 3.25 $10.00
Fourth Quarter 1995.................................... $ 5.50 $ 9.125
First Quarter 1996..................................... $ 6.00 $ 8.00
Second Quarter 1996.................................... $ 5.875 $12.00
Third Quarter 1996..................................... $ 9.125 $14.875
Fourth Quarter 1996.................................... $ 8.25 $17.25
CLASS A WARRANTS
Second Quarter (commencing May 24, 1995)............... $ 1.50 $ 2.25
Third Quarter 1995..................................... $ 1.625 $ 7.00
Fourth Quarter 1995.................................... $ 3.625 $ 6.125
First Quarter 1996..................................... $ 4.25 $ 6.00
Second Quarter 1996.................................... $ 3.75 $ 9.5625
Third Quarter 1996..................................... $ 7.375 $16.125
Fourth Quarter 1996.................................... $12.75 $21.00
CLASS B WARRANTS
Second Quarter (commencing June 29, 1995).............. $ 1.00 $ 1.00
Third Quarter 1995..................................... $ 1.875 $ 4.00
Fourth Quarter 1995.................................... $ 2.375 $ 4.00
First Quarter 1996..................................... $ 1.875 $ 3.50
Second Quarter 1996.................................... $ 1.50 $ 5.25
Third Quarter 1996..................................... $ 3.75 $ 7.75
Fourth Quarter 1996.................................... $ 1.125 $10.25
</TABLE>
As of March 31, 1997, there were 74 registered holders of the Company's
Class A Common Stock, and the closing price per share of the Class A Common
Stock as reported by Nasdaq was $6.625. The Company also has
10
<PAGE>
outstanding Class B and Class E Common Stock, for which there is no public
market. As of March 31, 1997, there were 67 registered holders of each of the
Class B and Class E Common Stock. The Company has not paid any cash dividends
on any of its Common Stock and does not intend to pay cash dividends in the
future.
On January 10, 1996, the Company completed the sale of 512,996 shares and
341,997 shares (or 854,993 shares in the aggregate) of its Class A Common
Stock to Seiji Uehara, a director of the Company, and Isao Okawa,
respectively, for cash consideration of $5.848 per share (or $5,000,000 in the
aggregate). The shares issued in the transaction were not registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance upon
the private sale exemption provided by Section 4(2) of the Securities Act.
On April 30, 1996, the Company acquired all of the outstanding capital stock
of MultiMedia from MultiMedia's seven shareholders, in exchange for the
issuance of 53,334 shares of its Class A Common Stock. The closing price of
the Company's Class A Common Stock on that date was $7.50 per share. The
shares issued in the transaction were not registered under the Securities Act,
in reliance on the private sale exemption provided by Section 4(2) of the
Securities Act. At the date of the closing, MultiMedia was merged into the
Company.
ITEM 6. SELECTED FINANCIAL DATA.
The following data has been derived from financial statements audited by
Price Waterhouse LLP, independent accountants. The selected financial data set
forth below should be read in conjunction with the Financial Statements and
related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................ $26,562,927 $ 1,312,745 $ 120,102 $ 111,900 $ 5,293
Costs and expenses:
Cost of revenues....... 23,096,871 1,508,727 80,200 93,498 10,163
Research and
development........... 4,312,927 2,192,536 847,872 728,099 593,083
Marketing and selling.. 2,369,503 1,394,849 149,249 143,294 186,623
General and
administrative........ 2,288,374 1,494,221 833,533 688,783 520,988
Compensation charge for
release of certain
escrow shares......... 4,189,428
License fee............ 580,000
Net loss................ $(9,896,537) $(6,502,743) $(1,843,200) $(1,570,286) $(1,285,753)
Net loss per share...... $ (2.23) $ (3.75)
Weighted average number
of shares outstanding
....................... 4,432,589 1,736,261
Pro forma net loss per
share.................. $ (3.47)
Pro forma weighted
average number of
shares outstanding..... 530,097
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Working capital......... $15,603,714 $ 964,309 $ (582,457) $ (532,824) $ 336,501
Total assets............ 21,963,770 1,940,064 850,375 233,623 636,009
Total stockholders'
equity (deficit)....... 17,710,117 1,302,014 (156,199) (1,176,632) (48,089)
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
This Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements that involve certain risks
and uncertainties that could cause actual results to differ materially from
those in the forward-looking statements. Potential risks and uncertainties
include, without limitation, those mentioned in this report and in particular
included in "Risk Factors."
In mid-1994, the Company introduced its 8 port Ethernet switch and began
commercial shipments of this product in late 1994. In 1995, the Company
attempted to market this product both through distribution channels and to
Original Equipment Manufacturers ("OEMs"). Late in the third quarter of 1995,
the Company changed its strategic marketing emphasis to OEM customers and
discontinued its efforts to market through distribution channels. In the first
quarter of 1996, the Company completed its second product, a 16 port Ethernet
switch with uplink capability. In the first quarter of 1996, the production
and sale of the original 8 port product was discontinued. During the third
quarter of 1996, the Company began selling an 8 port Ethernet switch with a
100 Base T uplink. Substantially all of the revenue in 1996 is from the 8 and
16 port Ethernet switching products including 100 Base T, 100 Base FX and 100
VG uplinks. Year end comparisons with 1995 and 1994 are not generally
meaningful due to the strategic shift in the Company's sales and marketing
activities and the introduction in 1996 of the 16 port Ethernet switch
products.
RESULTS OF OPERATIONS
During the year ended December 31, 1996, the Company had net revenues of
$26,427,427 for sales of 8 and 16 port Ethernet switch products compared with
$1,262,745 from sales of 8 port products for the year ended December 31, 1995.
Net revenues for 1994 amounted to $120,102. Revenues have increased from 1994
to 1995 by 951% and from 1995 to 1996 by 2000%. The increase in sales for 1996
was attributable to the Company's shift in sales strategy to concentrate on
sales to OEMs, and to continued introduction by the Company of additional
features and functions to its products and to substantial growth in the LAN
switching market.
The Company has achieved rapid growth in revenues from year to year;
however, the Company does not anticipate the ability to sustain this rate of
revenue growth in future years.
Comparisons to the 1995 and 1994 years are not meaningful due to the
strategic shift in the Company's sales and marketing activities as well as the
discontinuation in 1996 of the product which accounted for the 1995 and 1994
revenues.
Cost of revenue for the year ended December 31, 1996 of $23,096,871 includes
an adjustment recorded in the fourth quarter of $1,050,000, which related to a
one-time reduction in inventory value thus resulting in a higher cost of
sales. Cost of revenue for the twelve months ended December 31, 1996 was 87%
of revenue compared with 115% and 67% in 1995 and 1994, respectively. Gross
profit margin was 13% for 1996 compared with a negative 15% for 1995 and 33%
for 1994. The increase in gross margin in 1996 was primarily attributable to
sales volumes, design changes and component cost reductions. The negative
gross margin for 1995 was attributable to an inventory adjustment for the
carrying value of finished product in inventory, for a product which was
discontinued, and to declines in the average selling prices due to competitive
market pressures. The gross margin for 1994 was 33% due to product being sold
directly to customers and not through OEMs.
In the future, the Company's gross margins may be affected by several
factors, including the mix of products sold, the price of products sold, price
competition, manufacturing volumes, fluctuations in material costs, changes in
other components of cost of sales and the technological innovativeness of
products sold. Timing and new product introductions may impact gross margins
and result in excess or obsolete inventories.
Research and development expenses increased $2,120,391, or 97%, to
$4,312,927 in the twelve months ended December 31, 1996 compared with the
twelve months ended December 31, 1995. The 1994 expenses
12
<PAGE>
amounted to $847,872. The 1996 increase in research and development expenses
is attributed to the addition of engineering staff and payments for consulting
services in connection with the development of existing and new products. See
"Risk Factors--Product Development and Timely Introduction of New and Enhanced
Products." The increase is also attributable to the Company's belief that its
future success depends on a high level of research and development and its
ability to attract and retain highly skilled software and hardware engineers.
Marketing and selling expenses increased by $974,654, or 70%, to $2,369,503
for the twelve months ended December 31, 1996 compared with total expenses of
$1,394,849 in 1995 and $149,249 in 1994. These increases in expenses were due
to the addition of sales, marketing and technical support personnel. The
growth in personnel was primarily due to the need to manage the activities of
an increased number of OEM customers and the introduction of new products.
Incentive commission rates were in effect in 1996 for performance in excess of
sales levels projected at the beginning of the year. Revenues in excess of the
plan resulted in high commissions. Commissions, as a percentage of revenues,
in 1997 are expected to decline.
General and administrative expenses increased $794,153, or 53%, to
$2,288,374 for the year ended December 31, 1996, compared with total expenses
of $1,494,221 for 1995. General and administrative expenses for 1994 totaled
$833,533. In 1996, administration bonus costs for achievements attained and
increased legal costs indirectly associated with the redemption of the
warrants, accounted for 2% and 14%, respectively, of such expenses. Insurance,
primarily directors' and officers' insurance, accounted for approximately 21%
of the increase and depreciation expenses accounted for approximately 13% of
the increase. Increases are also attributable to the addition of personnel,
consultants and the costs applicable to the implementation and training of
staff on a fully integrated computerized accounting system.
Interest income was $91,827 for 1996 compared with $79,566 for 1995 and
$5,203 for 1994, due to higher cash balances when proceeds from the initial
public offering in 1995 and warrant exercises in 1996 were invested in
interest bearing instruments.
Interest expense increased $43,700, or 17%, to $294,190 in 1996, compared
with $250,490 in 1995. Interest expense for 1994 was $57,651. This increase is
the result of the interest expense of $191,326, or 65%, which represents
interest and warrant costs associated with loans to the Company. Currently,
the Company has no debt.
The net loss for 1996 was $9,896,537, which includes a non-cash charge of
$4.2 million for the release of certain escrowed common shares, and a one-time
reduction to the value of inventory of $1.1 million, which resulted in a
higher cost of sales, resulting in a $2.23 loss per share. The loss before
extraordinary item for 1995 was $6,028,512 or $3.47 loss per share compared
with a loss of $1,843,200 or $3.47 pro forma loss per share for the year ended
December 31, 1994. In 1995, the extraordinary item added an additional loss of
$474,231 or $0.27 per share; thus resulting in a loss of $3.75 per share for
the year. A similar item did not exist in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in March 1991, the Company has financed its development
activities through a combination of an initial public offering completed in
1995 and private transactions involving the issuance of common stock for cash,
convertible notes, bridge notes and the exercise of stock options and
warrants. For the period from March 12, 1991 (inception) to December 31, 1996,
the Company has raised $39,108,077 from such sources.
At December 31, 1996, the Company had working capital of $15,603,714,
including inventory of $7,440,038. At December 31, 1996 the Company had
$2,787,593 in cash. The Company requires substantial working capital to fund
its business, particularly to finance inventories and accounts receivable
(which are increasing in connection with increased product sales) and for
capital expenditure. The Company's future capital requirements will depend on
many factors, including the rate of revenue growth, the timing and extent of
spending to support product development efforts and expansion of sales and
marketing, the timing of introductions of new products and enhancements to
existing products, and market acceptance of the Company's products.
13
<PAGE>
On January 10, 1996, the Company completed a private sale of 854,993 shares
of its Class A Common Stock to two individuals for total net proceeds of
$5,000,000. In 1996 and January 1997, the Company completed calls of Class A
and Class B Warrants resulting in the receipt of $17,368,000 and $27,000,000,
respectively.
The Company believes that its existing cash and the unused bank line of
credit are sufficient to meet the liquidity requirements of the Company at
least for the current year. However, because of the rapid growth in revenues,
continuing investments in research and development and operating losses, the
Company may need to seek additional credit, alternative financing and/or
further equity investment. The sources of such credit or equity investment may
include increased lines of credit and/or issuance of additional securities.
There can be no assurance, however, that additional funds from equity or debt
sources will be available on favorable terms or at all. The Company's future
capital requirements will depend upon numerous factors, including the progress
of the Company's cost reduction efforts for its existing products, the success
or lack thereof of its new product development, the amount of resources
devoted to manufacturing and marketing, technological advances, the status of
competitors and the success or lack thereof of the Company's marketing
activities.
In July 1996, the Company secured a revolving line of credit with a bank,
which provides for borrowings of up to $5,000,000. Borrowings under the line
of credit bear interest at the bank's prime rate plus 2%. The line of credit
expires in June 1997. The line of credit agreement requires the Company to
comply with certain financial covenants. The line of credit is currently
unused.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of NetVantage, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity, and of cash flows present fairly, in all
material respects, the financial position of NetVantage, Inc. at December 31,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
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 of these statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Costa Mesa, California
March 31, 1997
15
<PAGE>
NETVANTAGE, INC.
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 2,787,593 $ 482,535
Accounts receivable, net of allowance of $50,000
and $3,117 at December 31, 1996 and 1995,
respectively..................................... 8,667,627 84,835
Accounts receivable--other........................ 740,975
Due from related parties.......................... 100,000
Inventory......................................... 7,440,038 1,010,563
Prepaid expenses and other assets................. 121,134 24,426
------------ ------------
Total current assets............................. 19,857,367 1,602,359
Deferred warrant call costs........................ 157,500
Property, plant and equipment, net................. 1,572,804 337,705
Goodwill and other intangibles..................... 376,099
------------ ------------
Total assets..................................... $ 21,963,770 $ 1,940,064
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. 3,081,664 510,780
Accrued expenses.................................. 829,484 108,791
Due to related parties............................ 342,505 18,479
------------ ------------
Total current liabilities........................ $ 4,253,653 $ 638,050
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $0.01 per share,
5,000,000 shares authorized, none issued.........
Class A Common Stock, par value $0.001 per share,
17,000,000 shares authorized, 5,941,523 issued
and outstanding at December 31, 1996 (1,890,000
at December 31, 1995)............................ 5,941 1,890
Class B Common Stock, convertible into Class A
Common Stock, par value $0.001 per share,
1,800,000 shares authorized, 689,701 issued and
outstanding at December 31, 1996 (541,029 at
December 31, 1995)............................... 690 541
Class E Common Stock, convertible into Class B
Common Stock, par value $0.001 per share,
1,200,000 shares authorized, 540,995 issued; all
shares are held in escrow........................ 541 1,082
Additional paid-in-capital--Other................. 37,638,720 11,647,739
Additional paid-in capital--Issuance of warrants.. 1,462,185 1,152,185
Accumulated deficit............................... (21,397,960) (11,501,423)
------------ ------------
Total stockholders' equity....................... 17,710,117 1,302,014
------------ ------------
Total liabilities and stockholders' equity....... $ 21,963,770 $ 1,940,064
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
NETVANTAGE, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Sales of product...................... $26,427,427 $ 1,262,745 $ 120,102
Services.............................. 135,500 50,000
----------- ----------- -----------
26,562,927 1,312,745 120,102
Costs and expenses:
Cost of revenue....................... 23,096,871 1,508,727 80,200
Research and development.............. 4,312,927 2,192,536 847,872
Marketing and selling................. 2,369,503 1,394,849 149,249
General and administrative............ 2,288,374 1,494,221 833,533
Compensation charge for the release of
escrow shares........................ 4,189,428
License fee........................... 580,000
----------- ----------- -----------
36,257,103 7,170,333 1,910,854
Loss from operations................... (9,694,176) (5,857,588) (1,790,752)
Interest income........................ 91,829 79,566 5,203
Interest expense....................... (294,190) (250,490) (57,651)
----------- ----------- -----------
Loss before extraordinary item......... (9,896,537) (6,028,512) (1,843,200)
Extraordinary item:
Extinguishment of debt................ (474,231)
----------- ----------- -----------
Net loss............................... $(9,896,537) $(6,502,743) $(1,843,200)
=========== =========== ===========
Loss per share:
Loss before extraordinary item........ $ (2.23) $ (3.47)
=========== ===========
Extraordinary item: Extinguishment of
debt................................. $ (0.27)
===========
Net loss............................... $ (2.23) $ (3.75)
=========== ===========
Weighted average number of shares out-
standing.............................. 4,432,589 1,736,261
=========== ===========
Pro forma net loss per share........... $ (3.47)
===========
Pro forma weighted average number of
shares outstanding.................... 530,097
===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
17
<PAGE>
NETVANTAGE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------------
PREFERRED STOCK CLASS A CLASS B CLASS E
----------------- ---------------- ---------------- ----------------- ADDITIONAL ISSUANCE OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAID IN CAPITAL WARRANTS
------- ------- --------- ------ -------- ------ --------- ------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1993............ 354,648 $ 355 709,295 $ 709 $ 1,795,384 $ 182,400
Sale of common
stock.......... 420 841 1 6,305
Stock issued for
goods and
services....... 457 913 1 6,849
Conversion of
convertible
notes and
accrued
interest....... 86,337 86 172,674 173 1,075,210
Warrants issued:
Advances....... 78,165
Warrants issued:
Discount on
debt........... 533,800
Warrants issued:
Services....... 127,820
Exercise of
warrants....... 98,500 99 197,001 197 1,002,927
Options issued.. 27,000
Exercise of
options........ 667 1 1,333 1 4,998
Net Loss........
------------------------------------------------------------------------------------------------------
Balance at
December 31,
1994............ 541,029 541 1,082,057 1,082 3,918,673 922,185
Warrants issued:
Discount on
debt........... 230,000
Sale of Common
Stock in
Initial Public
Offering....... 1,725,000 $1,725 6,862,281
Sale of Common
Stock in
Private
Placement...... 165,000 165 866,785
Net Loss........
-----------------------------------------------------------------------------------------------------------
Balance at
December 31,
1995............ 1,890,000 1,890 541,029 541 1,082,057 1,082 11,647,739 1,152,185
Sale of Common
Stock in
Private
Placement...... 854,993 855 4,999,145
Issue of Common
Stock for
Acquisition.... 53,334 53 399,952
Conversion of A
Warrants to
Common Stock... 2,335,205 2,335 13,320,939
Conversion of B
Warrants to
Common Stock... 415,601 416 3,081,517
Warrants Issued:
Discount on
Debt........... 310,000
Stock Options
Issued:
Compensatory
Cost........... 107,373
Conversion of B
Stock to A
Stock.......... 392,390 392 (392,390) (392)
Release of E
Shares from
Escrow......... 541,062 541 (541,062) (541) 4,082,055
Net Loss........
----------------------------------------------------------------------------------------------------------
Balance at
December 31,
1996............ 5,941,523 $5,941 689,701 $ 690 540,995 $ 541 $37,638,720 $1,462,185
----------------------------------------------------------------------------------------------------------
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
------------- ------------
<S> <C> <C>
Balance at
December 31,
1993............ $ (3,155,480) $(1,176,632)
Sale of common
stock.......... 6,306
Stock issued for
goods and
services....... 6,850
Conversion of
convertible
notes and
accrued
interest....... 1,075,469
Warrants issued:
Advances....... 78,165
Warrants issued:
Discount on
debt........... 533,800
Warrants issued:
Services....... 127,820
Exercise of
warrants....... 1,003,223
Options issued.. 27,000
Exercise of
options........ 5,000
Net Loss........ (1,843,200) (1,843,200)
-----------------------------
Balance at
December 31,
1994............ (4,998,680) (156,199)
Warrants issued:
Discount on
debt........... 230,000
Sale of Common
Stock in
Initial Public
Offering....... 6,864,006
Sale of Common
Stock in
Private
Placement...... 866,950
Net Loss........ (6,502,743) (6,502,743)
-----------------------------
Balance at
December 31,
1995............ (11,501,423) 1,302,014
Sale of Common
Stock in
Private
Placement...... 5,000,000
Issue of Common
Stock for
Acquisition.... 400,005
Conversion of A
Warrants to
Common Stock... 13,323,274
Conversion of B
Warrants to
Common Stock... 3,081,933
Warrants Issued:
Discount on
Debt........... 310,000
Stock Options
Issued:
Compensatory
Cost........... 107,373
Conversion of B
Stock to A
Stock..........
Release of E
Shares from
Escrow......... 4,082,055
Net Loss........ (9,896,537) (9,896,537)
-----------------------------
Balance at
December 31,
1996............ $(21,397,960) $17,710,117
-----------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
18
<PAGE>
NETVANTAGE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Net Loss.............................. $ (9,896,537) $(6,502,743) $(1,843,200)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization....... 394,142 93,955 52,181
Amortization of goodwill and
intangibles........................ 67,805
Amortization and write off of
deferred rent...................... 40,993 128,871
Amortization of debt discount and
deferred debt costs................ 691,639 20,861
Accrued interest, long term......... 33,656
Allowance for returns and doubtful
accounts........................... 46,883 8,893 (55,890)
Compensation recorded upon issuance
of options......................... 107,373 27,000
Compensation--E share release....... 4,082,055
Common stock and warrants issued for
goods/services..................... 85,015
Interest expense.................... 191,326
Provision for obsolete inventory.... 100,000
Other decreases..................... (7,861)
Net gain on sale of assets.......... (11,012)
Changes in current assets and
liabilities:
Accounts receivable................. (8,582,792) (53,262) 29,424
Accounts receivable--other.......... (740,975)
Due from related parties............ (100,000)
Inventory........................... (6,429,475) (857,084) (153,479)
Prepaid expenses and other assets... (96,708) 6,116 (12,847)
Accounts payable.................... 2,557,848 64,010 325,807
Accrued expenses.................... 720,693 57,167 (43,369)
Due to related parties.............. 324,026 (217,687) 262,594
------------ ----------- -----------
Net cash used in operating
activities........................... (17,273,209) (6,668,003) (1,143,376)
------------ ----------- -----------
Investing activities:
Purchase of property, plant and
equipment.......................... (1,634,440) (342,282) (78,798)
------------ ----------- -----------
Financing activities:
Proceeds from issuance of bridge
notes payable...................... 340,500 522,000
Deferred warrant call costs......... (157,500)
Proceeds from issuance of A warrant
call............................... 13,323,274
Proceeds from issuance of B warrant
call............................... 3,081,933
Proceeds from issuance of
convertible notes payable.......... 482,000
Proceeds from issuance of common
stock.............................. 7,730,956 542,415
Proceeds received from private
placement.......................... 5,000,000
Loan fees paid...................... (35,000)
Payment of bridge notes............. (1,000,000)
Deferred offering costs............. 221,734 (221,734)
------------ ----------- -----------
Net cash provided by financing
activities........................... 21,212,707 7,293,190 1,324,681
------------ ----------- -----------
Increase in cash...................... 2,305,058 282,905 102,507
Cash at beginning of period........... 482,535 199,630 97,123
------------ ----------- -----------
Cash at end of period................. $ 2,787,593 $ 482,535 $ 199,630
============ =========== ===========
Non cash transactions:
Release of E Common Stock from
escrow............................... $ 4,082,055
Issuance of Class A Common Stock for
acquisition of MultiMedia LANs,
Inc.................................. 400,005
Issuance of warrants for bank and
officer loans........................ 310,000
Issuance of options for compensation
of officer and consultants........... 107,373
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
19
<PAGE>
NETVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1--THE COMPANY
NetVantage, Inc. ("NetVantage" or the "Company") is a leading provider of
Ethernet Workgroup switching products designed to increase the information
handling capacity of new and installed Local Area Networks or "LANs." Other
applications of use for the Company's switching products include connecting
LANs to each other to extend the network's scope and power and to provide
installed networks with the ability to connect to networking devices
incorporating new technologies such as Asynchronous Transfer Mode or "ATM,"
and Gigabit Ethernet. The Company's switching products require no special
skills to install, and require no changes to existing user network equipment,
wiring, hub equipment, software protocols or applications.
SALES TO MAJOR CUSTOMERS
Sales to the three major customers amounted to $8,003,350 (31%), $5,712,598
(22%) and $3,773,259 (14%) in 1996 and sales to the three major customers
amounted to $256,173 (20%), $254,705 (20%) and $206,454 (16%) in 1995. Sales
were not to the same major customers in 1996 and 1995.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosures in the financial statements. Actual results could differ from
those estimates.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of all financial instruments comprising cash,
receivables, prepaids, accounts payable, accrued expenses and amounts due to
related parties approximate fair value because of the short maturities of
these instruments.
REVENUES
Revenue from shipments to Original Equipment Manufacturers ("OEMs") is
recognized upon shipment.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on
the first-in, first-out method.
DEFERRED WARRANT CALL COSTS
Costs incurred directly related to the Company's Class B Warrant redemption
(see Note 9) were capitalized. In January 1997, these costs will be offset
against the proceeds received and charged to stockholders' equity.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation on property, plant and equipment
is computed using the straight-line method over the estimated useful lives,
which range from three to four years. Expenditures for ordinary repairs and
maintenance are charged to expense as incurred.
20
<PAGE>
NETVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
INTANGIBLES
Goodwill and other intangibles are amortized over their estimated useful
lives which range from one to five years.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
INCOME TAXES
Income taxes are determined under guidelines prescribed by Financial
Accounting Standards Board Statement No. 109 ("FAS 109"), "Accounting for
Income Taxes". Under FAS No. 109, deferred income taxes are recognized for the
tax consequences in future years of temporary differences between the tax
bases of assets and liabilities and their financial reporting amounts.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. At December 31, 1996 and 1995
temporary differences consist primarily of net operating loss carry forwards
("NOLs") and tax credits. At December 31, 1996, the Company has NOLs to carry
forward for federal purposes of $15 million and for California purposes of
$7.1 million and has generated tax credits for certain research and
development activities of $366,800 and $146,700 for federal and state
purposes, respectively. The NOLs and research and development credits expire
from 2006 to 2011. A valuation allowance of $6.3 million has been provided for
the entire amount of the net deferred tax assets, which represents an increase
in the valuation allowance of $4.2 million from December 31, 1995.
The Company's ability to use its NOLs to offset income may be subject to
restrictions enacted in the United States Internal Revenue Code of 1986, as
amended (the "Code"). These restrictions could limit the Company's use of its
NOLs as a result of certain stock ownership changes described in the Code,
which would include transactions such as the Company's initial public
offering, private placement of common stock and other equity transactions.
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to concentration of credit
risk consist primarily of accounts receivable. The risk associated with
accounts receivable is limited by the large size and credit worthiness of the
Company's commercial customers.
The Company has recorded an allowance for doubtful accounts and will
continue to adjust this allowance periodically based upon the Company's
evaluation of historical loss experience, industry trends and other related
factors.
ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1996 the Company adopted a method of accounting for
stock-based compensation plans as required by Statement of Financial
Accounting Standard No. 123 (FAS 123). FAS 123 allows for two methods of
valuing stock based compensation. The first method allows for the continuing
application of APB 25 in measuring stock based compensation, while complying
with the disclosure requirements of FAS 123. The second method uses an option
pricing model to value stock compensation and record as such within the
financial statements. The Company will continue to apply APB 25, while
complying with FAS 123 disclosure requirements (see Note 10).
21
<PAGE>
NETVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
NET LOSS PER SHARE
Net loss per share was computed based on the weighted average number of the
Company's common shares outstanding during 1996 and excludes the shares of
Class E Common Stock held in escrow because the conditions for the release of
these shares from escrow have not been satisfied. Common Stock equivalents
were not considered in the net loss per share calculation in 1996 and 1995
because the effect on the net loss would be antidilutive.
PRO FORMA NET LOSS PER SHARE
The pro forma net loss per share for 1994 was computed based on the weighted
average number of shares of common stock outstanding during 1994, after giving
retroactive effect to the conversion of the convertible notes, and excludes
all shares of Class E Common Stock outstanding, or subject to option, held in
escrow because the conditions for the release of shares from escrow had not
been satisfied. All Class B and Class E Stock options and warrants granted and
Class A and Class B Common Stock issued during the twelve months preceding the
May 1995 public offering have been included as outstanding for the entire
period using the treasury stock method and the public offering price per
share.
NOTE 3--PUBLIC OFFERING
On May 3, 1995 the Company completed an initial public offering of 1,725,000
units (including the underwriter's overallotment of 225,000 units). Each unit
comprises one share of the Company's Class A Common Stock, one Class A Warrant
and one Class B Warrant (the "Units"). Upon exercise, the Class A Warrants
entitled the holder to purchase one share of Class A Common Stock for $6.50
and receive one Class B Warrant. Class B Warrants entitled the holder to
purchase one share of Class A Common Stock for $7.75. The offering price was
$5.00 per Unit for total gross proceeds of $8,625,000 or $7,503,750 after the
underwriter's commission.
In accordance with the Warrant Agreement between the Company and the
underwriter, the original exercise price and number of securities issuable
upon the exercise of the Class A Warrants were adjusted to $6.21 and 1.05
shares, respectively, and the original exercise price and number of securities
issuable upon the exercise of the Class B Warrants were adjusted to $7.41 and
1.05 shares, respectively.
As part of the public offering, the Company agreed to (i) issue an option to
the underwriter to purchase additional Units equal to 10% of the Units offered
to the public at a price equal to 120% of the initial public offering price
("Unit Purchase Option"), (ii) pay certain fees and expenses including the
cost of registration of the Unit Purchase Option, and/or the underlying
securities and (iii) certain other covenants. As of the date of this filing,
the underwriter has not exercised its rights under this option.
As a condition of the initial public offering, the underwriter required that
all shares of the Company's Class B and Class E Common Stock and all shares of
Class B and Class E Common Stock issuable upon exercise of outstanding options
from the 1992 Stock Option Plan be subject to an escrow agreement. The Class B
Common Stock and related options were released from escrow on June 3, 1996. A
total of 541,062 Class E Common Stock and related options were released from
escrow on October 17, 1996, upon the achievement of certain earnings levels or
market price targets. The release of these shares resulted in a compensatory
non-cash charge to earnings for the fourth quarter of 1996 (see Notes 9 and
13). At December 31, 1996, 540,995 shares of Class E Common Stock remain in
escrow and are subject to release upon the attainment of certain specified
earnings levels or market price targets.
22
<PAGE>
NETVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 4--NOTES PAYABLE
In July 1996, the Company secured a $5,000,000 revolving bank line of credit
which bears interest at prime rate plus 2% and expires in June 1997. In
connection with this line of credit, the Company issued two warrants. Each
warrant entitles the bank to purchase 30,000 shares of the Company's Class A
Common Stock at an exercise price of $9.875 and $11.44 per share,
respectively. The two warrants were exercisable immediately and expire on July
15, 2001 and August 16, 2001, respectively. This credit facility requires the
Company to comply with certain financial covenants. The Company is in
compliance with these covenants as of December 31, 1996. As of December 31,
1996, the line of credit is unused.
In June 1996, NextCom K.K. ("NextCom"), a customer of the Company whose
former president also serves on the Company's Board of Directors, advanced
$500,000 to the Company. In lieu of interest expense, NextCom received an
additional 5% discount on all Company purchases until the advance was paid
off. The advance was repaid in October 1996 (see Note 5).
In January 1995, the Company completed a private placement of $1,000,000 in
promissory notes through the underwriter of its initial public offering which
acted as placement agent. The notes bore interest at the rate of 10% per annum
and were payable from the proceeds of the public offering. As of December 31,
1994, $600,000 of such notes were issued. In connection with this loan, the
placement agent received a commission and a non-accountable expense allowance
of 10% and 3%, respectively, amounting to $130,000, of which $78,000 pertains
to the notes issued in December 1994. These debt issue costs were amortized to
income over the term of the loan.
In addition, the Company issued warrants to these investors which entitle
them to purchase an aggregate of 500,000 shares of the Company's Class A
Common Stock at $3.00 per share. The warrants expire in 1999. The aggregate
value of all warrants, $575,000, was considered additional debt discount which
was amortized to income as interest over the term of the loan. The warrants
pertaining to the portion of notes issued in December 1994 were valued at
$345,000. Upon the closing of the public offering, the warrants automatically
converted to Class A Warrants in all respects.
Upon the closing of the public offering in May 1995, the promissory notes
were paid in full. As a result, the $474,231 unamortized portion of debt issue
costs and debt discount was charged to income as an extraordinary item.
In connection with the bridge financing, the Company also entered into an
agreement with the placement agent that provides for a finder's fee to be paid
to the placement agent if it originates a financing, merger, acquisition,
joint venture, or other similar transaction to which the Company is a party,
during the five-year period from the consummation of the initial public
offering. The fee is based on a declining percentage of the consideration paid
in the transaction, beginning at 7% of the first $1,000,000.
In June 1994, the Company issued $482,000 of 5% redeemable, subordinated
convertible notes with detachable warrants. The Company recorded the fair
market value of the detachable warrants ($188,800) as additional debt
discount. All outstanding convertible notes were converted September 30, 1994.
NOTE 5--RELATED PARTY TRANSACTIONS
Certain officers and directors of the Company have provided services to the
Company under consulting arrangements which permitted either party to
terminate the services at will without further obligation. For the years ended
December 31, 1995 and 1994, expenses charged to operations for consulting
services rendered by
23
<PAGE>
NETVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
these officers and directors were $19,214 and $129,652, respectively. The
Company did not engage officers or directors under consulting arrangements
during 1996.
Related parties are employed by the Company under existing employment and
sales commissions agreements. Amounts included in marketing and selling
expense for these employees were $500,000 as of December 31, 1996.
The amounts due to employees and consultants were $342,505 and $18,479 at
December 31, 1996 and 1995, respectively.
The amounts due from employees and consultants was $100,000 at December 31,
1996. There were no amounts due from employees and consultants in 1995.
An officer of the Company has from time to time advanced money to the
Company to fund operations. In lieu of interest, the officer was issued two
warrants. These warrants entitle the officer to purchase 11,765 and 11,110
shares of Class A Common Stock at an exercise price of $8.50 and $9.00 per
share, respectively. Both warrants are exercisable immediately and expire in
October 2001. The fair value of these warrants was amortized as interest
expense during 1996.
On May 27, 1996, the Company issued two warrants to an officer under the
terms of his 1996 Employment Agreement for consideration of $300. One warrant
entitles the officer to purchase 15,000 shares of Class A Common Stock at an
exercise price of $7.125 per share. This warrant became exercisable on October
17, 1996, the date the first half of the outstanding Class E Shares were
converted to Class B Common Stock. The other warrant entitles the officer to
purchase 15,000 of Class A Common Stock at a price of $7.125 per share. This
warrant is exercisable when the remaining Class E Shares are converted to
Class B Common Stock. The warrants terminate on January 1, 1999.
In January 1996, the Company completed a private sale of 854,993
unregistered and previously unissued shares of its Class A Common Stock to two
private investors for net proceeds of $5,000,000. One of the private investors
is a member of the Company's Board of Directors.
During 1996, a member of the Company's Board of Directors was the President
of NextCom. In 1996 the Company had sales to NextCom of $1.5 million (6% of
total 1996 revenue). There were no sales to NextCom in 1995.
In June 1996, NextCom advanced $500,000 to the Company. In lieu of interest
expense, NextCom received an additional 5% discount on all Company purchases
until the advance was paid off in October 1996. Additional discounts provided
to NextCom by the Company during 1996 totaled $23,312. At December 31, 1996,
amounts due to the Company from NextCom for purchases totaled $899,381 (10% of
total accounts receivable). The Company has also entered into a sales
incentive plan with NextCom to promote sales growth and market awareness of
the Company's products.
In July 1995, the Company completed a private sale of 165,000 shares of
Class A Common Stock to UB Networks, a customer of the Company. Total 1996
sales to UB Networks amounted to $2.5 million (9% of total 1996 revenue).
There were no sales in 1995. Amounts due to the Company from UB Networks at
December 31, 1996 amounted to $345,599 (4% of total accounts receivable).
24
<PAGE>
NETVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 6--INVENTORY
The Company's inventory was comprised of the following at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
Finished goods......................................... $ 108,030 $ 178,800
Parts and materials.................................... 7,332,008 831,763
---------- ----------
$7,440,038 $1,010,563
========== ==========
</TABLE>
NOTE 7--PROPERTY, PLANT AND EQUIPMENT
The Company's property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ---------
<S> <C> <C>
Office equipment...................................... $ 129,853 $ 63,149
Machinery and electronic equipment.................... 1,036,615 295,386
Purchased software.................................... 478,240 132,174
Furniture and fixtures................................ 192,833 46,044
Automobile............................................ 107,502 --
Leasehold improvements................................ 231,153 10,202
---------- ---------
2,176,196 546,955
Less: accumulated depreciation........................ (603,392) (209,250)
---------- ---------
$1,572,804 $ 337,705
========== =========
</TABLE>
Depreciation and amortization expense of $394,142, $93,955 and $52,181 was
recorded for the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 8--ACQUISITION
On April 30, 1996, the Company acquired all of the outstanding capital stock
of MultiMedia LANs Inc. ("MultiMedia"), a North Carolina corporation, in
exchange for 53,334 shares of newly issued Class A Common Stock (net proceeds
of $400,005). The Company accounted for this transaction as a purchase. At the
date of the closing, MultiMedia merged into the Company and certain associates
of MultiMedia became employees of the Company. These employees were granted
33,333 options to purchase Class B and Class E Common Stock under the
Company's 1992 Incentive and Nonstatutory Stock Option Plan (see Note 10).
Goodwill and other intangibles arising from the purchase and subsequent merger
of MultiMedia totaled $408,904. Amortization expense for the year ended
December 31, 1996 was $58,014.
25
<PAGE>
NETVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 9--STOCKHOLDERS' EQUITY
COMMON STOCK
The Class A, Class B and Class E Common Stock are substantially the same on
a share-for-share basis, except that (i) the holder of an outstanding share of
Class A Common Stock is entitled to one vote and the holder of an outstanding
share of Class B or Class E Common Stock is entitled to five votes; (ii) Class
B and Class E Common Stock are not freely transferable; and (iii) Class E
Common Stock is not entitled to corporate dividends or distributions and may
be redeemed by the Company after March 31, 1999 for $0.01 per share. All
shares of Class B Common Stock that were previously placed into escrow were
released on June 3, 1996. Each share of Class B Common Stock may be converted
at any time, at the option of the holder, into one share of Class A Common
Stock. Each share of Class E Common Stock is convertible into one share of
Class B Common Stock in the event that certain targets are met. See "Class E
Escrow Arrangement."
At September 30, 1994, holders of warrants to purchase 98,500 shares of
Class B Common Stock and 197,001 shares of Class E Common Stock exercised
their warrants. As consideration, the Company received cash of $531,110 and
relief of amounts due to related parties of $472,114.
On September 30, 1994 the holders of $1,234,749 of convertible debt,
representing all remaining convertible debt along with accrued interest of
$60,304, converted their holdings into 86,337 shares of Class B Common Stock
and 172,674 shares of Class E Common Stock.
CLASS E ESCROW ARRANGEMENT
In connection with the public offering of the Units (see Note 3), all
outstanding shares of Class E Common Stock were placed in escrow by existing
stockholders. All shares of Class E Common Stock placed into escrow, including
those shares which may be issued upon exercise of options ("Escrowed
Contingent Shares") are not transferable (but those issued and outstanding may
be voted).
These shares are to be released from escrow in the event that net income
before provision for income taxes, and exclusive of any extraordinary earnings
or charges and the compensation charges discussed in the next paragraph,
reaches certain targets during the next three years (the first 600,000 shares
will be released if pretax income exceeds $4.3 million, $5.8 million or $7.2
million in fiscal years 1996, 1997 or 1998, respectively, and the remaining
600,000 will be released if pretax income exceeds $5.3 million, $7.1 million,
or $8.9 million in fiscal years 1996, 1997 or 1998, respectively); or the
market price of the common stock reaches specified levels over the next three
years (the first 600,000 shares will be released if, commencing at May 3, 1995
and ending November 3, 1996, the bid price of the Company's common stock
averages in excess of $13.33 per share for 30 consecutive business days, or
commencing November 3, 1996 and ending May 3, 1998, the bid price averages
$16.67 per share for 30 consecutive business days and the remaining 600,000
shares will be released if, commencing at May 3, 1995 and ending November 3,
1996, the bid price of the Company's common stock averages in excess of $18.50
per share for 30 consecutive business days or commencing November 3, 1996 and
ending May 3, 1998, the bid price averages in excess of $23.50 for 30
consecutive business days). Any options to purchase common stock shall be
deemed converted into similar options to acquire Class B and Class E Common
Stock in the same proportion that outstanding Class E Common Stock is
converted upon attaining the specified earnings or market price levels.
On October 17, 1996, the criteria for the release of certain Escrowed
Contingent Shares were met and on that date 600,000 shares, including 541,062
shares held by employees, officers, directors, consultants and their
relatives, were released from escrow. The release of 541,062 shares was deemed
compensatory and, accordingly,
26
<PAGE>
NETVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
resulted in a current year charge to earnings equal to the fair market value
of the Escrowed Contingent Shares on release.
The release of Escrowed Contingent Shares held by individuals that have not
had any relationship with the Company, other than that of a common
stockholder, have been deemed not to be compensatory.
All Escrowed Contingent Shares that have not been released from escrow by
March 31, 1999 are subject to redemption by the Company at a redemption price
of $0.01 per share.
WARRANTS
On October 24, 1996, the Company completed the redemption of its Class A
Warrants which resulted in the exercise of 99.9% of the Class A Warrants and
the issuance of 2,335,568 shares of Class A Common Stock and the same number
of Class B Warrants. In addition, as of October 24, 1996, Class B Warrants to
purchase 368,360 shares were voluntarily exercised, resulting in the issuance
of 386,778 shares of Class A Common Stock. Total proceeds from the exercise of
all Class A and Class B Warrants on October 24, 1996 was approximately
$17,368,000. On November 3, 1996, the Company repaid the bank line of credit
from the proceeds received from the issuance of the Class A Warrants.
The Company redeemed its Class B Warrants on January 10, 1997, pursuant to
its November 27, 1996 notice of redemption. Prior to the redemption date,
approximately $3.5 million or greater than 99% of the outstanding Class B
Warrants were exercised, resulting in gross proceeds to the Company of
approximately $27,000,000. After the warrant exercise, approximately 9.4
million shares of Class A Common Stock were outstanding.
NOTE 10--STOCK OPTIONS AND WARRANTS
1996 INCENTIVE STOCK PLAN
The Company adopted the 1996 Incentive Stock Plan (the "1996 Plan") pursuant
to which any employee, officer, director or consultant shall be eligible for
selection to receive awards under this Plan. The 1996 Plan reserves 800,000
shares of Class A Common Stock for issuance.
The 1996 Plan is administered by the Board of Directors and/or an executive
compensation committee of the Board. Stock options granted under the 1996 Plan
become exercisable at the rate of 25% each year and expire six years from date
of grant. The 1996 Plan expires on June 6, 2006.
1996 BONUS AND NONSTATUTORY STOCK OPTION PLAN
On September 19, 1996, the Company adopted the 1996 Bonus and Nonstatutory
Stock Option Plan (the "1996 Bonus Plan") to further the growth and financial
success of the Company while providing additional incentives to executive
officers and selected consultants to the Company. The 1996 Bonus Plan provides
for the issuance of bonuses up to the amount of $300,000 and non-statutory
stock options covering up to a total of 105,000 shares of Class A Common
Stock. The exercise price of options issued under the 1996 Bonus Plan shall be
no less than 85% of the fair market value of the Class A Common Stock at the
date of grant. The 1996 Bonus Plan, which expires on August 31, 2001, is
administered by the Board of Directors. Stock options granted under the 1996
Bonus Plan become exercisable on the attainment of certain performance
criteria and expire six years from the date of grant.
27
<PAGE>
NETVANTAGE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
1994 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
The Company adopted the 1994 Incentive and Nonstatutory Stock Option Plan,
as amended (the "1994 Plan") reserving 325,000 shares of the Company's Class A
Common Stock for issuance pursuant to which officers and employees of the
Company as well as other persons who render services to or are otherwise
associated with the Company are eligible to receive incentive and/or non-
qualified stock options.
The 1994 Plan, which expires on April 30, 2002, is administered by the Board
of Directors. Stock options granted under the 1994 Plan become exercisable at
the rate of 25% each year and expire six years from the date of grant.
In October 1994, options to purchase 40,000 shares of Class A Common Stock
were granted under the 1994 Plan to an officer and a director at exercise
prices ranging from $4.25 to $5.00 per share. Compensation of $27,000 was
recorded for options granted with exercise prices below the expected initial
public offering price.
1992 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
The Company has adopted the 1992 Incentive and Nonstatutory Stock Option
Plan (the "1992 Plan") pursuant to which officers and employees of the Company
as well as other persons who render services to or are otherwise associated
with the Company are eligible to receive incentive and/or non-qualified stock
options of Class B and Class E Common Stock.
The 1992 Plan, which expires on April 30, 2002, is administered by the Board
of Directors. Under the 1992 Plan, the maximum number of shares of stock which
may be purchased through the exercise of options is 200,000. Stock options
granted under the 1992 Plan become exercisable at the rate of one-third each
year and expire six years from the date of grant.
The following table summarizes option activity from December 31, 1993 to
December 31, 1996:
<TABLE>
<CAPTION>
1996
EXECUTIVE
PLAN 1996 PLAN 1994 PLAN 1992 PLAN
--------- --------- --------- ----------------
CLASS A CLASS A CLASS A CLASS B CLASS E EXERCISE PRICE
--------- --------- --------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding December 31,
1993................... 59,289 118,578 $2.50- 5.00
Granted............... 40,000 27,349 54,698 $4.25- 5.00
Canceled.............. (27,000) (54,000) $5.00
Exercised............. (667) (1,333) $2.50
-------- ------- -------
Outstanding December 31,
1994................... 40,000 58,971 117,943 $2.50- 5.00
Granted............... 244,666 16,778 33,556 $3.94- 6.56
Canceled.............. (43,333) (31,021) (62,043) $2.50- 5.00
-------- ------- -------
Outstanding December 31,
1995................... 241,333 44,728 89,456 $2.50- 6.56
Granted............... 40,000 699,700 149,850 79,083 158,166 $3.75-11.69
Canceled.............. (80,650) (138,750) (31,794) (63,588) $3.75-10.88
------ ------- -------- ------- -------
Outstanding December 31,
1996................... 40,000 619,050 252,433 92,017 184,034 $3.75-11.69
====== ======= ======== ======= =======
</TABLE>
From time to time, the Company has issued warrants to various employees,
officers, directors, consultants and debt holders to purchase Class B and
Class E Common Stock (see Notes 4 and 5). In September 1994, all of the then
outstanding warrants to purchase the Company's common stock were exercised or
were canceled by
28
<PAGE>
NETVANTAGE
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
mutual agreement with the warrant holders. To induce the warrant holders to
exercise their warrants, the Company offered all warrant holders the
opportunity to reduce the exercise price of their warrants by 20%.
The Company recorded additional charges against operations representing the
difference between the exercise price and the expected initial public offering
price, less amounts previously recorded. The additional compensation of
$127,820 related to additional lease costs. Also, the shares of Class B Common
Stock issued in these transactions at prices less than the initial public
offering price have been included in the calculation of weighted average
shares outstanding used in the calculation of the 1994 pro forma net loss per
share as if they were outstanding for all periods.
The following table summarizes information about employee and officer stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.50 - $4.99............ 81,500 4.208 $ 4.332 29,355 $4.331
$5.00 - $9.99............ 315,550 5.25 6.838 27,583 5.749
$10.00 - $14.99.......... 606,450 5.633 11.044
</TABLE>
Had compensation cost for options granted in 1996 and 1995 under the
Company's stock option plans been determined based on the fair values at the
grant dates, as prescribed in FAS 123, the Company's net loss and pro forma
net loss per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Net loss:
As reported..................................... $ (9,896,537) $(6,502,743)
Pro forma....................................... (13,796,539) (7,402,743)
Net loss per share:
As reported..................................... (2.23) (3.47)
Pro forma....................................... (3.11) (4.26)
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted in future years. The
fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions for 1996 and
1995, respectively: Dividend yields of 0%; average annual volatility of 40% to
50%; risk free interest rates of 5.9% to 6.9%; and expected lives of 3 to 5
years for both periods. The weighted average fair value of options granted
during 1996 and 1995 for which the exercise price equals the market price on
the grant date was $3.9 million and $900,000, respectively.
The Black-Scholes 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 including the expected stock price and volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the
29
<PAGE>
NETVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of employee stock options.
NOTE 11--COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has commitments with two key executives, which provide for base
salaries ranging from $150,000-$180,000 annually. The agreements provide for
severance benefits ranging from six months to one year. The Company entered
into another employment agreement with a key executive, which provides for
annual compensation of $200,000, 36 months severance under certain
circumstances and a bonus of 2%-4% of the total consideration paid for the
Company in the event of a "Reorganization" (as defined in the agreement).
LEASE AGREEMENTS
In May 1996 the Company signed a five-year lease for its principal offices.
In November 1996 the Company signed a two-year lease for office space in
Northern California. In December 1996 the Company signed a three-year lease
for office space in Pennsylvania.
A summary of non-cancelable future operating lease commitments at December
31, 1996 is as follows:
<TABLE>
<S> <C>
1997............................................................. $118,253
1998............................................................. 114,544
1999............................................................. 86,316
2000............................................................. 76,191
2001............................................................. 31,746
Thereafter....................................................... --
--------
$427,050
========
</TABLE>
Office lease expense under non-cancelable operating lease obligations for
the years ended December 31, 1996 and 1995 was $271,064 and $224,153,
respectively.
NOTE 12--STRATEGIC ALLIANCE AGREEMENT WITH CIRCUITPATH
In January 1995, the Company entered into a Strategic Alliance Agreement
with CircuitPath Network Systems Corporation ("CircuitPath") which provides
each party with a license to certain technologies and information of the other
party. The Company received, for a payment of $580,000 in May 1995, a two-year
exclusive license to certain CircuitPath core technologies and intellectual
property, and a perpetual license to any enhancements made by the Company
during the initial two-year period. No Circuitpath technology has been
incorporated into any of the Company's products nor is any such incorporation
contemplated in the future.
NOTE 13--FOURTH QUARTER ADJUSTMENTS
In the quarter ended December 31, 1996 the Company recorded a $1 million
adjustment to decrease the value of remaining inventory to reflect
management's estimate of its current market value. The Company also recorded a
$4,082,055 adjustment to record the non-cash charge to compensation expense
for the October 1996 release of 541,062 shares of Class E Common Stock from
escrow (see Note 9).
30
<PAGE>
NETVANTAGE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996 AND 1995
In the quarter ended December 31, 1995 the Company recorded an adjustment
for its inventory of finished products in the amount of $400,660, which
reflects management's estimate of the current market value for the units
remaining in inventory. The adjustment, in management's opinion, reflects the
competitive pressures on selling prices of similar products which occurred in
the fourth quarter of 1995 and the first two months of 1996. In early 1996,
the Company decided to halt further development of the Token Ring switch and
focus the Company's resources on the Ethernet switching market. As a result an
adjustment was recorded in the fourth quarter in the amount of $210,000
representing the carrying value of Token Ring inventory. The Company recorded
a further adjustment, in the fourth quarter of 1995 of $150,426 for a chip
that was made obsolete by a recently released updated version of the device
which operates at a higher speed.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
31
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and titles of the current
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen R. Rizzone............. 47 Chairman of the Board, President, Chief
Executive Officer and acting Chief Financial
Officer
Aubrey C. Brown................ 55 Senior Vice President--Sales and Marketing
George M. Pontiakos............ 37 Senior Vice President--Product Development
Carlos A. Tomaszewski.......... 66 Director*
Seiji Uehara................... 49 Director
</TABLE>
- --------
* Member of Audit and Compensation Committees
Stephen R. Rizzone joined the Company and was elected President, Chief
Operating Officer and a director in December 1995. He became the Chairman of
the Board and Chief Executive Officer in March 1996 and the acting Chief
Financial Officer in January 1997. From February 1995 to October 1995, he was
Senior Vice President, World Wide Field Operations of Retix, a publicly traded
company, involved in the manufacture and sale of multiprototcol router,
Ethernet switches, remote and local bridges, ISDN access devices and fiber
transport products. From April 1990 until February 1995, he was Senior Vice
President, Field Operations of MAKE Systems, Inc., a software developer of
computer aided network design and simulation products for the LAN/WAN
communications industry.
Aubrey C. Brown joined the Company as Vice President--Sales and Marketing in
March 1995 and became Senior Vice President--Sales and Marketing in March
1996. Prior to joining the Company, he served as a senior executive in various
companies engaged in the LAN and WAN business: from August 1994 until joining
the Company, he was employed by Network Resources Corp. as Director of Western
& Strategic Sales; from March 1994 until August 1994, he served as Vice
President of Business Development of Lannet Data Communications; from March
1992 until March 1994, Mr. Brown was employed by Centrum Communications and
from June 1988 until March 1994 he was the Regional Territory Manager for
SynOptics Communication.
George M. Pontiakos joined the Company in July 1996 as Vice President--
Operations, and became Senior Vice President--Product Development in February
1997. Prior to joining the Company, Mr. Pontiakos was Vice President/General
Manager of Wavetek Corporation from January 1995 to July 1996, and LAN
Business Unit Director for Ascom Timeplex from August 1988 to January 1995. He
has also held senior management positions at Rowe International and ITT
Avionics. In addition, in 1992 Mr. Pontiakos served on AT&T's Policy Board for
the ISO Business Unit.
Carlos A. Tomaszewski was Chairman of the Board of the Company from its
inception in March 1991 until October 1994. From 1985 to May 1991, he served
as Chairman of the Board and a Principal Systems Architect of Retix, Inc., a
publicly traded company engaged in the manufacturing of internetworking
devices.
Seiji Uehara joined the Board of Directors in January 1996. Mr. Uehara was
President of NextCom K.K., a network systems integrator, headquartered in
Japan, from 1991 to 1996. From 1989 to 1990 Mr. Uehara was President of
Ungerman-Bass K.K., a wholly owned subsidiary of UB Networks.
32
<PAGE>
Directors are elected to serve until the next annual meeting of
stockholders. Two directors elected at the last annual meeting of stockholders
have resigned. M. Charles Fogg resigned as a director in July, 1996. Thomas V.
Baker resigned as a director and as Vice President of Finance, Chief Financial
Officer and Secretary in January, 1997. Officers are elected by and serve at
the discretion of the Board of Directors. There are no family relationships
among the directors or executive officers of the Company.
KEY EMPLOYEES
Robert Baumert has served as the Company's Lead ASIC design Engineer since
February 1996 to present. From September 1988 to January 1996, Mr. Baumert
served as Design Engineer designing Local Area Network Circuits for AT&T.
Ahmad Esmaeili joined the Company in September 1996, as Director of
Engineering. Prior to this, Mr. Esmaeili was a Senior Staff Engineer at Bay
Networks from May 1994 until August 1996. Mr. Esmaeili also worked at Network
Equipment Technologies as Senior Engineer from 1989 to April 1994.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
that the Company's executive officers and directors and persons who own more
than ten percent of the Company's Common Stock timely file initial reports of
ownership of the Company's Common Stock and other equity securities and
reports of changes in such ownership with the Securities and Exchange
Commission and the Nasdaq Stock Market. After a review of such insider
reports, the Company believes that all required reports have been timely
filed, except (i) Mr. Rizzone is late in filing a Form 3, a Form 5 for 1995
(showing three exempt transactions) and a Form 5 for 1996 (showing nine
transactions, most of which should have been reported on a total of five Form
4s during that year but were not), all such transactions related to option and
warrant grants to Mr. Rizzone and his spouse; (ii) Mr. Brown is late in filing
a Form 3, a Form 5 for 1995 (showing three exempt transactions) and a Form 5
for 1996 (showing two transactions that should have been reported on a total
of two Form 4s during that year but were not), all such transactions related
to option grants to Mr. Brown; and (iii) Mr. Pontiakos is late in filing a
Form 3 and a Form 5 for 1996 (showing four transactions, most of which should
have been reported on a total of two Form 4s during that year but were not),
all such transactions related to option grants to Mr. Pontiakos. These
individuals are currently in the process of making the appropriate filings.
33
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation paid
to or earned by the Chief Executive Officer and the four other most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers") serving at December 31, 1996, for services rendered in
all capacities to the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
-------------------------------------------- ------------
OTHER ANNUAL SHARES
COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR(2) SALARY ($) BONUS ($) ($)(3) OPTIONS (#)
- --------------------------- ------- ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stephen R. Rizzone(4)... 1996 $147,115 -- $1,798 70,000(5)
Chairman of the Board, 1995 60,000(5)
President and Chief
Executive Officer
Aubrey C. Brown(6)...... 1996 98,335 $282,395(7) 1,210 42,500
Senior Vice President--
Sales and Marketing 1995 98,308 2,213 -- 50,000
George M. Pontiakos(8).. 1996 59,538 55,000 291 60,000
Senior Vice President--
Product Development
Thomas V. Baker(9)...... 1996 115,016 80,000 -- 66,500
Former Chief Financial 1995 82,850 -- 36,000
Officer, Secretary
and Director
Errol Ginsberg(10)...... 1996 120,374 52,279 -- 110,000
Former Vice President--
Engineering
</TABLE>
- --------
(1) Excludes perquisites and other personal benefits paid to each Named
Executive Officer, as such amounts were less than the lesser of (i)
$50,000 or (ii) 10% of the Named Executive Officer's total reported
salary and bonus.
(2) The Company completed its initial public offering in 1995. As such, only
information for 1995 and 1996 is provided in accordance with the rules of
the Securities and Exchange Commission.
(3) Amounts reflect the Company's contributions to the NetVantage 401(k) Plan
on behalf of the Named Executive Officer.
(4) Although employment commenced in November 1995, Mr. Rizzone waived his
right to receive salary until January 1, 1996. Mr. Rizzone's spouse is
also employed by the Company as Director of Sales. In 1996, Mrs. Rizzone
earned $75,385 in salary, $432,115 in commissions, $2,000 in bonus, in
addition to a Company contribution of $971 to the NetVantage 401(k) Plan
on her behalf. Mrs. Rizzone commenced employment on June 5, 1995 and
earned $39,039 in salary and $3,927 in commissions during 1995. See also
"Certain Relationships and Related Transactions."
(5) Amounts do not include (i) two warrants, each to purchase 15,000 shares
of Class A Common Stock at an exercise price of $7.125 per share granted
to Mr. Rizzone in 1996 in connection with his then employment agreement;
(ii) a warrant to purchase 11,765 shares of Class A Common Stock at an
exercise price of $8.50 per share granted to Mr. Rizzone in 1996 in lieu
of interest on a short-term loan to the Company; (iii) a warrant to
purchase 11,110 shares of Class A Common Stock at an exercise price of
$9.00 per share granted to Mr. Rizzone in 1996 in lieu of interest on a
short-term loan to the Company; and (iv) options to purchase 32,500
shares of Class A Common Stock under the Company's 1996 Incentive and
Nonstatutory Stock Option Plan (the "1996 Plan") and 7,500 shares of
Class A Common Stock under the Company's 1994 Incentive and Nonstatutory
Stock Option Plan (the "1994 Plan") granted to Mrs. Rizzone. See also
"Certain Relationships and Related Transactions."
34
<PAGE>
(6) Employment commenced on March 1, 1995.
(7) Includes sales commissions of $257,395 earned during 1996.
(8) Employment commenced on July 1, 1996.
(9) Employment commenced on October 10, 1994 and ceased on January 22, 1997.
(10) Employment commenced on March 11, 1996 and ceased on March 18, 1997.
OPTIONS AND STOCK APPRECIATION RIGHTS
The following table sets forth specified information concerning grants of
options to purchase Class A, Class B and Class E Common Stock of the Company
made during 1996 to each of the Named Executive Officers. The Company granted
no stock appreciation rights to the Named Executive Officers in 1996.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(5)(6)
----------------------------------------------------- -------------------------
PERCENTAGE
NUMBER OF OF TOTAL EXERCISE MARKET
SECURITIES OPTIONS OR PRICE AT
UNDERLYING GRANTED TO BASE DATE OF
OPTIONS EMPLOYEES IN PRICE GRANT EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) ($/SH)(5) DATE 0%($) 5%($) 10%($)
- ---- ---------- ------------ -------- --------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen R. Rizzone(1)
1994 Plan(2).......... 70,000 7% $ 6.0600 $ 7.0625 5/23/02 $70,175 $238,310 $451,615
Aubrey C. Brown
1996 Plan(2).......... 42,500 4% 10.5625 6/5/02 152,529 346,170
George M. Pontiakos
1996 Plan(2).......... 5,000 1% 11.6875 11/20/02 19,891 45,110
1996 Plan(2).......... 50,000 5% 11.6875 7/24/02 178,139 423,643
1996 Plan(2).......... 5,000 1% 10.8750 9/18/02 18,526 41,998
Thomas V. Baker(7)
1996 Plan(2).......... 31,500 3% 10.5625 6/5/02 113,051 256,573
1996 Plan(2).......... 10,000 1% 11.3750 7/24/02 38,753 87,854
Bonus Plan(3)......... 25,000 3% 9.2500 10.8800 9/18/02 40,750 133,256 250,615
Errol Ginsberg(8)
1992 Plan(4).......... 25,000 3% 5.8500 4/30/02 44,714 106,197
1994 Plan(2).......... 25,000 3% 7.3125 3/20/02 62,174 141,051
1996 Plan(2).......... 45,000 5% 10.5625 6/5/02 161,501 366,533
Bonus Plan(3)......... 15,000 2% 9.2500 10.8800 9/18/02 24,450 79,954 150,369
</TABLE>
- --------
(1) Amounts do not include certain warrants granted to Mr. Rizzone and options
granted to Mrs. Rizzone. See Note 5 to Summary Compensation Table and
"Certain Relationships and Related Transactions."
(2) Options to purchase Class A Common Stock granted under the 1994 Plan and
the 1996 Plan are exercisable at the rate of 25% each year and are subject
to earlier termination in the event the employee is no longer employed by
the Company.
(3) Options to purchase Class A Common Stock granted under the 1996 Bonus and
Nonstatutory Stock Option Plan (the "Bonus Plan") are exercisable upon the
occurrence of certain events: (i) one-third upon the redemption or
conversion of at least 80% of the Class A Warrants issued in the initial
public offering; (ii) one-third upon the redemption or conversion of at
least 60% of the aggregate of the Class B Warrants issued in the initial
public offering and upon the subsequent conversion of Class A Warrants;
and (iii) one-third upon the release from escrow of one-half of the
outstanding Class E Common Stock. Options issued under this plan are
subject to earlier termination in the event the employee is no longer
employed by the Company.
35
<PAGE>
(4) Options to purchase Class B Common Stock and Class E Common Stock (of
which one-third of such shares are Class B Common Stock and two-thirds of
such shares are Class E Common Stock) granted under the Company's 1992
Incentive and Nonstatutory Stock Option Plan (the "1992 Plan") are
exercisable at the rate of one-third each year and are subject to earlier
termination in the event the employee is no longer employed by the
Company.
(5) The market price for options to purchase Class A Common Stock was set at
the average of the bid and ask prices of the Class A Common Stock on the
applicable date as reported by Nasdaq. Due to certain restrictions on the
transferability of the underlying shares, the market price for options to
purchase Class B and Class E Common Stock was set at 80% of the average of
the bid and ask prices of the Class A Common Stock on the applicable date
as reported by Nasdaq.
(6) Potential gains are net of the exercise price but before taxes associated
with the exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 0% (in the case of options granted at an exercise price
below market price), 5% and 10% rates of stock price appreciation are
provided in accordance with the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future market price of the Common Stock. Actual gains, if any, on
stock option exercises are dependent on the future financial performance
of the Company, overall market conditions and the option holders'
continued employment through the vesting period.
(7) Amounts shown reflect the options granted to Mr. Baker as of December 31,
1996 and assume expiration on the dates indicated in the table; however,
by their terms, such options are subject to earlier termination in the
event Mr. Baker is no longer employed by the Company. Mr. Baker's
employment ceased on January 22, 1997.
(8) Amounts shown reflect the options granted to Mr. Ginsberg as of December
31, 1996 and assume expiration on the dates indicated in the table;
however, by their terms, such options are subject to earlier termination
in the event Mr. Ginsberg is no longer employed by the Company. Mr.
Ginsberg's employment ceased on March 18, 1997.
36
<PAGE>
The following table summarizes options exercises during 1996, and the number
of all options and the value of all in-the-money options held at the end of
1996, by each of the Named Executive Officers:
AGGREGATE OPTION EXERCISES IN 1996
AND DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
SHARES AT DECEMBER 31, 1996 (#) AT DECEMBER 31, 1996 ($)(5)
ACQUIRED ON VALUE ------------------------- ------------------------------
NAME EXERCISES REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------ ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Rizzone(1)
1992 Plan(2).......... -- -- 6,667 13,333 $ 18,333 $ 36,667
1994 Plan(3).......... -- -- 10,000 30,000 34,375 103,125
1994 Plan(3).......... -- -- -- 70,000 -- 227,675
Aubrey C. Brown
1992 Plan(2).......... -- -- 5,556 11,111 12,222 24,445
1994 Plan(3).......... -- -- 8,333 25,000 22,916 68,749
1996 Plan(3).......... -- -- -- 42,500 -- --
George M. Pontiakos
1996 Plan(3).......... -- -- -- 60,000 -- --
Thomas V. Baker
1992 Plan(2).......... -- -- 12,000 6,000 38,400 19,200
1994 Plan(3).......... -- -- 9,000 27,000 45,563 136,688
1996 Plan(3).......... -- -- -- 41,500 -- --
Bonus Plan(4)......... -- -- 16,667 8,333 1,042 521
Errol Ginsberg
1992 Plan(2).......... -- -- -- 25,000 -- 40,000
1994 Plan(3).......... -- -- -- 25,000 -- 50,000
1996 Plan(3).......... -- -- -- 45,000 -- --
Bonus Plan(4)......... -- -- 10,000 5,000 625 312
</TABLE>
- --------
(1) Amounts do not include certain warrants to purchase Class A Common Stock
granted to Mr. Rizzone or options granted to Mrs. Rizzone. See Note 5 to
Summary Compensation Table and "Certain Relationships and Related
Transactions."
(2) Options to purchase Class B Common Stock and Class E Common Stock (of
which one-third of such shares are Class B Common Stock and two-thirds of
such shares are Class E Common Stock) granted under the 1992 Plan are
exercisable at the rate of one-third each year and are subject to earlier
termination in the event the employee is no longer employed by the
Company.
(3) Options to purchase Class A Common Stock granted under the 1994 Plan and
the 1996 Plan are exercisable at the rate of 25% each year and are subject
to earlier termination in the event the employee is no longer employed by
the Company.
(4) Options to purchase Class A Common Stock granted under the Bonus Plan are
exercisable upon the occurrence of certain events: (i) one-third upon the
redemption or conversion of at least 80% of the Class A Warrants issued in
the initial public offering; (ii) one-third upon the redemption or
conversion of at least 60% of the aggregate of the Class B Warrants issued
in the initial public offering and upon the subsequent conversion of Class
A Warrants; and (iii) one-third upon the release from escrow of one-half
of the outstanding Class E Common Stock. Options issued under this plan
are subject to earlier termination in the event the employee is no longer
employed by the Company.
(5) Valuation based on the difference between the option exercise price and
the market value of the Company's Common Stock on December 31, 1996. The
market price for options to purchase Class A Common Stock was set at the
average of the bid and ask prices of the Class A Common Stock on that date
as reported by Nasdaq. Due to certain restrictions on transferability of
the underlying shares, the market price for options to purchase Class B
and Class E Common Stock was set at 80% of the average of the bid and ask
prices of the Class A Common Stock on that date as reported by Nasdaq.
37
<PAGE>
EMPLOYMENT AND SEVERANCE AGREEMENTS AND ARRANGEMENTS
The Company has an employment agreement with Stephen Rizzone effective as of
January 1, 1997, as amended, providing for his employment as Chairman of the
Board, President and Chief Executive Officer through December 31, 2001, at an
initial base salary of $200,000 per year commencing January 1, 1997, and such
other incentive compensation as is consistent with industry practice, subject
to review annually by the Board. The agreement also provides for the grant of
additional options to purchase Common Stock, the use of a leased automobile
and certain other benefits. The agreement may be terminated by either party
with or without cause on 30 days written notice. In the event the Company
terminates Mr. Rizzone's employment, either with or without cause at any time,
for any reason, or Mr. Rizzone terminates his employment due to (i) a change
in duties, title or responsibility of his position, (ii) a removal from or
non-election to the Board or from the position of Chairman of the Board, (iii)
a change affecting Mr. Rizzone's position in organizational structure of the
Company, (iv) a reduction in compensation, (v) an increase in travel required
to the principal offices of the Company greater than fifty miles or (vi) an
acquisition or merger of the Company, Mr. Rizzone will be entitled to certain
termination benefits. Such benefits will include the following: (a) his salary
and benefits will continue for a period of thirty-six months from the date of
termination, (b) payment will be made for accrued and unused vacation time
vested as of the date of termination, (c) stock options granted prior to
termination will vest and be exercisable for a period of thirty-six months,
and (d) the cash bonus discussed below will be paid, effective for 48 months
after termination. In the event of a "Reorganization" (as defined in the
agreement), Mr. Rizzone is entitled to a cash bonus based on the total
consideration to be paid in the Reorganization divided by the number of shares
of Class A Common Stock outstanding at the time of the Reorganization, such
that if the resulting price per share is $15 or less, he will receive a bonus
equal to 2% of the total consideration; if the resulting price per share is
greater than $15 but less than $20, the bonus will equal 3% of the total
consideration; and if the resulting price per share is $20 or more, the bonus
will equal 4% of the total consideration. He is also entitled to receive such
bonus up to 12 months after his voluntary termination.
The Company has an employment agreement with George Pontiakos which provides
for an initial base salary of $120,000 per year (which has been currently
adjusted to $150,000), eligibility for quarterly and annual bonuses ranging
from 5% to 15% of base salary, and certain other benefits. In the event Mr.
Pontiakos' employment is terminated for any reason, other than cause, he is
entitled to a severance, at his base salary amount for six months. The Company
is not obligated to provide any severance to Mr. Pontiakos should he
voluntarily resign his position. In addition, if the current Chief Executive
Officer is removed from his position, Mr. Pontiakos will have the option of
resigning from the Company and receiving twelve months of severance at his
base salary. Aubrey Brown also has a similar option to resign and receive
twelve months of severance at his base salary (which is currently $180,000) in
the event the current Chief Executive Officer is removed from his position.
The Company had an employment agreement with Errol Ginsberg which provided
for a base salary of $150,000 per year and certain other benefits. In the
event Mr. Ginsberg is terminated for any reason, other than cause, he is
entitled to severance at his base salary for one year provided he does not
violate any terms of his confidentiality agreement with the Company. The
Company is not obligated to provide any severance to Mr. Ginsberg should he
voluntarily resign his position.
The Company had an employment agreement with Thomas Baker which provided for
an initial base salary of $80,000 which was increased from time to time by the
Company. The agreement also provided for incentive compensation based on the
Company achieving certain enumerated performance goals and as determined to be
fair and reasonable by the Compensation Committee of the Board of Directors.
The agreement further provided that in the event the employee's employment was
terminated by the Company at any time for any reason other than cause,
disability, death or upon the employees' voluntary termination, or by
termination of the employee (or reduction in statute, nature of duties,
employee benefits or working conditions from those enjoyed by all other
executives at the same level or higher) within 120 days following a "Change of
Control" of the Company, the Company would pay the employee an amount equal to
the sum of (i) the employee's accrued but unpaid base salary, and one year's
base salary at the employee's then prevailing base salary; (ii) all accrued
and unpaid vacation pay as of his termination date; and (iii) all accrued and
unpaid incentive compensation through the most recent date prior to
termination for which such incentive compensation would be calculated.
38
<PAGE>
DIRECTOR COMPENSATION
The Company's non-employee directors do not receive any compensation for
their services as members of the Board of Directors, although they are
reimbursed for their expenses in attending Board and committee meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding ownership of
shares of Common Stock as of March 31, 1997 for (i) each director of the
Company, (ii) each Named Executive Officer of the Company, (iii) each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding shares, and (iv) all directors and executive officers as a group.
Except as otherwise indicated, each shareholder has sole voting and investment
power with respect to the shares beneficially owned, subject to community
property where applicable. Each outstanding share of Class A Common Stock is
entitled to one vote and each share of Class B Common Stock or Class E Common
Stock is entitled to five votes. As of December 31, 1996, 540,995 shares of
Class E Common Stock remain in escrow.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF
NUMBER OF OF VOTING
NAME OF BENEFICIAL OWNER SHARES CLASS POWER
------------------------ --------- ---------- ----------
<S> <C> <C> <C>
Stephen R. Rizzone....................... 75,217(1) * *
Aubrey C. Brown.......................... 13,889(2) * *
George M. Pontiakos...................... -- * *
Carlos A. Tomaszewski.................... 155,251(3) 1.42% 4.11%
Seiji Uehara
Telecom Device K.K.--4F Miyanaga Bldg.
1-5-12 Motoakasaka Minato-ku, Tokyo 107
Japan................................... 854,993(4) 7.84% 5.69%
Errol Ginsberg........................... 29,583(5) * *
Thomas V. Baker.......................... 55,001(6) * *
All directors and executive officers as a
group
(7 persons)(1)(2)(3)(4)(5)(6)........... 1,183,934(7) 10.69% 11.59%
</TABLE>
- --------
* Holds less than 1%.
(1) Represents 1,300 shares of Class A Common Stock; and 67,250 shares of
Class A Common Stock, 2,222 shares of Class B Common Stock and 4,444
shares of Class E Common Stock which such person or his spouse has the
right to purchase within 60 days of March 31, 1997, pursuant to the
exercise of outstanding options and warrants.
(2) Represents 8,333 shares of Class A Common Stock, 1,852 shares of Class B
Common Stock and 3,704 shares of Class E Common Stock which such person
has the right to purchase within 60 days of March 31, 1997, pursuant to
the exercise of outstanding options.
(3) Represents 39,516 shares of Class A Common Stock, 58,535 shares of Class B
Common Stock and 57,200 shares of Class E Common Stock, most of which are
held by Microprocessor Associates, which is 90% owned by Mr. Tomaszewski.
(4) Includes 512,996 shares of Class A Common Stock for Mr. Uehara and 341,997
shares of Class A Common Stock for his partner, Mr. Isao Okawa. See
"Certain Relationships and Related Transactions."
(5) Represents 21,250 shares of Class A Common Stock, 2,778 shares of Class B
Common Stock and 5,556 shares of Class E Common Stock which such person
has the right to purchase within 60 days of March 31, 1997, pursuant to
the exercise of outstanding options. As of March 18, 1997, Mr. Ginsberg
was no longer employed by the Company.
(6) Represents 43,000 shares of Class A Common Stock, 4,000 shares of Class B
Common Stock and 8,000 shares of Class E Common Stock which such person
has the right to purchase within 60 days of March 31, 1997, pursuant to
the exercise of outstanding options. As of January 22, 1997, Mr. Baker was
no longer employed by the Company.
39
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Rizzone, the Company's Chairman of the Board, Chief Executive Officer
and President is married to Mashid Rizzone, the Company's Director of Sales,
who is separately compensated by the Company. See Notes 4 and 5 to "Executive
Compensation--Summary Compensation Table." In early 1997, the Company made an
advance against future commissions to Mrs. Rizzone of approximately $255,000,
and an advance against future compensation to Mr. Rizzone of $100,000, which
the Company has recorded in 1997 as amounts due from related parties.
In 1996, the Company issued four warrants to Mr. Rizzone to purchase Class A
Common Stock. Two warrants were issued in consideration of the payment of $300
in connection with Mr. Rizzone's 1996 Employment Agreement. The first warrant
granted him the right to purchase 15,000 shares of Class A Common Stock, at an
exercise price of $7.125 per share, exercisable on the date the first half of
the outstanding shares of Class E Common Stock were converted into shares of
Class B Common Stock (an event which occurred prior to the end of 1996). The
other warrant granted him the right to purchase 15,000 shares of Class A
Common Stock, at an exercise price of $7.125 per share, exercisable on the
date all remaining outstanding shares of Class E Common Stock are converted
into shares of Class B Common Stock (an event which has yet to occur). Both
warrants terminate on January 1, 1999. Two additional warrants were issued in
lieu of interest owed by the Company to Mr. Rizzone for two short-term loans
totaling $200,000 made by him to fund operations. One warrant granted him the
right to purchase 11,765 shares of Class A Common Stock at an exercise price
of $8.50 per share (a $2.00 discount from the closing price of a share of
Class A Common Stock on the date the first loan was made). The other warrant
granted him the right to purchase 11,110 shares of Class A Common Stock at an
exercise price of $9.00 per share (a $2.00 discount from the closing price of
a share of Class A Common Stock on the date the second loan was made). Both
warrants were immediately exercisable and terminate on October 14, 2001.
On January 10, 1996, the Company completed the sale of 512,996 shares and
341,997 shares (or 854,993 shares in the aggregate) of its Class A Common
Stock to Seiji Uehara, a director of the Company, and Isao Okawa,
respectively, for cash consideration of $5.848 per share (or $5,000,000 in the
aggregate). The per share purchase price, although less than the market price
of the Class A Common Stock at the time, was deemed to be fair to the Company
because the shares issued in the transaction were "restricted securities"
within the meaning of Rule 144 of the Securities Act. The average of the bid
and ask prices of the Company's Class A Common Stock on January 10, 1996 was
$7.50 per share. Under the stock purchase agreement between the parties, the
Company granted Messrs. Uehara and Okawa certain "piggy back" registration
rights and agreed to provide them certain indemnification. At the time of the
transaction, Mr. Uehara was also the president of NextCom, and Mr. Okawa was
the chairman and president of the parent of NextCom.
In June 1996, NextCom advanced the Company $500,000 in cash. In lieu of
interest expense, NextCom received an additional 5% discount on all its
purchases of Company products until the advance was paid off in October 1996.
The amount of the additional discount received by NextCom totaled $23,312.
Total 1996 sales to NextCom were $1.5 million (or 6% of total revenues). At
December 31, 1996, the amount due the Company for product purchases by NextCom
was $899,381 (or 10% of the Company's total accounts receivable). The Company
also entered into a sales incentive plan with NextCom to promote sales growth
and market awareness of the Company's products. In connection with the plan,
the Company paid NextCom $27,000 in cash.
40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements:
<TABLE>
<CAPTION>
PAGE:
-----
<S> <C>
Report of Independent Public Accountants............................. 15
Balance Sheet........................................................ 16
Statement of Operations.............................................. 17
Statement of Stockholders' Equity.................................... 18
Statement of Cash Flows.............................................. 19
Notes to Financial Statements........................................ 20
</TABLE>
(a)(2) Financial Statement Schedules:
All schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements or the
notes thereto.
(a)(3) Exhibits
<TABLE>
<CAPTION>
NUMBER TITLE
------ -----
<C> <S>
3.1 Restated Certificate of Incorporation as filed with the Delaware
Secretary of State on November 18, 1994(1)
3.3 Bylaws(1)
4.1 Form of Warrant Agreement (including forms of Class A and Class B
Warrant certificates)(1)
4.2 Form of Underwriters Unit Purchase Option(1)
4.3 Form of Class A Common Stock Certificate(1)
10.1 Strategic Alliance Agreement between CircuitPath Networks Systems
Corporation and the Company(1)
10.2 [Intentionally Blank]
10.3 Loan and Security Agreement dated July 15, 1996, as amended, between
Silicon Valley Bank and the Company, along with related Registration
Rights Agreement, dated July 15, 1996, Warrant to Purchase Stock dated
July 15, 1996 and Warrant to Purchase Stock dated August 16, 1996
10.4 Standard Office Lease-Gross dated April 10,1996, and Standard Office
Lease-Gross dated May 1, 1996, as amended, between Silver Genesis, Inc.
and the Company
10.5 Employment Agreement, dated October 10, 1994, between the Company and
Mr. Thomas V. Baker(2)
10.6 [Intentionally Blank]
10.7 [Intentionally Blank]
10.8 Stock Purchase Agreement between the Company and Ungermann-Bass
Networks, Inc. dated July 25, 1995(3)
10.9 Stock Purchase Agreement between the Company and Mr. Seiji Uehara and
Mr. Isao Okawa dated December 27, 1995(4)
10.10 1996 Incentive Stock Plan(6)
10.11 1996 Bonus and Nonstatutory Stock Option Plan(6)
10.12 1994 Incentive and Nonstatutory Stock Option Plan(5)(6)
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
NUMBER TITLE
------ -----
<C> <S>
10.13 1992 Incentive and Nonstatutory Stock Option Plan(5)(6)
10.14 401(k) Profit Sharing Plan(6)
10.15 Employment Agreement effective January 1, 1997, as amended, between the
Company and Stephen R. Rizzone(6)
10.16 Letter Agreement dated June 25, 1996, between the Company and George
Pontiakos(6)
11.1 Computation of pro forma loss per share for the year ended December 31,
1994(1)
27 Financial Data Schedule
</TABLE>
- --------
(1) Incorporated herein by reference to the corresponding exhibit to the
Company's Registration Statement (the "Registration Statement") on Form
SB-2, Registration Number 33-89266, dated April 26, 1995.
(2) Incorporated herein by reference to the corresponding exhibit to the
Company's Form 10-K for the fiscal year ended December 31, 1995.
(3) Incorporated herein by reference to the corresponding exhibit to the
Company's Form 8-K dated July 25, 1995.
(4) Incorporated herein by reference to the corresponding exhibit to the
Company's Form 8-K dated January 11, 1996.
(5) Incorporated herein by reference to exhibits 4.4 and 4.5, respectively, to
the Company's Registration Statement.
(6) Management contracts and compensatory plans, contracts and arrangements of
the Company.
(b) Report on Form 8-K:
During the fourth quarter of 1996, the Company filed a Current Report on
Form 8-K dated December 2, 1996, related to the notice of redemption given to
its registered holders of Class B Warrants.
42
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Date: April 15, 1997 NetVantage, Inc.
/s/ Stephen R. Rizzone
By: _________________________________
STEPHEN R. RIZZONE, Chairman of
the Board Chief Executive Officer
and acting Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITY AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Stephen R. Rizzone Chairman of the April 15, 1997
- ------------------------------------- Board Chief
STEPHEN R. RIZZONE Executive Officer
and acting Chief
Financial Officer
/s/ Kim Rogers Acting Chief April 15, 1997
- ------------------------------------- Accounting Officer
KIM ROGERS
/s/ Seiji Uehara Director April 15, 1997
- -------------------------------------
SEIJI UEHARA
/s/ Carlos A. Tomaszewski Director April 15, 1997
- -------------------------------------
CARLOS A. TOMASZEWSKI
43
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER TITLE
------ -----
<C> <S>
3.1 Restated Certificate of Incorporation as filed with the Delaware
Secretary of State on November 18, 1994(1)
3.3 Bylaws(1)
4.1 Form of Warrant Agreement (including forms of Class A and Class B
Warrant certificates)(1)
4.2 Form of Underwriters Unit Purchase Option(1)
4.3 Form of Class A Common Stock Certificate(1)
10.1 Strategic Alliance Agreement between CircuitPath Networks Systems
Corporation and the Company(1)
10.2 [Intentionally Blank]
10.3 Loan and Security Agreement dated July 15, 1996, as amended, between
Silicon Valley Bank and the Company, along with related Registration
Rights Agreement, dated July 15, 1996, Warrant to Purchase Stock dated
July 15, 1996 and Warrant to Purchase Stock dated August 16, 1996
10.4 Standard Office Lease-Gross dated April 10,1996, and Standard Office
Lease-Gross dated May 1, 1996, as amended, between Silver Genesis, Inc.
and the Company
10.5 Employment Agreement, dated October 10, 1994, between the Company and
Mr. Thomas V. Baker(2)
10.6 [Intentionally Blank]
10.7 [Intentionally Blank]
10.8 Stock Purchase Agreement between the Company and Ungermann-Bass
Networks, Inc. dated July 25, 1995(3)
10.9 Stock Purchase Agreement between the Company and Mr. Seiji Uehara and
Mr. Isao Okawa dated December 27, 1995(4)
10.10 1996 Incentive Stock Plan(6)
10.11 1996 Bonus and Nonstatutory Stock Option Plan(6)
10.12 1994 Incentive and Nonstatutory Stock Option Plan(5)(6)
10.13 1992 Incentive and Nonstatutory Stock Option Plan(5)(6)
10.14 401(k) Profit Sharing Plan(6)
10.15 Employment Agreement effective January 1, 1997, as amended, between the
Company and
Stephen R. Rizzone(6)
10.16 Letter Agreement dated June 25, 1996, between the Company and George
Pontiakos(6)
11.1 Computation of pro forma loss per share for the year ended December 31,
1994(1)
27 Financial Data Schedule
</TABLE>
- --------
(1) Incorporated herein by reference to the corresponding exhibit to the
Company's Registration Statement (the "Registration Statement") on Form
SB-2, Registration Number 33-89266, dated April 26, 1995.
(2) Incorporated herein by reference to the corresponding exhibit to the
Company's Form 10-K for the fiscal year ended December 31, 1995.
(3) Incorporated herein by reference to the corresponding exhibit to the
Company's Form 8-K dated July 25, 1995.
(4) Incorporated herein by reference to the corresponding exhibit to the
Company's Form 8-K dated January 11, 1996.
(5) Incorporated herein by reference to exhibits 4.4 and 4.5, respectively, to
the Company's Registration Statement.
(6) Management contracts and compensatory plans, contracts and arrangements of
the Company.
<PAGE>
EXHIBIT 10.3
[LOGO OF SILICON VALLEY BANK]
LOAN AND SECURITY AGREEMENT
BORROWER: NETVANTAGE, INC.
ADDRESS: 201 CONTINENTAL BOULEVARD, SUITE 201
EL SEGUNDO, CALIFORNIA 90245
DATE: JULY 15, 1996
--
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK ("Silicon"), whose address is 3003 Tasman Drive, Santa
Clara, California 95054 and the borrower named above (the "Borrower"), whose
chief executive office is located at the above address ("Borrower's Address").
1. LOANS.
1.1 LOANS. Silicon, in its reasonable discretion, will make loans to the
Borrower (the "Loans") in amounts determined by Silicon in its reasonable
discretion up to the amount (the "Credit Limit") shown on the Schedule to this
Agreement (the "Schedule"), provided no Event of Default and no event which,
with notice or passage of time or both, would constitute an Event of Default has
occurred. The Borrower is responsible for monitoring the total amount of Loans
and other Obligations outstanding from time to time, and Borrower shall not
permit the same, at any time, to exceed the Credit Limit. If at any time the
total of all outstanding Loans and all other Obligations exceeds the Credit
Limit, the Borrower shall immediately pay the amount of the excess to Silicon,
without notice or demand.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule hereto. Interest shall be payable
monthly, on the due date shown on the monthly billing from Silicon to the
Borrower. Silicon may, in its discretion, charge interest to Borrower's deposit
accounts maintained with Silicon.
1.3 FEES. The Borrower shall pay to Silicon a loan origination fee in the
amount shown on the Schedule hereto concurrently herewith. This fee is in
addition to all interest and other sums payable to Silicon and is not
refundable.
1.4 LETTERS OF CREDIT. Silicon, in its reasonable discretion, will, from
time to time during the term of this Agreement, on the request of the Borrower,
issue letters of credit for the account of the Borrower ("Letters of Credit"),
in an aggregate amount at any one time outstanding not to exceed the Letter of
Credit Sublimit shown on the Schedule, provided that, on the date the Letters of
Credit are to be issued, Borrower has available to it Loans in an amount equal
to or greater than the face amount of the Letters of Credit to be issued.
Letters of Credit shall be in form and substance acceptable to Silicon in its
sole discretion, shall be payable in United States dollars and shall have an
expiry date no later than the Maturity Date *. Prior to the issuance of any
Letters of Credit, Borrower shall execute and deliver to Silicon applications
for letters of credit, and letter of credit agreements on Silicon's standard
forms, and such other documentation as Silicon shall specify (the "Letter of
Credit Documentation"). Fees for Letters of Credit shall be as provided in the
Letter of Credit Documentation. Borrower shall indemnify, defend and hold
Silicon harmless from any loss, cost, expense or liability, including without
limitation reasonable attorneys fees, arising out of or relating to Letters of
Credit. The Credit Limit and the Loans available to Borrower under this
Agreement shall be reduced by the face amount of Letters of Credit from time to
time outstanding.
* PROVIDED THAT LETTERS OF CREDIT MAY HAVE A MATURITY DATE UP TO TWELVE MONTHS
BEYOND THE MATURITY DATE IN EFFECT FROM TIME TO TIME, PROVIDED THAT IF ON THE
MATURITY DATE, OR ON ANY EARLIER EFFECTIVE DATE OF TERMINATION, THERE ARE ANY
OUTSTANDING LETTERS OF CREDIT ISSUED BY SILICON OR ISSUED BY ANOTHER INSTITUTION
BASED UPON AN APPLICATION, GUARANTEE, INDEMNITY OR SIMILAR AGREEMENT ON THE PART
OF SILICON, THEN ON SUCH DATE BORROWER SHALL PROVIDE TO SILICON CASH COLLATERAL
IN AN AMOUNT EQUAL TO THE FACE AMOUNT OF ALL SUCH LETTERS OF CREDIT PLUS ALL
INTEREST, FEES AND COST DUE OR TO BECOME DUE IN CONNECTION THEREWITH, TO SECURE
ALL OF THE OBLIGATIONS RELATING TO SAID LETTERS OF CREDIT, PURSUANT TO SILICON'S
THEN STANDARD FORM CASH PLEDGE AGREEMENT.
NOTE TO EDGAR VERSION: Deleted language is indicated by brackets, not
strike-throughs.
-1-
<PAGE>
Silicon Valley Bank Loan and Security Agreement
- --------------------------------------------------------------------------------
2. GRANT OF SECURITY INTEREST.
2.1 OBLIGATIONS. The term "Obligations" as used in this Agreement means the
following: the obligation to pay all Loans and all interest thereon when due,
and to pay and perform when due all other present and future indebtedness,
liabilities, obligations, guarantees, covenants, agreements, warranties and
representations of the Borrower to Silicon, whether joint or several, monetary
or non-monetary, and whether created pursuant to this Agreement or any other
present or future agreement or otherwise. Silicon may, in its discretion,
require that Borrower pay monetary Obligations in cash to Silicon, or charge
them to Borrower's Loan account, in which event they will bear interest at the
same rate applicable to the Loans. Silicon may also, in its discretion, charge
any monetary Obligations to Borrower's deposit accounts maintained with Silicon.
Silicon will notify the Borrower of any such charges to Borrower's deposit
accounts. Such charges shall not be deemed to be a setoff for any purpose.
2.2 COLLATERAL. As security for all Obligations, the Borrower hereby grants
Silicon a continuing security interest in all of the Borrower's interest in the
types of property described below, whether now owned or hereafter acquired, and
wherever located (collectively, the "Collateral"): (a) All accounts, contract
rights, chattel paper, letters of credit, documents, securities, money, and
instruments, and all other obligations now or in the future owing to the
Borrower; (b) All inventory, goods, merchandise, materials, raw materials, work
in process, finished goods, farm products, advertising, packaging and shipping
materials, supplies, and all other tangible personal property which is held for
sale or lease or furnished under contracts of service or consumed in the
Borrower's business, and all warehouse receipts and other documents; and (c) All
equipment, including without limitation all machinery, fixtures, trade fixtures,
vehicles, furnishings, furniture, materials, tools, machine tools, office
equipment, computers and peripheral devices, appliances, apparatus, parts, dies,
and jigs; (d) All general intangibles including, but not limited to, deposit
accounts, goodwill, names, trade names, trademarks and the goodwill of the
business symbolized thereby, trade secrets, drawings, blueprints, customer
lists, patents, patent applications, copyrights, security deposits, loan
commitment fees, federal, state and local tax refunds and claims, all rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, all rights to purchase or
sell real or personal property, all rights as a licensor or licensee of any
kind, all royalties, licenses, processes, telephone numbers, proprietary
information, purchase orders, and all insurance policies and claims (including
without limitation credit, liability, property and other insurance), and all
other rights, privileges and franchises of every kind; (e) All books and
records, whether stored on computers or otherwise maintained; and (f) All
substitutions, additions and accessions to any of the foregoing, and all
products, proceeds and insurance proceeds of the foregoing, and all guaranties
of and security for the foregoing; and all books and records relating to any of
the foregoing. Silicon's security interest in any present or future technology
(including patents, trade secrets, and other technology) shall be subject to any
licenses or rights now or in the future granted by the Borrower to any third
parties in the ordinary course of Borrower's business; provided that if the
Borrower proposes to sell, license or grant any other rights with respect to any
technology in a transaction that, in substance, conveys a major part of the
economic value of that technology, Silicon shall first be requested to release
its security interest in the same, and Silicon may withhold such release in its
discretion *.
* PROVIDED THAT IT IS UNDERSTOOD THAT SILICON WILL NOT WITHHOLD ITS CONSENT TO
--------
A TRANSACTION THAT PERMITS A THIRD PARTY TO COMPLETE MANUFACTURING OF A PRODUCT
INVOLVING SUCH TECHNOLOGY ONLY, WITHOUT THE GRANT OF ANY OTHER RIGHTS TO SUCH
PARTY IN SUCH TECHNOLOGY ARISING IN CONNECTION THEREWITH
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
The Borrower represents and warrants to Silicon as follows, and the Borrower
covenants that the following representations will continue to be true, and that
the Borrower will comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. The Borrower, if a corporation, is
and will continue to be, duly authorized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. The Borrower is and
will continue to be qualified and licensed to do business in all jurisdictions
in which any failure to do so would have a material adverse effect on the
Borrower. The execution, delivery and performance by the Borrower of this
Agreement, and all other documents contemplated hereby have been duly and
validly authorized, are enforceable against the Borrower in accordance with
their terms, and do not violate any law or any provision of, and are not grounds
for acceleration under, any agreement or instrument which is binding upon the
Borrower. Borrower has no subsidiaries except as set forth on the Schedule.
3.2 NAME; TRADE NAMES AND STYLES. The name of the Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule hereto
are all prior names of the Borrower and all of Borrower's present and prior
trade names. The Borrower shall give Silicon 15 days' prior written notice
before changing its name or doing business under any other name. The Borrower
has complied, and will in the future comply, with all laws relating to the
conduct of business under a fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is the Borrower's chief executive office. In
addition, the Borrower has places of business and Collateral is located only at
the locations set forth on the Schedule to this Agreement. The Borrower will
give Silicon at least 15 days prior written notice before changing its chief
executive office or locating the Collateral at any other location.
-2-
<PAGE>
Silicon Valley Bank Loan and Security Agreement
- --------------------------------------------------------------------------------
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. The Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of equipment which are leased by the Borrower *. The Collateral now is
and will remain free and clear of any and all liens, charges, security
interests, encumbrances and adverse claims, except for the following ("Permitted
Liens"): (i) purchase money security interests in specific items of equipment;
(ii) leases of specific items of equipment; (iii) liens for taxes not yet
payable; (iv) additional security interests and liens consented to in writing by
Silicon in its reasonable discretion, which consent shall not be unreasonably
withheld; and (v) security interests being terminated substantially concurrently
with this Agreement. Silicon will have the right to require, as a condition to
its consent under subparagraph (iv) above, that the holder of the additional
security interest or lien sign an intercreditor agreement on Silicon's then
standard form, acknowledge that the security interest is subordinate to the
security interest in favor of Silicon, and agree not to take any action to
enforce its subordinate security interest so long as any Obligations remain
outstanding, and that the Borrower agree that any uncured default in any
obligation secured by the subordinate security interest shall also constitute an
Event of Default under this Agreement. Silicon now has, and will continue to
have, a perfected and enforceable security interest in all of the Collateral,
subject only to the Permitted Liens, and the Borrower will at all times defend
Silicon and the Collateral against all claims of others. None of the Collateral
now is or will be affixed to any real property in such a manner, or with such
intent, as to become a fixture.
* AND SUBJECT TO THE PROVISIONS SET FORTH IN THE LAST SENTENCE OF SECTION 2.2
HEREOF
3.5 MAINTENANCE OF COLLATERAL. The Borrower will maintain the Collateral in
good working condition *, and the Borrower will not use the Collateral for any
unlawful purpose. The Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
* , SUBJECT TO ORDINARY WEAR AND TEAR
3.6 BOOKS AND RECORDS. The Borrower has maintained and will maintain at the
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION AND STATEMENTS. All financial statements now or in
the future delivered to Silicon have been, and will be, prepared in conformity
with generally accepted accounting principles and now and in the future will
completely and accurately reflect the financial condition of the Borrower, at
the times and for the periods therein stated *. Since the last date covered by
any such statement, there has been no material adverse change in the financial
condition or business of the Borrower. The Borrower is now and will continue to
be solvent. The Borrower will provide Silicon: (i) within 30 days after the
end of each month, a monthly financial statement prepared by the Borrower, and a
Compliance Certificate in such form as Silicon shall reasonably specify, signed
by the Chief Financial Officer of the Borrower, certifying that as of the end of
such month the Borrower was in full compliance with all of the terms and
conditions of this Agreement, and setting forth calculations showing compliance
with the financial covenants set forth on the Schedule and such other
information as Silicon shall reasonably request; ** [and (ii) within 120 days
following the end of the Borrower's fiscal year, complete annual financial
statements, certified by independent certified public accountants acceptable to
Silicon.]
* EXCEPT THAT ANY UNAUDITED QUARTERLY FINANCIAL STATEMENTS ARE SUBJECT TO YEAR
END ADJUSTMENTS
** (ii) WITHIN 5 DAYS AFTER THE EARLIER OF THE DATE THE REPORT 10-Q IS FILED
OR IS REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, SUCH 10-
Q REPORT, A QUARTERLY FINANCIAL STATEMENT PREPARED BY THE BORROWER, AND A
COMPLIANCE CERTIFICATE, SIGNED BY THE CHIEF FINANCIAL OFFICER OF THE BORROWER,
CERTIFYING THAT THROUGHOUT SUCH QUARTER THE BORROWER WAS IN FULL COMPLIANCE WITH
ALL OF THE TERMS AND CONDITIONS OF THIS AGREEMENT, AND SETTING FORTH
CALCULATIONS SHOWING COMPLIANCE WITH THE FINANCIAL COVENANTS SET FORTH ON THE
SCHEDULE AND SUCH OTHER INFORMATION AS SILICON SHALL REASONABLY REQUEST; AND
(iii) WITHIN 5 DAYS AFTER THE EARLIER OF THE DATE THE REPORT 10-K IS FILED OR IS
REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, SUCH 10-K
REPORT, COMPLETE ANNUAL FINANCIAL STATEMENTS, CERTIFIED BY INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS FROM THE BIG SIX ACCOUNTING FIRMS OR SUCH OTHER INDEPENDENT
PUBLIC ACCOUNTANTS ACCEPTABLE TO SILICON, AND A COMPLIANCE CERTIFICATE FOR THE
QUARTER THEN ENDED, SIGNED BY THE CHIEF FINANCIAL OFFICER OF THE BORROWER,
CERTIFYING THAT THROUGHOUT SUCH QUARTER THE BORROWER WAS IN FULL COMPLIANCE WITH
ALL OF THE TERMS AND CONDITIONS OF THIS AGREEMENT, AND SETTING FORTH
CALCULATIONS SHOWING COMPLIANCE WITH THE FINANCIAL COVENANTS SET FORTH ON THE
SCHEDULE AND SUCH OTHER INFORMATION AS SILICON SHALL REASONABLY REQUEST.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. The Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and the Borrower has timely paid, and will timely
pay, all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by the Borrower. The Borrower may,
however, defer payment of any contested taxes, provided that the Borrower (i) in
good faith contests the Borrower's obligation to pay the taxes by appropriate
proceedings promptly and diligently instituted and conducted, (ii) notifies
Silicon in writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. The Borrower
is unaware of any claims or adjustments proposed for any of the Borrower's prior
tax years which could result in additional taxes becoming due and payable by the
Borrower. The Borrower has paid, and shall continue to pay all amounts
necessary to fund all
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Silicon Valley Bank Loan and Security Agreement
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present and future pension, profit sharing and deferred compensation plans in
accordance with their terms, and the Borrower has not and will not withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of the Borrower, including, without limitation, any liability
to the Pension Benefit Guaranty Corporation or its successors or any other
governmental agency.
3.9 COMPLIANCE WITH LAW. The Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to the Borrower, including, but not limited to,
those relating to the Borrower's ownership of real or personal property, conduct
and licensing of the Borrower's business, and environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of the
Borrower's knowledge) threatened by or against or affecting the Borrower in any
court or before any governmental agency (or any basis therefor known to the
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of the Borrower,
or in any material impairment in the ability of the Borrower to carry on its
business in substantially the same manner as it is now being conducted. The
Borrower will promptly inform Silicon in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
the Borrower involving amounts in excess of $100,000.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. ADDITIONAL DUTIES OF THE BORROWER.
4.1 FINANCIAL AND OTHER COVENANTS. The Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule to this
Agreement.
4.2 OVERADVANCE; PROCEEDS OF ACCOUNTS. If for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit, without
limiting Silicon's other remedies, and whether or not Silicon declares an Event
of Default, Borrower shall remit to Silicon all checks and other proceeds of
Borrower's accounts and general intangibles, * in the same form as received by
Borrower, within one day after Borrower's receipt of the same, to be applied to
the Obligations in such order as Silicon shall determine in its discretion.
* , TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW,
4.3 INSURANCE. The Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole and absolute discretion, except that,
provided no Event of Default has occurred, Silicon shall release to the Borrower
insurance proceeds with respect to equipment totaling less than $100,000, which
shall be utilized by the Borrower for the replacement of the equipment with
respect to which the insurance proceeds were paid. Silicon may require
reasonable assurance that the insurance proceeds so released will be so used.
If the Borrower fails to provide or pay for any insurance, Silicon may, but is
not obligated to, obtain the same at the Borrower's expense. The Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.
4.4 REPORTS. The Borrower shall provide Silicon with such written reports
with respect to the Borrower (including without limitation budgets, sales
projections, operating plans and other financial documentation), as Silicon
shall from time to time reasonably specify.
4.5 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At all reasonable times, and
upon one business day notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy the Borrower's
accounting books and records and Borrower's books and records relating to the
Collateral. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such information to its auditors, regulatory agencies, and
* attorneys, and pursuant to any subpoena or other legal process. The foregoing
audits shall be at Silicon's expense, except that the Borrower shall reimburse
Silicon for its reasonable [out of pocket] costs for semi-annual accounts
receivable audits by Silicon, its agents, or third parties retained by Silicon,
and Silicon may debit Borrower's deposit accounts with Silicon for the cost of
such semi-annual accounts receivable audits (in which event Silicon shall send
notification thereof to the Borrower). Notwithstanding the foregoing, after the
occurrence of an Event of Default all audits shall be at the Borrower's expense.
* ITS
4.6 NEGATIVE COVENANTS. Except as may be permitted in the Schedule hereto,
the Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation, except that the
Borrower may merge or consolidate with another corporation if the Borrower is
the surviving corporation in the merger and the aggregate value of the assets
acquired in the merger do not exceed 25% of Borrower's Tangible Net Worth (as
defined in the Schedule) as of the end of the month prior to the effective date
of the merger, and the assets of the corporation acquired in the merger are not
subject to any liens or encumbrances, except Permitted Liens; (ii) acquire any
assets outside the ordinary course of business for an aggregate purchase price
exceeding 25% of Borrower's Tangible Net Worth (as defined in the Schedule) as
of the end of the month prior to the effective date of the acquisition; (iii)
enter into any other transaction outside the ordinary course of business (except
as permitted by the other provisions of this Section); (iv) sell
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Silicon Valley Bank Loan and Security Agreement
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or transfer any Collateral, except for the sale of finished inventory in the
ordinary course of the Borrower's business, and except for the sale of obsolete
or unneeded equipment in the ordinary course of business; (v) make any loans of
any money or any other assets; (vi) incur any debts, outside the ordinary course
of business, which would have a material, adverse effect on the Borrower or on
the prospect of repayment of the Obligations; (vii) guarantee or otherwise
become liable with respect to the obligations of another party or entity; (viii)
pay or declare any dividends on the Borrower's stock (except for dividends
payable solely in stock of the Borrower); (ix) redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of the Borrower's stock; (x) make
any change in the Borrower's capital structure which has a material adverse
effect on the Borrower or on the prospect of repayment of the Obligations; or
(xi) dissolve or elect to dissolve. Transactions permitted by the foregoing
provisions of this Section are only permitted if no Event of Default and no
event which (with notice or passage of time or both) would constitute an Event
of Default would occur as a result of such transaction.
4.7 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to the Borrower, the Borrower shall, without expense to Silicon, make
available the Borrower and its officers, employees and agents and the Borrower's
books and records to the extent that Silicon may deem them reasonably necessary
in order to prosecute or defend any such suit or proceeding.
4.8 VERIFICATION. Silicon may, from time to time, following prior
notification to Borrower, verify directly with the respective account debtors
the validity, amount and other matters relating to the Borrower's accounts, by
means of mail, telephone or otherwise, either in the name of the Borrower or
Silicon or such other name as Silicon may reasonably choose, provided that no
prior notification to Borrower shall be required following an Event of Default.
4.9 EXECUTE ADDITIONAL DOCUMENTATION. The Borrower agrees, at its expense,
on request by Silicon, to execute all documents in form satisfactory to Silicon,
as Silicon, may deem reasonably necessary or useful in order to perfect and
maintain Silicon's perfected security interest in the Collateral, and in order
to fully consummate all of the transactions contemplated by this Agreement.
5. TERM.
5.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule hereto (the "Maturity Date").
5.2 EARLY TERMINATION. This Agreement may be terminated, without penalty,
prior to the Maturity Date as follows: (i) by the Borrower, effective three
business days after written notice of termination is given to Silicon; or (ii)
by Silicon at any time after the occurrence of an Event of Default, without
notice, effective immediately.
5.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, the Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding letters of
credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such letters of credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said letters of credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the reasonable
discretion of Silicon, Silicon may, in its sole discretion, refuse to make any
further Loans after termination. No termination shall in any way affect or
impair any right or remedy of Silicon, nor shall any such termination relieve
the Borrower of any Obligation to Silicon, until all of the Obligations have
been paid and performed in full. Upon payment and performance in full of all the
Obligations, Silicon shall promptly deliver to the Borrower termination
statements, requests for reconveyances and such other documents as may be
required to fully terminate any of Silicon's security interests.
6. EVENTS OF DEFAULT AND REMEDIES.
6.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and the Borrower shall
give Silicon immediate written notice thereof: (a) Any warranty,
representation, statement, report or certificate made or delivered to Silicon by
the Borrower or any of the Borrower's officers, employees or agents, now or in
the future, shall be untrue or misleading in any material respect; or (b) the
Borrower shall fail to pay when due any Loan or any interest thereon or any
other monetary Obligation; or (c) the total Loans and other Obligations
outstanding at any time exceed the Credit Limit; or (d) the Borrower shall fail
to comply with any of the financial covenants set forth in the Schedule or shall
fail to perform any other non-monetary Obligation which by its nature cannot be
cured; or (e) the Borrower shall fail to pay or perform any other non-monetary
Obligation, which failure is not cured within [5] * business days after the date
due; or (f) Any levy, assessment, attachment, seizure, lien or encumbrance is
made on all or any part of the Collateral which is not cured within [10] ** days
after the occurrence of the same; or (g) Dissolution, termination of existence,
insolvency or business failure of the Borrower; or appointment of a receiver,
trustee or custodian, for all or any part of the property of, assignment for the
benefit of
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Silicon Valley Bank Loan and Security Agreement
- --------------------------------------------------------------------------------
creditors by, or the commencement of any proceeding by the Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (h) the commencement of any proceeding against the Borrower
or any guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 30 days after the date commenced; (i) revocation
or termination of, or limitation or denial of liability upon, any guaranty of
the Obligations or any attempt to do any of the foregoing; or commencement of
proceedings by any guarantor of any of the Obligations under any bankruptcy or
insolvency law; or (j) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing; or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law, ***; or (k) the Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations other
than as permitted in the applicable subordination agreement or if any person who
has subordinated such indebtedness or obligations terminates or in any way
limits his subordination agreement; or (l) there shall be a change in [the
record or beneficial ownership of an aggregate of more than 20% of the
outstanding shares of stock] **** of the Borrower, in one or more transactions,
compared to the ownership of outstanding shares of stock of the Borrower in
effect on the date hereof, without the prior written consent of Silicon; or (m)
a material adverse change occurs in the business, operations, or financial or
other condition of the Borrower, or a material impairment occurs in the prospect
of payment of the Obligations, or there is a material impairment of the value or
priority of Silicon's security interest in the Collateral; or (n) the Borrower
shall generally not pay its debts as they become due; or the Borrower shall
conceal, remove or transfer any part of its property, with intent to hinder,
delay or defraud its creditors, or make or suffer any transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law. Silicon may cease making any Loans hereunder during any of the
above cure periods, and thereafter if an Event of Default has occurred.
* 10
** 20
*** PROVIDED THAT WITH RESPECT TO THE COMMENCEMENT OF PROCEEDINGS AGAINST ANY
--------
SUCH THIRD PARTY UNDER ANY BANKRUPTCY OR INSOLVENCY LAW, AN EVENT OF DEFAULT
SHALL ONLY ARISE WHEN SUCH PROCEEDINGS ARE NOT CURED BY THE DISMISSAL THEREOF
WITHIN 30 DAYS AFTER THE DATE COMMENCED
**** CONTROL
6.2 REMEDIES. Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by the Borrower), may do any one or
more of the following: (a) Cease making Loans and cease extending letters of
credit or other credit facilities to or for the benefit of the Borrower under
this Agreement or any other document or agreement; (b) Accelerate and declare
all or any part of the Obligations to be immediately due, payable, and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any Obligation; (c) Take possession of any
or all of the Collateral wherever it may be found, and for that purpose the
Borrower hereby authorizes Silicon without judicial process to enter onto any of
the Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof without
charge for so long as Silicon deems it reasonably necessary in order to complete
the enforcement of its rights under this Agreement or any other agreement;
provided, however, that should Silicon seek to take possession of any or all of
the Collateral by Court process, the Borrower hereby irrevocably waives: (i)
any bond and any surety or security relating thereto required by any statute,
court rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Silicon retain possession of and not
dispose of any such Collateral until after trial or final judgment; (d) Require
the Borrower to assemble any or all of the Collateral and make it available to
Silicon at places designated by Silicon which are reasonably convenient to
Silicon and the Borrower, and to remove the Collateral to such locations as
Silicon may deem advisable; (e) Require Borrower to deliver to Silicon, in kind,
all checks and other payments received with respect to all accounts and general
intangibles, together with any necessary indorsements, within one day after the
date received by the Borrower; (f) Complete the processing, manufacturing or
repair of any Collateral prior to a disposition thereof and, for such purpose
and for the purpose of removal, Silicon shall have the right to use the
Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other
property without charge; (g) Sell, lease or otherwise dispose of any of the
Collateral in its condition at the time Silicon obtains possession of it or
after further manufacturing, processing or repair, at any one or more public
and/or private sales, in lots or in bulk, for cash, exchange or other property,
or on credit, and to adjourn any such sale from time to time without notice
other than oral announcement at the time scheduled for sale. Silicon shall have
the right to conduct such disposition on the Borrower's premises without charge,
for such time or times as Silicon deems reasonable, or on Silicon's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
Silicon may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under applicable
law, at any private
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Silicon Valley Bank Loan and Security Agreement
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disposition. Any sale or other disposition of Collateral shall not relieve the
Borrower of any liability the Borrower may have if any Collateral is defective
as to title or physical condition or otherwise at the time of sale; (h) Demand
payment of, and collect any accounts and general intangibles comprising
Collateral and, in connection therewith, the Borrower irrevocably authorizes
Silicon to endorse or sign the Borrower's name on all collections, receipts,
instruments and other documents, to take possession of and open mail addressed
to the Borrower and remove therefrom payments made with respect to any item of
the Collateral or proceeds thereof, and, in Silicon's sole discretion, to grant
extensions of time to pay, compromise claims and settle accounts and the like
for less than face value; (i) Offset against any sums in any of Borrower's
general, special or other deposit accounts with Silicon; and (j) Demand and
receive possession of any of the Borrower's federal and state income tax returns
and the books and records utilized in the preparation thereof or referring
thereto. All reasonable attorneys' fees, expenses, costs, liabilities and
obligations incurred by Silicon with respect to the foregoing shall be added to
and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of Silicon's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional five percent per annum.
6.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. The Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to the
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general, non-
specific terms; (iii) The sale is conducted at a place designated by Silicon,
with or without the Collateral being present; (iv) The sale commences at any
time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash
or by cashier's check or wire transfer is required; (vi) With respect to any
sale of any of the Collateral, Silicon may (but is not obligated to) direct any
prospective purchaser to ascertain directly from the Borrower any and all
information concerning the same. Silicon may employ other methods of noticing
and selling the Collateral, in its discretion, if they are commercially
reasonable.
6.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, the Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to the
Borrower, and at the Borrower's expense, to do any or all of the following, in
the Borrower's name or otherwise: (a) Execute on behalf of the Borrower any
documents that Silicon may, in its sole and absolute discretion, deem advisable
in order to perfect and maintain Silicon's security interest in the Collateral,
or in order to exercise a right of the Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of the Borrower any
document exercising, transferring or assigning any option to purchase, sell or
otherwise dispose of or to lease (as lessor or lessee) any real or personal
property which is part of Silicon's Collateral or in which Silicon has an
interest; (c) Execute on behalf of the Borrower, any invoices relating to any
account, any draft against any account debtor and any notice to any account
debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien; (d) Take control in any manner of any
cash or non-cash items of payment or proceeds of Collateral; endorse the name of
the Borrower upon any instruments, or documents, evidence of payment or
Collateral that may come into Silicon's possession; (e) Endorse all checks and
other forms of remittances received by Silicon; (f) Pay, contest or settle any
lien, charge, encumbrance, security interest and adverse claim in or to any of
the Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay, compromise
claims and settle accounts and general intangibles for less than face value and
execute all releases and other documents in connection therewith; (h) Pay any
sums required on account of the Borrower's taxes or to secure the release of any
liens therefor, or both; (i) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, the Borrower to give Silicon the same
rights of access and other rights with respect thereto as Silicon has under this
Agreement; and (k) Take any action or pay any sum required of the Borrower
pursuant to this Agreement and any other present or future agreements. Silicon
shall exercise the foregoing powers in a commercially reasonable manner. Any and
all reasonable sums paid and any and all reasonable costs, expenses,
liabilities, obligations and attorneys' fees incurred by Silicon with respect to
the foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. In no event shall Silicon's
rights under the foregoing power of attorney or any of Silicon's other rights
under this Agreement be deemed to indicate that Silicon is in control of the
business, management or properties of the Borrower.
6.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
of the Collateral shall be applied by Silicon first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Silicon in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of
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Silicon Valley Bank Loan and Security Agreement
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the Obligations, in such order as Silicon shall determine in its sole
discretion. Any surplus shall be paid to the Borrower or other persons legally
entitled thereto; the Borrower shall remain liable to Silicon for any
deficiency. If, Silicon, in its sole discretion, directly or indirectly enters
into a deferred payment or other credit transaction with any purchaser at any
sale or other disposition of Collateral, Silicon shall have the option,
exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of purchase price or deferring the reduction
of the Obligations until the actual receipt by Silicon of the cash therefor.
6.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Silicon shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and the Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
7. GENERAL PROVISIONS.
7.1 CREDITING PAYMENTS. Payments shall not be applied to the Obligations
until received by Silicon in immediately available federal funds, and any wire
transfer or other payment so received after 12:00 noon Pacific time shall be
deemed to have been received by Silicon as of the opening of business on the
next business day.
7.2 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by regular first-class mail, or
certified mail return receipt requested, addressed to Silicon or the Borrower at
the addresses shown in the heading to this Agreement, or at any other address
designated in writing by one party to the other party. All notices shall be
deemed to have been given upon delivery in the case of notices personally
delivered to the Borrower or to Silicon, or at the expiration of two business
days following the deposit thereof in the United States mail, with postage
prepaid.
7.3 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
7.4 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between the Borrower and Silicon and supersede all prior
and contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
-----------------
understandings, representations or agreements between the parties which are not
- -------------------------------------------------------------------------------
set forth in this Agreement or in other written agreements signed by the parties
- --------------------------------------------------------------------------------
in connection herewith.
- -----------------------
7.5 WAIVERS. The failure of Silicon at any time or times to require the
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between the Borrower and Silicon shall not
waive or diminish any right of Silicon later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent thereto. None of the provisions of
this Agreement or any other agreement now or in the future executed by the
Borrower and delivered to Silicon shall be deemed to have been waived by any act
or knowledge of Silicon or its agents or employees, but only by a specific
written waiver signed by an officer of Silicon and delivered to the Borrower.
The Borrower waives demand, protest, notice of protest and notice of default or
dishonor, notice of payment and nonpayment, release, compromise, settlement,
extension or renewal of any commercial paper, instrument, account, general
intangible, document or guaranty at any time held by Silicon on which the
Borrower is or may in any way be liable, and notice of any action taken by
Silicon, unless expressly required by this Agreement.
7.6 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by the
Borrower or any other party through the ordinary negligence of Silicon, or any
of its directors, officers, employees, agents, attorneys or any other person
affiliated with or representing Silicon.
7.7 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by the Borrower and a duly authorized
officer of Silicon.
7.8 TIME OF ESSENCE. Time is of the essence in the performance by the
Borrower of each and every obligation under this Agreement.
7.9 ATTORNEYS FEES AND COSTS. The Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, account debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the
-8-
<PAGE>
Silicon Valley Bank Loan and Security Agreement
- --------------------------------------------------------------------------------
automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy
claim, third-party claim, or other claim; examine, audit, copy, and inspect any
of the Collateral or any of the Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Silicon's security
interest in, the Collateral; and otherwise represent Silicon in any litigation
relating to the Borrower. In satisfying Borrower's obligation hereunder to
------------------------------------------------
reimburse Silicon for attorneys fees, Borrower may, for convenience, issue
- --------------------------------------------------------------------------
checks directly to Silicon's attorneys, Levy, Small & Lallas, but Borrower
- --------------------------------------------------------------------------
acknowledges and agrees that Levy, Small & Lallas is representing only Silicon
- ------------------------------------------------------------------------------
and not Borrower in connection with this Agreement. If either Silicon or the
- ---------------------------------------------------
Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys' fees, including (but not limited to) reasonable
attorneys' fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. All attorneys' fees and costs
to which Silicon may be entitled pursuant to this Paragraph shall immediately
become part of the Borrower's Obligations, shall be due on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any of
the Obligations.
7.10 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of the parties hereto; provided, however, that
the Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release the
Borrower from its liability for the Obligations.
7.11 JOINT AND SEVERAL LIABILITY. If the Borrower consists of more than one
person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
7.12 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. The Borrower acknowledges that the headings may
not describe completely the subject matter of the applicable paragraph, and the
headings shall not be used in any manner to construe, limit, define or interpret
any term or provision of this Agreement. This Agreement has been fully reviewed
and negotiated between the parties and no uncertainty or ambiguity in any term
or provision of this Agreement shall be construed strictly against Silicon or
the Borrower under any rule of construction or otherwise.
7.13 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and the
Borrower shall be governed by, and in accordance with, the laws of the State of
California. Any undefined term used in this Agreement that is defined in the
California Uniform Commercial Code shall have the meaning assigned to that term
in the California Uniform Commercial Code. As a material part of the
consideration to Silicon to enter into this Agreement, the Borrower (i) agrees
that all actions and proceedings relating directly or indirectly hereto shall,
at Silicon's option, be litigated in courts located within California, and that
the exclusive venue therefor shall be Orange County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights the Borrower may have to object to
the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
7.14 MUTUAL WAIVER OF JURY TRIAL. THE BORROWER AND SILICON EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND THE BORROWER, OR ANY CONDUCT, ACTS
OR OMISSIONS OF SILICON OR THE BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR THE
BORROWER. THIS WAIVER OF THE RIGHT TO JURY TRIAL APPLIES TO ALL CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, COMMON LAW CLAIMS, STATUTORY CLAIMS
AND ALL OTHER CLAIMS AND CAUSES OF ACTION OF EVERY KIND. EACH PARTY RECOGNIZES
AND AGREES THAT THE FOREGOING JURY TRIAL WAIVER CONSTITUTES A MATERIAL
INDUCEMENT TO THE OTHER PARTY TO ENTER INTO THIS AGREEMENT. EACH PARTY
REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS JURY TRIAL WAIVER WITH ITS
LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING ITS CONSULTATION WITH ITS LEGAL COUNSEL.
Borrower:
NETVANTAGE, INC.
By /s/ Stephen R. Rizzone
----------------------------
President or Vice President
By /s/ Thomas V. Baker
----------------------------
Secretary or Ass't Secretary
Silicon:
SILICON VALLEY BANK
By /s/ [SIGNATURE APPEARS HERE]
----------------------------
Title Sr. Vice President
------------------
-9-
<PAGE>
[LOGO OF SILICON VALLEY BANK]
AMENDMENT TO LOAN AGREEMENT
BORROWER: NETVANTAGE, INC.
ADDRESS: 201 CONTINENTAL BOULEVARD, SUITE 201
EL SEGUNDO, CALIFORNIA 90245
DATE: AUGUST 16, 1996
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY BANK
("Silicon") and the borrower named above (the "Borrower"). The Parties agree to
amend the Loan and Security Agreement between them dated July 15, 1996, as
amended from time to time (the "Loan Agreement"), as follows, effective as of
the date hereof. (Capitalized terms used but not defined in this Amendment,
shall have the meanings set forth in the Loan Agreement.)
1. AMENDED SCHEDULE. The Schedule to Loan Agreement is hereby amended to
read as set forth in the Schedule to Loan Agreement attached hereto.
2. FEE. The Borrower shall pay Silicon concurrently herewith a fee of
$22,500. Said fee shall be in addition to all interest and other sums payable
to Silicon, and shall not be refundable.
3. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
4. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
BORROWER: SILICON:
NETVANTAGE, INC. SILICON VALLEY BANK
By /s/ Stephen R. Rizzone By /s/ [SIGNATURE APPEARS HERE]
---------------------------- -----------------------------
President or Vice President Title Vice President
-----------------------
By /s/ Thomas V. Baker
----------------------------
Secretary or Ass't Secretary
-1-
<PAGE>
[LOGO OF SILICON VALLEY BANK]
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: NETVANTAGE, INC.
ADDRESS: 201 CONTINENTAL BOULEVARD, SUITE 201
EL SEGUNDO, CALIFORNIA 90245
DATE: AUGUST 16, 1996
THIS SCHEDULE is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of: (i) $5,000,000 at
any one time outstanding; or (ii) 70% of the Net Amount of
Borrower's accounts, which Silicon in its discretion deems
eligible for borrowing. "Net Amount" of an account means
the gross amount of the account, minus all applicable sales,
use, excise and other similar taxes and minus all discounts,
credits and allowances of any nature granted or claimed.
Loans that are made based on Borrower's eligible accounts as
described herein are referred to as the "Accounts Loans."
Without limiting the fact that the determination of which
accounts are eligible for borrowing is a matter of Silicon's
discretion, the following will not be deemed eligible for
borrowing: (a) accounts outstanding for more than 90 days
from the invoice date*; (b) accounts subject to any
contingencies, or arising from a consignment, guaranteed
sale, bill and hold, sale on approval or other transaction
in which payment by the account debtor is conditional; (c)
accounts owing from the United States or any department,
agency or instrumentality of the United States or any state,
city or municipality; (d) accounts owing from an account
debtor whose chief executive office or principal place of
business is outside the United States (unless the account is
pre-approved by Silicon in its discretion, or backed by a
letter of credit satisfactory to Silicon, or FCIA insured
satisfactory to Silicon, or the account arises from goods
shipped or services rendered to a branch or office of the
account debtor in the United States)**; (e) accounts owing
from one account debtor to the extent they exceed 25% of the
total eligible accounts outstanding***; (f) accounts owing
from an affiliate of Borrower****; and (g) accounts owing
from an account debtor to whom Borrower is or may be liable
for goods purchased from, or services received from, such
account debtor or otherwise (to the extent of the amount
owing to such account debtor). In addition, if more than
50% of the accounts owing from an account debtor are
outstanding more than 90 days***** from the invoice date or
are otherwise not eligible for borrowing, then all accounts
owing from that account debtor will be deemed ineligible for
borrowing.
<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
* OTHER THAN FOR THE APPROVED FOREIGN DEBTORS FOR WHICH SUCH
NUMBER OF DAYS SHALL BE NO MORE THAN 120 DAYS FROM THE
INVOICE DATE
** OTHER THAN WITH RESPECT TO SIEMENS, ALLIED TELESIS KK,
NEXTCOM KK AND OLIVETTI (THE "APPROVED FOREIGN DEBTORS")
*** OTHER THAN WITH RESPECT TO IBM, HEWLETT PACKARD, UB
NETWORKS AND/OR BAY NETWORKS, FOR WHICH THIS PERCENTAGE
AMOUNT SHALL BE 50%.
**** (OTHER THAN WITH RESPECT TO UB NETWORKS AND NEXTCOM KK)
***** OR 120 DAYS IN THE CASE OF THE APPROVED FOREIGN
DEBTORS
PLUS
- ----
TERM LOANS Borrower shall also have the option to convert up to
$1,000,000, in the aggregate, of Accounts Loans to term
loans (individually a "Term Loan" and collectively referred
to as the "Term Loans") during the period starting on the
original date of the Loan Agreement and ending on the date
twelve months thereafter, subject, however, to the
------- -------
Borrower's satisfaction of all of the Conversion
Requirements (as defined below) in a manner satisfactory to
Silicon in its discretion (the date of the making of each
Term Loan is referred to as the "Term Loan Date").
Conversion of an Accounts Loan to a Term Loan as set forth
herein reinstates availability under the Credit Limit
regarding Accounts Loans up to the initial principal amount
of such Term Loan, provided that Accounts Loans in such an
--------
amount are otherwise available to the Borrower pursuant to
the terms hereof. The minimum amount of a Term Loan shall
be $250,000. This option to convert Accounts Loans to Term
Loans is not a revolving facility and therefore repayment of
principal amounts of the Term Loans does not create
additional availability for the making of new Term Loans.
The principal balance of each Term Loan shall be repaid by
the Borrower to Silicon in 36 equal monthly principal
payments, commencing one month after the Term Loan Date and
continuing thereafter for 35 months, on which final payment
date the entire unpaid balance of such Term Loan and all
other Obligations relating thereto shall be due and payable.
In addition to making such indicated principal payments,
Borrower shall pay to Silicon interest on the principal
amount of the Term Loans outstanding from time to time in
accordance with Section 1.2 of the Loan Agreement.
The term "Conversion Requirements" means all of the
following:
(a) Borrower's providing written notice to Silicon stating
its desire to convert a stated amount of its Accounts Loans
to a Term Loan, subject to the terms and provisions of this
Agreement;
(b) Borrower's providing written and other evidence
satisfactory to Silicon in its discretion that the requested
amount of the Term Loan is equal to or less than the sum of
(i) 80% of the sum of the invoice amounts of new items of
equipment that the Borrower purchases after the date of this
Agreement, satisfactory to Silicon in its discretion; (ii)
25% of the sum of the invoice amounts of software items that
the Borrower purchases after the date of this Agreement,
satisfactory to Silicon in its discretion; plus (iii) 25% of
----
the aggregate amount of expenditures Borrower makes after
the date of this Agreement on improvements to its leasehold
premises not otherwise included in items (i) and (ii) hereof
(the "Leasehold Improvements"), relating to a lease
remaining in effect for a time
-2-
<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
period at least equal to the repayment term of proposed Term
Loan and for such improvements that Silicon determines are
acceptable in its discretion;
(c) if the Borrower includes Leasehold Improvements in the
above calculation, Borrower's execution and delivery to
Silicon of UCC fixture filings relating to the Leasehold
Improvements such that Silicon establishes a first priority
perfected security interest therein and the execution and
delivery to Silicon of landlord waivers, in each case in
form and substance satisfactory to Silicon in its
discretion;
(d) Borrower's providing written and other evidence
satisfactory to Silicon that it has complied with either the
Debt Service Ratio (relating to the Borrower's most recent
two fiscal quarters) or the Liquidity Coverage Ratio
(relating to the Borrower's most recent month end period),
as such ratios are set forth in Section 4.1 of this
Schedule;
(e) Borrower's payment to Silicon of a fee equal to .25% of
the amount of proposed Term Loan, which shall be not be
refundable and shall in addition to all interest and to all
other amounts payable hereunder;
(f) Borrower's execution and delivery of such additional
documents and Borrower's taking such additional actions as
Silicon determines are necessary or desirable in its
discretion; and
(g) No Event of Default is then occurring or would
otherwise arise as a result of the making of the Term Loan.
INTEREST RATE
(Section 1.2): Accounts Loans: A rate equal to the "Prime Rate" in effect
--------------
from time to time, plus 2.00% per annum, provided that on
--------
and after such time after the date hereof that Borrower
incurs no losses (after taxes) in two consecutive fiscal
quarters, the rate shall be equal to "Prime Rate" in effect
from time to time, plus 1.50% per annum.
Term Loans: A rate equal to the "Prime Rate" in effect from
----------
time to time, plus 2.0% per annum.
Interest shall be calculated on the basis of a 360-day year
for the actual number of days elapsed. "Prime Rate" means
the rate announced from time to time by Silicon as its
"prime rate;" it is a base rate upon which other rates
charged by Silicon are based, and it is not necessarily the
best rate available at Silicon. The interest rate
applicable to the Obligations shall change on each date
there is a change in the Prime Rate.
LOAN ORIGINATION FEE
(Section 1.3): SEE AMENDMENT OF EVEN DATE. (Any Commitment Fee previously
paid by the Borrower in connection with this loan shall be
credited against this Fee.)
LETTER OF CREDIT SUBLIMIT
(Section 1.4): $500,000
MATURITY DATE
(Section 5.1): JULY 15, 1997, PROVIDED THAT THE MATURITY DATES REGARDING
--------
THE TERM LOANS, IF ANY, ARE AS SET FORTH IN SECTION 1.1
ABOVE.
-3-
<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
SUBSIDIARIES OF BORROWER
(Section 3.1): NONE
PRIOR NAMES OF BORROWER
(Section 3.2): NONE
PRESENT TRADE NAMES OF BORROWER
(Section 3.2): NONE
PRIOR TRADE NAMES OF BORROWER
(Section 3.2): NONE
OTHER LOCATIONS AND ADDRESSES
(Section 3.3): NONE
MATERIAL ADVERSE LITIGATION
(Section 3.10): NONE
NEGATIVE COVENANTS-EXCEPTIONS
(Section 4.6): Without Silicon's prior written consent, Borrower may do the
following, provided that, after giving effect thereto, no
Event of Default has occurred and no event has occurred
which, with notice or passage of time or both, would
constitute an Event of Default, and provided that the
following are done in compliance with all applicable laws,
rules and regulations: (i) repurchase shares of Borrower's
stock pursuant to any employee stock purchase or benefit
plan, provided that the total amount paid by Borrower for
such stock does not exceed $100,000 in any fiscal year and
(ii) make loans to, or guaranties of indebtedness of,
employees in an aggregate amount outstanding for such loans
and guaranties not to exceed $50,000 at any one time.
FINANCIAL COVENANTS
(Section 4.1): Borrower shall comply with all of the following covenants.
Compliance shall be determined as of the end of each month,
except as otherwise specifically provided below:
QUICK ASSET
RATIO: Borrower shall maintain a ratio of "Quick Assets" to current
liabilities of not less than .60 to 1 starting with the
month ending June 30, 1996 through and including the month
ending September 30, 1996; thereafter, Borrower shall
maintain a ratio of "Quick Assets" to current liabilities of
not less than 1.50 to 1.
CURRENT RATIO: Borrower shall maintain a ratio of current assets to current
liabilities of not less than 1.25 to 1 starting with the
month ending June 30, 1996 through and including the month
ending September 30, 1996; thereafter, Borrower shall
maintain a ratio of current assets to current liabilities of
not less than 2.00 to 1.
TANGIBLE NET
WORTH: Borrower shall maintain a tangible net worth of not less
than $3,300,000 starting with the month ending June 30, 1996
through and including the month ending September 30, 1996;
thereafter, Borrower shall maintain a tangible net worth of
not less than $13,000,000.
DEBT TO TANGIBLE
NET WORTH RATIO: Borrower shall maintain a ratio of total liabilities to
tangible net worth of not more than 2.50 to 1 starting with
the month ending June 30, 1996 through and including the
month ending September 30, 1996; thereafter, Borrower shall
maintain a ratio of total liabilities to tangible net worth
of not more than .80 to 1.
-4-
<PAGE>
PROFITABILITY Beginning with the fiscal quarter ending September 30, 1996,
Borrower shall not incur a loss (after taxes) for any fiscal
quarter during the term hereof other than for a single
fiscal quarter after September 30, 1996 during the term
hereof, in which quarter Borrower may incur a one-time loss
(after taxes) in an amount not to exceed $800,000.
DEBT SERVICE
RATIO/LIQUIDITY
RATIO Borrower shall either maintain the Debt Service Ratio as set
------
forth below or the Liquidity Ratio as set forth below at all
times that the Term Loan is outstanding:
Debt Service Ratio: Borrower shall maintain a quarterly Debt
------------------
Service Ratio (as referred to below) relating to the
immediately preceding two fiscal quarters of not less than
1.50 to 1.
Liquidity Coverage Ratio: Borrower shall maintain a
------------------------
Liquidity Coverage Ratio of 2.0 to 1 on a monthly basis.
DEFINITIONS: "Current assets," and "current liabilities" shall have the
meanings ascribed to them in accordance with generally
accepted accounting principles.
"Tangible net worth" means the excess of total assets over
total liabilities, determined in accordance with generally
accepted accounting principles, excluding however all assets
which would be classified as intangible assets under
generally accepted accounting principles, including without
limitation goodwill, licenses, patents, trademarks, trade
names, copyrights, capitalized software and organizational
costs, licenses and franchises.
"Quick Assets" means cash on hand or on deposit in banks,
readily marketable securities issued by the United States,
readily marketable commercial paper rated "A-1" by Standard
& Poor's Corporation (or a similar rating by a similar
rating organization), certificates of deposit and banker's
acceptances, and accounts receivable (net of allowance for
doubtful accounts).
"Liquidity Quick Assets" means cash on hand or on deposit in
banks, readily marketable securities issued by the United
States, readily marketable commercial paper rated "A-1" by
Standard & Poor's Corporation (or a similar rating by a
similar rating organization), certificates of deposit and
banker's acceptances, plus 50% of the Borrower's accounts
----
eligible for borrowing pursuant to the terms and conditions
of this Agreement minus the aggregate amount of the Loans
-----
and Letters of Credit outstanding.
"Debt Service Ratio" means the ratio of (a) net income of
Borrower before interest, taxes, depreciation and other non-
cash amortization expenses and other non-cash expenses of
the Borrower, determined in accordance with generally
accepted accounting principles, consistently applied, to (b)
the amount of Borrower's obligations relating to payment of
interest and current maturities of principal on Borrower's
outstanding long term indebtedness, determined in accordance
with generally accepted accounting principles, consistently
applied.
-5-
<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
"Liquidity Coverage Ratio" means the ratio of (a) Liquidity
Quick Assets to (b) the aggregate amount of Borrower's
obligations relating to the Term Loan.
DEFERRED
REVENUES: For purposes of the above quick asset ratio, deferred
revenues shall not be counted as current liabilities. For
purposes of the above debt to tangible net worth ratio,
deferred revenues shall not be counted in determining total
liabilities but shall be counted in determining tangible net
worth for purposes of such ratio. For all other purposes
deferred revenues shall be counted as liabilities in
accordance with generally accepted accounting principles,
consistently applied.
SUBORDINATED
DEBT: "Liabilities" for purposes of the foregoing covenants do not
include indebtedness which is subordinated to the
indebtedness to Silicon under a subordination agreement in
form specified by Silicon or by language in the instrument
evidencing the indebtedness which is acceptable to Silicon.
OTHER COVENANTS
(Section 4.1): Borrower shall at all times comply with all of the following
additional covenants:
1. BANKING RELATIONSHIP. Borrower shall at all times
maintain its primary banking relationship with Silicon.
2. MONTHLY BORROWING BASE CERTIFICATE AND LISTING. Within
20 days after the end of each month, Borrower shall provide
Silicon with a Borrowing Base Certificate in such form as
Silicon shall specify, and an aged listing of Borrower's
accounts receivable and accounts payable.
3. PRIOR WARRANTS; ADDITIONAL, NEW WARRANTS. The Borrower
shall maintain in full force and effect the five-year
warrants to purchase 30,000 shares of Class A Common stock
of the Borrower, at $9.875 per share, on the terms and
conditions of the Warrant to Purchase Stock and related
documents executed and delivered in connection with the
original Loan Agreement. Additionally, in connection with
the execution of the Amendment to Loan Agreement of even
date herewith, the Borrower shall provide Silicon with a
second set of five-year warrants to purchase 30,000 shares
of Class A Common stock of the Borrower, at $11.44 per
share, on the terms and conditions in the Warrant to
Purchase Stock and related documents being executed
concurrently with this Agreement.
4. INDEBTEDNESS. Without limiting any of the foregoing
terms or provisions of this Agreement, Borrower shall not in
the future incur indebtedness for borrowed money, except for
(i) indebtedness to Silicon, and (ii) indebtedness incurred
in the future for the purchase price of or lease of
equipment in an aggregate amount not exceeding $250,000 at
any time outstanding.
5. DAILY COLLATERAL CONTROL. Borrower shall provide to
Silicon transaction reports with respect to all of
Borrower's sales, receipts and other transactions as
specified from time to time by Silicon, copies of Borrower's
sales and collection journals, and such other information,
in such detail and with such frequency as Silicon shall from
time to time specify. Borrower shall have the privilege of
collecting Borrower's "accounts" (as defined in the
California Uniform Commercial Code) in trust for Silicon, at
Borrower's sole expense, which privilege may be revoked by
Silicon at any time. All proceeds
-6-
<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
- --------------------------------------------------------------------------------
of all of Borrower's accounts, of every kind, in whatever
form received, shall be held by the Borrower in trust for
Silicon and shall be either (i) delivered by the Borrower to
Silicon in kind, in the same form as received, with any
necessary endorsements, within one business day after
receipt, or (ii) within one business day after receipt,
deposited to a bank account previously identified to
Silicon, which has been established pursuant to a written
agreement with Silicon which provides that all funds in such
account will be transferred to Silicon on a daily basis, and
in that event the Borrower shall deliver copies of all
checks and other proceeds so deposited and a copy of the
deposit receipt to Silicon within one business day after
such deposit. Borrower shall have no right to, and agrees
not to, commingle any of the proceeds of the accounts with
the Borrower's own funds, and the Borrower agrees not to
use, divert or withhold any such proceeds. The Borrower
will, upon request by Silicon and in such form and at such
times as Silicon shall request, give notice to the account
debtors on the accounts of the assignment of, and the grant
of a security interest in, the accounts to Silicon and
Silicon may itself give such notice at any time, without
notice to the Borrower, requiring such account debtors to
pay the accounts directly to Silicon, and in any such event,
the Borrower's privilege of collecting the accounts shall
automatically be deemed revoked.
6. COLLATERAL CONTROL MONTHLY FEE. In addition to all other
amounts payable by Borrower hereunder, Borrower shall pay to
Silicon a Collateral Control Fee in the amount of $1,000 per
month.
BORROWER:
NETVANTAGE, INC.
By /s/ Stephen R. Rizzone
-------------------------------
President or Vice President
By /s/ Thomas V. Baker
-------------------------------
Secretary or Ass't Secretary
SILICON:
SILICON VALLEY BANK
By /s/ [SIGNATURE APPEARS HERE]
-------------------------------
Title Vice President
<PAGE>
Silicon Valley Bank
REGISTRATION RIGHTS AGREEMENT
ISSUER: NETVANTAGE, INC.
ADDRESS: 201 CONTINENTAL BOULEVARD, SUITE 201
EL SEGUNDO, CALIFORNIA 90245-4427
DATE:
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the above date by and
between SILICON VALLEY BANK ("Purchaser"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 and the above Company, whose address is set forth
above.
RECITALS
A. Concurrently with the execution of this Agreement, the Purchaser is
purchasing from the Company a Warrant to Purchase Stock (the "Warrant") pursuant
to which Purchaser has the right to acquire from the Company the Shares (as
defined in the Warrant).
B. By this Agreement, Purchaser and the Company desire to set forth the
registration rights of the Shares, all as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, the parties hereto mutually agree as follows:
1. REGISTRATION RIGHTS. The Company, and the Purchaser with respect to
-------------------
Sections 1.6 and 2, covenant and agree as follows:
1.1 Certain Definitions. As used in this Exhibit B the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common" shall mean any shares of any class of common stock of the
Company.
-1-
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Founding Shareholder" shall mean any person who holds, or who
controls an entity that holds, irrespective of any escrow provision or
redemption or repurchase rights of the Company, at least two percent (2%) of the
Company's outstanding Common (assuming conversion of all outstanding preferred
stock or Class B and Class E Common).
"Holder" shall mean (i) any Purchaser to the extent such Purchaser
holds Shares or Registrable Securities and (ii) any Permitted Transferee holding
Shares or Registrable Securities.
"Permitted Transferees" shall mean any party to whom Each Purchaser
may transfer stock pursuant the Sections 4.2 and 4.3 of the Warrant without a
registration or opinion of counsel if such transferee expressly assumes the
obligations of a Purchaser under this Agreement.
The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Securities" means the Shares, or shares issued as a
dividend or other distribution with respect to, or in exchange or in replacement
of, the Shares held by a Holder, excluding, however any Shares sold in a
transaction pursuant to a registration statement or pursuant to Rule 144.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 1.2, 1.3 and 1.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company and Selling Expenses).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar Federal Statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale.
-2-
<PAGE>
1.2 Right to Registration. If at any time or from time to time, the
---------------------
Company shall determine to register any Common for its own account or for the
account of others, other than a registration relating solely to employee benefit
plans or a registration relating solely to a Commission Rule 145 transaction or
a registration on any registration form which does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(a) promptly give to all Holders and Founding Shareholders written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable blue
sky or other state securities laws); and
(b) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved therein,
all of the Registrable Securities specified in a written request by a Holder and
all shares of Common specified in a written request or requests by Founding
Shareholders, provided such written requests are received by the Company within
twenty (20) days following receipt by such Holders and Founding Shareholders of
such notice from the Company.
1.3 Underwriting. If the registration of which the Company gives notice is
------------
for a registered public offering involving an underwriting, the Company shall so
advise the Holders and Founding Shareholders in the written notice given
pursuant to paragraph 1.2(a). In such event, the right of any Holder and
Founding Shareholder to registration pursuant to Section 1.2 shall be
conditioned upon such party's participation in such underwriting and the
inclusion of such party's Registrable Securities and such Founding Shareholder's
Common in the underwriting to the extent provided herein. All parties proposing
to distribute their securities through such underwriting shall (together with
the Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in the customary form with
the underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of Section 1.2, if the Company and the
underwriter or underwriters determine that marketing factors require a
limitation of the number of shares to be underwritten, the underwriter may
exclude from such underwriting all or some of the shares proposed for
registration on behalf of Holders, Founding Shareholders, and other holders of
Company securities, on the following basis:
(a) shares held by any person who does not have contractual rights to
cause the Company to register such shares shall first be excluded;
(b) if further reductions are required, the shares that Founding
Shareholders have requested to be registered will next be excluded, such
reductions to be allocated as nearly as practicable based on the pro rata share
of the number of shares requested by all Founding Shareholder to be registered;
and
-3-
<PAGE>
(c) if further reductions are required, Registrable Securities will
next be excluded, such reductions to be allocated as nearly as practicable among
Holders in proportion to the number of shares that such Holder requests to be
registered hereunder bears to the total number of shares that all Holders
request to be registered, unless all such Holders shall otherwise unanimously
agree and advise the Company in writing.
No shares excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. If
any Holder or Founding Shareholder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Company and the underwriter. The Registrable Securities and/or other
securities so withdrawn from such underwriting shall also be withdrawn from such
registration; provided, however, that, if by the withdrawal of such shares a
greater number of Registrable Securities held by other Holders may be included
in such registration (up to the maximum of any limitation imposed by the
underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used above in determining the
underwriter limitation.
1.4 Preparation and Filing. In the case of each registration,
----------------------
qualification, or compliance effected by the Company pursuant to this Exhibit B,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification, and compliance and as to the completion
thereof. At its expense the Company will:
(a) Keep such registration, qualification, or compliance effective for
a period of one hundred twenty (120) days or until the Holder or Holders have
completed the distribution described in the registration statement relating
thereto, whichever first occurs.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in the usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(d) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which
-4-
<PAGE>
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.
(e) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Exhibit B, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with said registration, if such securities are being sold through underwriters,
or the date that the registration statement with respect to such securities
becomes effective, (i) an opinion, dated as of such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated as of such date,
from the independent accountants of the Company, in form and substance as is
customarily given by independent accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
1.5 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration under this Exhibit B shall be borne by the
Company; and all Selling Expenses shall be borne by the holders of the
securities so registered pro rata on the basis of the number of shares so
registered.
1.6 Indemnification.
---------------
(a) The Company shall indemnify each Holder (which term, for purposes
of this Section 1.6, shall be deemed to include Founding Shareholders who
include shares in a registration) participating in any registration,
qualification, or compliance effected pursuant to this Exhibit B with respect to
Registrable Securities held by such Holder, each of its officers, directors,
partners, controlling persons and legal counsel, and each underwriter, if any,
and each person who controls any underwriter, against all claims, losses,
damages, and liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or threatened, to
which they may become subject under the Securities Act, the Exchange Act, or
other federal or state law, arising out of or based on (i) any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other similar document incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made, or (ii) any violation by the Company of any federal, state, or
common law rule or regulation applicable to the Company in connection with any
such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors, partners, controlling persons and legal
counsel, each such underwriter, and each person who controls any
-5-
<PAGE>
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and/or defending any such claim, loss, damage,
liability, or action, as incurred, provided that the Company will not be liable
in any case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission, made in
reliance on and in conformity with written information furnished to the Company
by a Holder or underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its officers,
directors, partners, controlling persons and legal counsel, each underwriter, if
any, of the Company's securities covered by such registration statement, each
person who controls such underwriter, and each other Holder, each of its
officers, directors, controlling person and partners, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular, or other similar document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made, and will reimburse the Company, such other Holders, such
directors, officers, persons, underwriters, controlling persons or legal counsel
for any legal or any other expenses reasonably incurred in connection with
investigating and/or defending any such claim, loss, damage, liability, or
action, as incurred, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular,
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder specifically for use therein.
Notwithstanding anything herein to the contrary, the total amount for which any
Holder shall be liable under this subsection 1.6(b) shall not exceed the
aggregate proceeds received by such Holder from the sale of Registrable
Securities held by such Holder in such registration.
(c) Each party entitled to indemnification under this Section 1.6 (the
"Indemnified Party") shall give notice to the party required to provide such
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has received written notice of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld). The Indemnified Party may participate in such defense
at its own expense. The failure of any Indemnified Party to give notice as
provided herein shall relieve the Indemnifying Party of its obligations under
this Section 1.6 only to the extent that such failure to give notice shall
materially adversely prejudice the Indemnifying Party in the defense of any such
-6-
<PAGE>
claim or any such litigation. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
1.7 Information by Holder. The Holders of Registrable Securities included
---------------------
in any registration shall furnish to the Company such information regarding such
Holder or Holders and the distribution proposed by such Holder or Holders as the
Company may request in writing and as shall be required in connection with any
registration, qualification, or compliance referred to in this Exhibit B.
1.8 Limited Transfer of Registration Rights. The rights granted under this
---------------------------------------
Exhibit B may not be assigned or otherwise conveyed except to a Permitted
Transferee; and only if the Company is promptly given written notice, signed by
the transferor and transferee, setting forth such transferee's name and address
and said transferee's agreement to be bound by the provisions of this Agreement.
1.9 Market Stand-off Agreement. Each Holder agrees that in connection with
--------------------------
any registration of the Company's securities, that upon the request of the
Company or any underwriter managing an underwritten offering of the Company's
securities, that said Holder shall not sell, short any sale of, loan, grant an
option for, or otherwise dispose of any of the Registrable Securities, other
than those included in the offering, without the prior written consent of the
Company or such managing underwriter, as applicable, for a period of at least
120 days following the effective date of registration of such offering, provided
that all officers of the Company have also entered into similar agreements. The
Company shall have the right to impose "stop transfer" instructions during such
120 day period with respect to any securities subject to the foregoing
restriction.
2. GENERAL.
-------
2.l Waivers and Amendments. With the written consent of the record or
----------------------
beneficial holders of at least a majority of the Registrable Securities, the
obligations of the Company and the rights of the Holders of the Registrable
Securities under this agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such modification, amendment or waiver shall reduce
the aforesaid percentage of Registrable Securities. Upon the effectuation of
each such waiver, consent, agreement of amendment or modification, the Company
shall promptly give written notice thereof to the record holders of the
Registrable Securities who have not previously consented thereto in writing.
This Agreement or any provision hereof may be changed,
-7-
<PAGE>
waived, discharged or terminated only by a statement in writing signed by the
party against which enforcement of the change, waiver, discharge or termination
is sought, except to the extent provided in this subsection 2.1.
2.2 Governing Law. This Agreement shall be governed in all respects by the
-------------
laws of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within
California.
2.3 Successors and Assigns. Except as otherwise expressly provided herein,
----------------------
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
2.4 Entire Agreement. Except as set forth below, this Agreement and the
----------------
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
2.5 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to Holder, at such Holder's address as set forth in the heading
to this Agreement, or at such other address as such Holder shall have furnished
to the Company in writing, or (b) if to the Company, at the Company's address
set forth in the heading to this Agreement, or at such other address as the
Company shall have furnished to the Holder in writing.
2.6 Severability. In case any provision of this Agreement shall be
------------
invalid, illegal, or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement or any provision of the other
Agreements shall not in any way be affected or impaired thereby.
2.7 Titles and Subtitles. The titles of the sections and subsections of
--------------------
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
-8-
<PAGE>
2.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
Company:
NETVANTAGE, INC.
By: /s/ Stephen R. Rizzone
----------------------------------
President or Vice President
By: /s/ Thomas V. Baker
----------------------------------
Secretary or Ass't Secretary
Purchaser:
SILICON VALLEY BANK
By: /s/ [SIGNATURE APPEARS HERE]
----------------------------------
Title: Sr. Vice President
------------------------------
-9-
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
-------------------------------------------
WARRANT TO PURCHASE STOCK
WARRANT TO PURCHASE 30,000 ISSUE DATE: JULY 15, 1996
SHARES OF THE CLASS A COMMON EXPIRATION DATE: JULY 15, 2001
STOCK OF NETVANTAGE, INC. INITIAL EXERCISE PRICE: $9.875 PER SHARE
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to
purchase the number of fully paid and non-assessable shares of the class of
securities (the "Shares") of the corporation (the "Company") at the initial
exercise price per Share (the "Warrant Price") all as set forth above and as
adjusted pursuant to Article 2 of this Warrant, subject to the provisions and
upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant Section 1.4.
1.3 [ALTERNATIVE STOCK APPRECIATION RIGHT. At Holder's option,
the Company shall pay Holder the fair market value of the Shares issuable upon
conversion of this Warrant pursuant to Section 1.2 in cash in lieu of such
Shares.]
1.4 FAIR MARKET VALUE. If the Shares are traded in a public
market, the fair market value of the Shares shall be * [the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company.] If the Shares are not ** traded in a
public market, the Board of Directors of the Company shall determine fair market
value in its reasonable good faith judgment. The foregoing notwithstanding, if
Holder advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall be
paid by Holder.
* THE AVERAGE OF THE CLOSING PRICE OF SUCH STOCK ON THE NASDAQ
NATIONAL MARKET SYSTEM OR SMALL CAP ISSUE MARKET, AS APPLICABLE, FOR THE TEN
TRADING DAYS IMMEDIATELY PRECEDING THE DATE OF RECEIPT BY THE COMPANY OF THE
NOTICE OF EXERCISE
** NO LONGER
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. If upon the closing of any
Acquisition the successor entity assumes the
NOTE TO EDGAR VERSION: Deleted language is indicated by brackets, not
strike-throughs.
-1-
<PAGE>
Silicon Valley Bank Warrant to Purchase Stock
- --------------------------------------------------------------------------------
obligations of this Warrant, then this Warrant shall be exercisable for the same
securities, cash, and property as would be payable for the Shares issuable upon
exercise of the unexercised portion of this Warrant as if such Shares were
outstanding on the record date for the Acquisition and subsequent closing. The
Warrant Price shall be adjusted accordingly.
1.7.3. NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
1.7.4. [PURCHASE RIGHT. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.]
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or
pays a dividend on its common stock (or the Shares if the Shares are securities
other than common stock) payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
or, if the Shares are securities other than common stock, subdivides the Shares
in a transaction that increases the amount of common stock into which the Shares
are convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the Shares
of record as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares
are combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR ADDITIONAL ISSUANCES. The number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment, from time
to time, as set forth in this Section 2.4. The term "Silicon Percentage
Interest" shall mean the ratio of the number of shares subject of this Warrant
as of the date hereof to the number of fully diluted shares of the Company as in
effect as of the date hereof. At such time, and from time to time, that the
number of fully diluted shares of the Company increases, the number of shares
subject of this Warrant shall be considered increased by such an amount in order
to maintain in effect the Silicon Percentage Interest at all times with respect
to the number of shares subject of this Warrant as a ratio to the then increased
number of fully diluted shares, provided in no instance shall the number of
--------
shares subject of this Warrant be reduced.
As used herein the number of fully diluted shares means the aggregate
amount of all common stock (including reissued shares) issued (or deemed to be
issued as noted in the following sentences). The shares of common stock
ultimately issuable upon exercise of an option (including the shares of common
stock ultimately issuable upon conversion or exercise of a convertible security
issuable pursuant to an option) are deemed to be issued when the option is
Issued. The shares of common stock ultimately issuable upon conversion or
exercise of a convertible security (other than a convertible security issued
pursuant to an option) shall be deemed Issued upon issuance of the convertible
security.
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the
Company takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable
-2-
<PAGE>
Silicon Valley Bank Warrant to Purchase Stock
- --------------------------------------------------------------------------------
upon exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder amount computed
by multiplying the fractional interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents
and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this
Warrant is not greater than (i) the price per share at which the Shares were
last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any
time (a) to declare any dividend or distribution upon its common stock, whether
in cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
-------------
4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above. The Company shall give Holder written notice of Holder's
right to exercise this Warrant in the form attached as Appendix 2 not more than
90 days and not less than 30 days before the Expiration Date. If the notice is
not so given, the Expiration Date shall automatically be extended until 30 days
after the date the Company delivers the notice to Holder.
4.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant
and the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without
-3-
<PAGE>
Silicon Valley Bank Warrant to Purchase Stock
- --------------------------------------------------------------------------------
compliance with applicable federal and state securities laws by the transferor
and the transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if reasonably requested by the Company). The Company shall not require
Holder to provide an opinion of counsel if the transfer is to an affiliate of
Holder or if there is no material question as to the availability of current
information as referenced in Rule 144(c), Holder represents that it has complied
with Rule 144(d) and (e) in reasonable detail, the selling broker represents
that it has complied with Rule 144(f), and the Company is provided with a copy
of Holders notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2
and Section 4.3, Holder may transfer all or part of this Warrant or the Shares
issuable upon exercise of this Warrant (or the securities issuable, directly or
indirectly, upon conversion of the Shares, if any) by giving the Company notice
of the portion of the Warrant being transferred setting forth the name, address
and taxpayer identification number of the transferee and surrendering this
Warrant to the Company for reissuance to the transferee(s) (and Holder if
applicable). Unless the Company is filing financial information with the SEC
pursuant to the Securities Exchange Act of 1934, the Company shall have the
right to refuse to transfer any portion of this Warrant to any person who
directly competes with the Company.
4.5 NOTICES. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail,
postage prepaid, at such address as may have been furnished to the Company or
the Holder, as the case may be, in writing by the Company or such holder from
time to time.
4.6 WAIVER. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party all
costs incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to its principles regarding conflicts of law.
NETVANTAGE, INC.
By /s/ Stephen R. Rizzone
-----------------------------------
Chairman of the Board, President or
Vice President
By /s/ Thomas V. Baker
-----------------------------------
Secretary or Ass't Secretary
-4-
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
-------------------------
WARRANT TO PURCHASE STOCK
WARRANT TO PURCHASE 30,000 ISSUE DATE: AUGUST 16, 1996
SHARES OF THE CLASS A COMMON EXPIRATION DATE: AUGUST 16, 2001
STOCK OF NETVANTAGE, INC. INITIAL EXERCISE PRICE: $11.44 PER SHARE
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to
purchase the number of fully paid and non-assessable shares of the class of
securities (the "Shares") of the corporation (the "Company") at the initial
exercise price per Share (the "Warrant Price") all as set forth above and as
adjusted pursuant to Article 2 of this Warrant, subject to the provisions and
upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant Section 1.4.
1.3 [ALTERNATIVE STOCK APPRECIATION RIGHT. At Holder's option,
the Company shall pay Holder the fair market value of the Shares issuable upon
conversion of this Warrant pursuant to Section 1.2 in cash in lieu of such
Shares.]
1.4 FAIR MARKET VALUE. If the Shares are traded in a public
market, the fair market value of the Shares shall be * [the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company.] If the Shares are [not] ** traded in a
public market, the Board of Directors of the Company shall determine fair market
value in its reasonable good faith judgment. The foregoing notwithstanding, if
Holder advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall be
paid by Holder.
* THE AVERAGE OF THE CLOSING PRICE OF SUCH STOCK ON THE NASDAQ
NATIONAL MARKET SYSTEM OR SMALL CAP ISSUE MARKET, AS APPLICABLE, FOR THE TEN
TRADING DAYS IMMEDIATELY PRECEDING THE DATE OF RECEIPT BY THE COMPANY OF THE
NOTICE OF EXERCISE
** NO LONGER
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER OR CONSOLIDATION OF THE COMPANY.
1.7.1. "ACQUISITION". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. ASSUMPTION OF WARRANT. If upon the closing of any
Acquisition the successor entity assumes the
NOTE TO EDGAR VERSION: Deleted language is indicated by brackets, not
strike-throughs.
-1-
<PAGE>
Silicon Valley Bank Warrant to Purchase Stock
- --------------------------------------------------------------------------------
obligations of this Warrant, then this Warrant shall be exercisable for the same
securities, cash, and property as would be payable for the Shares issuable upon
exercise of the unexercised portion of this Warrant as if such Shares were
outstanding on the record date for the Acquisition and subsequent closing. The
Warrant Price shall be adjusted accordingly.
1.7.3. NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
1.7.4. [PURCHASE RIGHT. Notwithstanding the foregoing, at the
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.]
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or
pays a dividend on its common stock (or the Shares if the Shares are securities
other than common stock) payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common stock,
or, if the Shares are securities other than common stock, subdivides the Shares
in a transaction that increases the amount of common stock into which the Shares
are convertible, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the Shares
of record as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares
are combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR ADDITIONAL ISSUANCES. The number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment, from time
to time, as set forth in this Section 2.4. The term "Silicon Percentage
Interest" shall mean the ratio of the number of shares subject of this Warrant
as of the date hereof to the number of fully diluted shares of the Company as in
effect as of the date hereof. At such time, and from time to time, that the
number of fully diluted shares of the Company increases, the number of shares
subject of this Warrant shall be considered increased by such an amount in order
to maintain in effect the Silicon Percentage Interest at all times with respect
to the number of shares subject of this Warrant as a ratio to the then increased
number of fully diluted shares, provided in no instance shall the number of
--------
shares subject of this Warrant be reduced.
As used herein the number of fully diluted shares means the aggregate
amount of all common stock (including reissued shares) issued (or deemed to be
issued as noted in the following sentences). The shares of common stock
ultimately issuable upon exercise of an option (including the shares of common
stock ultimately issuable upon conversion or exercise of a convertible security
issuable pursuant to an option) are deemed to be issued when the option is
Issued. The shares of common stock ultimately issuable upon conversion or
exercise of a convertible security (other than a convertible security issued
pursuant to an option) shall be deemed Issued upon issuance of the convertible
security.
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the
Company takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable
-2-
<PAGE>
Silicon Valley Bank Warrant to Purchase Stock
- --------------------------------------------------------------------------------
upon exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder amount computed
by multiplying the fractional interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this
Warrant is not greater than (i) the price per share at which the Shares were
last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any
time (a) to declare any dividend or distribution upon its common stock, whether
in cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
-------------
4.1 TERM: NOTICE OF EXPIRATION. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the Expiration
Date set forth above. The Company shall give Holder written notice of Holder's
right to exercise this Warrant in the form attached as Appendix 2 not more than
90 days and not less than 30 days before the Expiration Date. If the notice is
not so given, the Expiration Date shall automatically be extended until 30 days
after the date the Company delivers the notice to Holder.
4.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT
AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant
and the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without
-3-
<PAGE>
Silicon Valley Bank Warrant to Purchase Stock
- --------------------------------------------------------------------------------
compliance with applicable federal and state securities laws by the transferor
and the transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if reasonably requested by the Company). The Company shall not require
Holder to provide an opinion of counsel if the transfer is to an affiliate of
Holder or if there is no material question as to the availability of current
information as referenced in Rule 144(c), Holder represents that it has complied
with Rule 144(d) and (e) in reasonable detail, the selling broker represents
that it has complied with Rule 144(f), and the Company is provided with a copy
of Holders notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.2
and Section 4.3, Holder may transfer all or part of this Warrant or the Shares
issuable upon exercise of this Warrant (or the securities issuable, directly or
indirectly, upon conversion of the Shares, if any) by giving the Company notice
of the portion of the Warrant being transferred setting forth the name, address
and taxpayer identification number of the transferee and surrendering this
Warrant to the Company for reissuance to the transferee(s) (and Holder if
applicable). Unless the Company is filing financial information with the SEC
pursuant to the Securities Exchange Act of 1934, the Company shall have the
right to refuse to transfer any portion of this Warrant to any person who
directly competes with the Company.
4.5 NOTICES. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail,
postage prepaid, at such address as may have been furnished to the Company or
the Holder, as the case may be, in writing by the Company or such holder from
time to time.
4.6 WAIVER. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party all
costs incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to its principles regarding conflicts of law.
NETVANTAGE, INC.
By /s/ Stephen R. Rizzone
-----------------------------------
Chairman of the Board, President or
Vice President
By /s/ Thomas V. Baker
-----------------------------------
Secretary or Ass't Secretary
-4-
<PAGE>
EXHIBIT 10.4
------------
STANDARD OFFICE LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO OF AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION APPEARS HERE]
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only, April 10, 1996,
---------- --
is made by and between SILVER GENESIS INC., A California corporation,
---------------------------------------------
(herein called "Lessor") and NET VANTAGE INC., a California corporation,
------------------------------------------
doing business under the name of Same, (herein called "Lessee").
----
1.2 Premises: Suite Number(s) of 200, second floors, consisting of
---
approximately 12,000 RSF* feet, more or less, as defined in paragraph 2 and as
-----------
shown on Exhibit "A" hereto (the "Premises").
1.3 Building: Commonly described as being located at
201 Continental Boulevard ,
- -------------------------------------------------------------------------------
in the City of El Segundo ,
-----------------------------------------------------------------
County of Los Angeles ,
----------------------------------------------------------------------
State of California , as more particularly described in
------------------------------------
Exhibit ______ hereto, and as defined in paragraph 2.
1.4 Use: General office use and computer/electronics dry laboratories
-------------------------------------------------------------------
, subject to paragraph 6.
- -------------------------------------------------------
1.5 Term: Sixty (60) months commencing February 1, 1997
----------------- ----------------
("Commencement Date") and ending January 31, 2003, as defined in paragraph 3.
----------------
1.6 Base Rent: $12,734.26 ($1.06 per SF) per month payable on the _____ day
--------------------------
of each month, per paragraph 4.1 Rent shall be calculated based upon $1.06 per
---------------------------------------------
rentable square foot.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1.7 Base Rent Increase: On (None) the monthly Base Rent payable under
--------------
paragraph 1.6 above shall be adjusted as provided in paragraph 4.3 below.
1.8 Rent Paid Upon Execution:
-----------------------------------------------
for
-----------------------------------------------------------------------------
1.9 Security Deposit: $12,734.26
-------------------------------------------------------
1.10 Lessee's Share of Operating Expense Increase: 29 % as defined in
paragraph 4.2. ----
2. Premises, Parking and Common Areas.
2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises," including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: So long as Lessee is not in default, and subject to the
rules and regulations attached hereto, and as established by Lessor from time to
time, Lessee shall be entitled to rent and use, without preference, 36 parking
--
spaces in the Office Building Project at the monthly rate applicable from time
to time for monthly parking as set by Lessor and/or its licensee, which shall be
reasonable and non-discriminatory.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $ -0- per month
----
at the commencement of the term of this Lease, and is subject to change upon
five (5) days prior written notice to Lessee. Monthly parking fees shall be
payable one month in advance prior to the first day of each calender month.
2.3 Common Areas--Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 Common Areas--Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
reasonably and non-discriminatorily modify, amend and enforce said rules and
regulations. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees, their agents, employees and
invitees of the Office Building Project.
2.5 Common Areas--Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries of the
Office Building Project to be a part of the Common Areas, provided that such
other land and improvements have a reasonable and functional relationship to the
Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in, to
or with respect to the Common Areas and Office Building Project as Lessor may,
in the exercise of sound business judgment deem to be appropriate.
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as specified
in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date
and subject to paragraph 3.2.2, Lessor shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Lease or the
obligations of Lessee hereunder or extend the term hereof; but, in such case,
Lessee shall not be obligated to pay rent or perform any other obligation of
Lessee under the terms of this Lease, except as may be otherwise provided in
this lease, until possession of the Premises is tendered to Lessee as
hereinafter defined; provided, however, that if Lessor shall not have
delivered possession of the Premises within sixty (60) days following said
Commencement Date, as the same may be extended under the terms of a Work Letter
executed by Lessor and Lessee, Lessee may, at Lessee's
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option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided, however, that, as to Lessee's obligations, Lessee first
reimburses Lessor for all costs incurred for Non-Standard Improvements and, as
to Lessor's obligations, Lessor shall return any money previously deposited by
Lessee (less any offsets due Lessor for Non-Standard Improvements); and provided
further, that if such written notice by Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
3.2.1 Possession Tendered -- Defined. Possession of the Premises
shall be deemed tendered to Lessee upon mutual execution ("Tender of
Possession").
3.2.2 Delays Caused by Lessee. There shall be no abatement of
rent, and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee,
Lessee's agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term
is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of Possession
(as defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in
paragraph 4.3, and except as may be otherwise expressly provided in this Lease,
Lessee shall pay to Lessor the Base Rent for the Premises set forth in paragraph
1.6 of the Basic Lease Provisions. without offset or deduction. Lessee shall
pay Lessor upon execution hereof the advance Base Rent described in paragraph
1.8 of the Basic Lease Provisions, Rent for any period during the term hereof
which is for less than one month shall be prorated based upon the actual number
of days of the calendar month involved. Rent shall be payable in lawful money
of the United States to Lessor at the address stated herein or to such other
persons or at such other places as Lessor may designate in writing.
4.2 Operating Expense Increase. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter defined,
for each Comparison Year exceeds the amount of all Operating Expenses for the
Base Year, such excess being hereinafter referred to as the "Operating Expense
Increase," in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project.
(b) "Base Year" is defined as the first twelve (12) months of
occupancy.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however, Lessee shall
have no obligation to pay a share of the Operating Expense Increase applicable
to the first twelve (12) months of the Lease Term (other than such as are
mandated by a governmental authority, as to which government mandated expenses
Lessee shall pay Lessee's Share, notwithstanding they occur during the first
twelve (12) months). Lessee's Share of the Operating Expense Increase for the
first and last Comparison Years of the Lease Term shall be prorated according to
that portion of such Comparison Year as to which Lessee is responsible for a
share of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces,
coverings, decorative items, carpets, drapes and window coverings, and
including parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, stairways, parkways, driveways, landscaped areas, striping,
bumpers, irrigation systems, Common Area lighting facilities, building exteriors
and roofs, fences and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by
Lessor under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal Income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to Federal income tax guidelines
of five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements
of equipment or improvements that have a useful life for Federal Income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable
by Lessee within thirty (30) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time in advance of Lessee's
Share of the Operating Expense Increase for any Comparison Year, and the same
shall be payable monthly or quarterly, as Lessor shall designate, during each
Comparison Year of the Lease term, on the same day as the Base Rent is due
hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share
of Operating Expense Increase as aforesaid, Lessor shall deliver to Lessee
within sixty (60) days after the expiration of each Comparison Year a reasonably
detailed statement showing Lessee's Share of the actual Operating Expense
Increase incurred during such year. If Lessee's payments under this paragraph
4.2(g) during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison Year for which Lessee is responsible as to Operating Expense
Increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
4.3 Rent Increase.
4.3.1 At the times set forth in paragraph 1.7 of the Basic Lease
Provisions, the monthly Base Rent payable under paragraph 4.1 of this Lease
shall be adjusted by the increase, if any, in the Consumer Price Index of the
Bureau of Labor Statistics of the Department of Labor for All Urban Consumers,
(1967=100), "All items," for the city nearest the location of the Building,
herein referred to as "C.P.I.," since the date of this Lease.
4.3.2 The monthly Base Rent payable pursuant to paragraph 4.3.1
shall be calculated as follows: the Base Rent payable for the first month of the
term of this Lease, as set forth in paragraph 4.1 of this Lease, shall be
multiplied by a fraction the numerator of which shall be the C.P.I. of the
calendar month during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly Base Rent hereunder, but, in no event, shall such new monthly Base Rent
be less than the Base Rent payable for the month immediately preceding the date
for the rent adjustment.
4.3.3 In the event the compilation and/or publication of the C.P.I.
shall be transferred to any other governmental department or bureau or
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agency or shall be discontinued, then the index most nearly the same as the
C.P.I. shall be used to make such calculations. In the event that Lessor and
Lessee cannot agree on such alternative index, then the matter shall be
submitted for decision to the American Arbitration Association in the County in
which the premises are located, in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties, notwithstanding one party failing to appear after due notice of the
proceeding. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
4.3.4 Lessee shall continue to pay the rent at the rate previously in
effect until the increase, if any, is determined. Within five (5) days following
the date on which the increase is determined, Lessee shall make such payment to
Lessor as will bring the increased rental current, commencing with the effective
date of such increase through the date of any rental instalments then due.
Thereafter the rental shall be paid at the increased rate.
4.3.5 At such time as the amount of any change in rental required by this
Lease is known or determined. Lessor and Lessee shall execute an amendment to
this Lease setting forth such change.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. Lessor shall not be required to keep said
security deposit separate from its general accounts if Lessee performs all of
Lessee's obligations hereunder, said deposit, or so much thereof as has not
heretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest hereunder) within thirty (30)
days following the expiration of the term hereof, and the date Lessee has
vacated the premises. No trust relationship is created herein between Lessor and
Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The premises shall be used and occupied for the purpose set forth
in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date that the Lease term commences, but without regard to alterations or
improvements made by Lessee or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance or applicable laws in effect
on such Lease term Commencement Date. In the event it is determined that this
warranty has been violated, then it shall be the obligation of the Lessor, after
written notice from Lessee, to promptly, at Lessor's sole cost and expense,
rectify any such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition on
the Lease Commencement Date (unless Lessee is already in possession) and Lessor
warrants to Lessee that the plumbing, lighting, air conditioning, and heating
systems, electrical systems, elevators and all building systems in the Premises
shall be in good operating condition. In the event that it is determined that
this warranty has been violated, then it shall be the obligation of Lessor,
after receipt of written notice from Lessee setting forth with specificity the
nature of the violation, to promptly, at Lessor's sole cost, rectify such
violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises. Common Areas or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building Project
including the Premises interior and exterior walls, roof and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding lessor's obligation to keep the premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination
subject to all provisions of this Lease regarding the condition of the Premises,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien
and completion bond involving improvements, additions or Utility Installations
costing in excess or $100,000.00 in an amount equal to one and one-half times
the estimated cost of such improvements, to insure Lessor against any liability
for mechanic's and materialmen's liens and to insure completion of the work.
Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, or use a contractor not
expressly approved by Lessor, Lessor may, at any time during the term of this
Lease, require that Lessee remove any part of all of the same.
(b) Any alterations, improvements, additions or Utility Installations in
or about the Premises or the Office Building Project that Lessee shall desire to
make shall be presented to lessor in written form, with proposed detailed plans.
If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy.
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any such adverse judgement that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys fees and costs in participating in such action
if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this paragraph
7.3(e), Lessee's personal property and equipment, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Building, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, improvements, additions or Utility Installations.
7.4 Utility Additions. Lessors reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance--Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000, 000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance--Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance--Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance--Lessor. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Office Building Project improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protected
against all perils included within classification of fire, extended coverage,
vandalism, malicious mischief, plate glass, and such other perils as Lessor
deems advisable or may be required by a lender having a lien on the Office
Building Project. In addition, Lessor shall obtain and keep in force, during the
term of this Lease, a policy of rental value insurance covering a period of one
year, with loss payable to Lessor, which insurance shall also cover all
Operating Expenses for said period. Lessee will not be named in any such
policies carried by Lessor and shall have no right to any proceeds therefrom.
The policies required by these paragraphs 8.2 and 8.4 shall contain such
deductibles as Lessor or the aforesaid lender may determine. In the event that
the Premises shall suffer an insured loss as defined in paragraph 9.1(f) hereof,
the deductible amounts under the applicable insurance policies shall be deemed
an Operating Expense. Lessee shall not do or permit to be done anything which
shall invalidate the insurance policies carried by Lessor. Lessee shall pay the
entirety of any increase in the property insurance premium for the Office
Building Project over what it was immediately prior to the commencement of the
term of this Lease if the increase is specified by Lessor's insurance carrier as
being caused by the nature of Lessee's occupancy or any act or omission of
Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copied of liability
insurance policies requires under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and relieve
the other, and waive their entire right of recovery against the other, for
direct or consequential loss or damage arising out of or incident to the perils
covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary, all property insurance policies required under this
Lease shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith including but not limited to the
defense or pursuit of any claim or any action or proceeding involved therein;
and in case any action or proceeding be brought against Lessor by reason of any
such matter, Lessee upon notice from Lessor shall defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate
with Lessee in such defense. Lessor need not have first paid any such claim= in
order to be so indemnified. Lessee, as a material part of the consideration to
Lessor, hereby assumes all risk of damage to property of Lessee or injury to
persons, in, upon or about the Office Building Project arising from any cause
and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the Person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of the Office Building Project.
8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the buildings
on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean if
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in paragraph 8. The
fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damage area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other then those installed by Lessor at Lessee's expense.
1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
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9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an Insured
Loss and which falls into the classification of either Premises Damage or
Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) to the extent such Premises Damage exceeds five
percent (5%) of the Replacement Cost of the Building, give written notice to
Lessee within thirty (30) days after the date of the occurrence of such damage
of Lessor's intention to cancel and terminate this Lease as of the date of the
occurrence of such damage, in which event this Lease shall terminate as of the
date of the occurrence of such damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within Thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises which exceeds five percent (5%) of the Replacement Cost of the
Building Lessor may at Lessor's option cancel and terminate this Lease as of the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event Lessee has an option
to extend or renew this Lease, and the time within which said option may be
exercised has not yet expired, Lessee shall exercise such option, if it is to be
exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not useable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
Increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination--Advance Payments. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance made by Lessee to Lessor. Lessor shall, in addition, return
to Lessee so much of Lessee's security deposit as has not theretofore been
applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relates to termination of leases when leased property is destroyed and agree
that such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined in
paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying any
increase in real property tax specified in the tax assessor's records and work
sheets being caused by additional improvements placed upon the Office Building
Project by other lessees or by Lessor for the exclusive enjoyment of any other
lessee. Lessee shall, however, pay to Lessor at the time that Operating Expenses
are payable under paragraph 4.2(c) the entirety of any increase in real property
tax if assessed solely by reason of additional improvements placed upon the
Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities
11.1 Services Provided by Lessor. Lessor shall provide heating, ventilation,
air conditioning, elevator and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas, heat,
light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall be
subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
(C) 1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
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11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplement equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair, or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Lessee's interest in the Lease or in the Premises, without
Lessor's prior written consent, which Lessor shall not unreasonably withhold or
delay, Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease under the terms of
this Lease and (b) Lessor shall be given written notice of such assignment and
assumption. Any such assignment shall not, in any way, affect or limit the
liability of Lessee under the terms of this Lease even if after such assignment
or subletting the terms of this Lease are materially changed or altered without
the consent of Lessee, the consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expense Increase, and to perform all other obligations to be
performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
to such sublease and terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent subletting and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; however, such persons shall not be responsible to the extent any such
amendment or modification enlarges or increases the obligations of the Lessee or
sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied upon
by Lessor in giving its consent to and assignment or subletting was materially
false shall, at Lessor's election, render Lessor's said consent null and void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublessee as is satisfactory to Lessor and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed
and agreed to conform and comply with each and every obligation herein to be
performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing, which shall not be unreasonably withheld or
delayed.
(b) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(c) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(d) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable cost and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or subleasee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater, as is necessary to satisfy Lessor's then
current underwriting requirements for a subtenant or assignee or Lessor's
internal requirements.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation of
the Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 39(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statues such
Notice to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(C) 1984 American Industrial Real Estate Association
FULL SERVICE - GROSS
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(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of the Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature if Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e)(i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. (S)101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days: (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any
installment of Base Rent, Operating Expense Increase, or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat
of the exercise of said power (all of which are herein called "condemnation"),
this Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession), to terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent and Lessee's
Share of Operating Expense Increase shall be reduced in the proportion that the
floor area of the Premises taken bears to the total floor area or the Premises.
Common Areas taken shall be excluded from the Common Areas usable by Lessee and
no reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease as
of the taking of possession by the condemning authority, by giving written
notice to Lessee of such election within thirty (30) days after the receipt of
notice of a taking by condemnation of any part of the Premises of the Office
Building Project. Any award for the taking of all or any part of the Premises or
the Office Building Project under the power of eminent domain or any payment
made under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damages to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) The brokers involved in this transaction are THE SEELEY COMPANY and CB
-------------------------
COMMERCIAL INC. as "listing broker" and THE KAUFMAN GROUP as "cooperating
- --------------- -----------------
broker," licensed real estate broker(s). A "cooperating broker" is defined as
any broker other than the listing broker entitled to a share of any commission
arising under this Lease. Upon execution of this Lease by both parties, Lessor
shall pay to said brokers jointly, or in such separate shares as they may
mutually designate in writing, a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of $ (per separate
----------------
agreement), for brokerage services rendered by said broker(s) to Lessor in this
transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any rights
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the Base
Rent is increased, whether by agreement or operation of an escalation clause
contained herein, then as to any of said transactions or rent increases, Lessor
shall pay said broker(s) a fee in accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Each listing and cooperating broker
shall be a third party beneficiary of the provisions of this paragraph 15 to the
extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder (other than the
person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorney's fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date
1984 American Industrial Real Estate Association
FULL SERVICE - GROSS
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to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination date of this Lease, and all Options, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby, at
Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements, and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be, Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued in decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32. Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
(C) 1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
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<PAGE>
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33.Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34.Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35.Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36.Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37.Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38.Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39.Options
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the day after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(c), or paragraph 13.1(d),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
40.Security Measures--Lessor's Reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building Project
or building in which the Premises are located upon not less than 90 days prior
written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business as
long as such exclusive does not conflict with any rights expressly given herein;
(d) To place such signs, notices or displays as Lessor reasonably deems
necessary or advisable upon the roof, exterior of the buildings or the Office
Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building or
the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41.Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42.Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
(C) 1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
PAGE 9 OF 10 PAGES
<PAGE>
43.Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to Lessor evidence of such authority satisfactory to
Lessor.
44.Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45.No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46.Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47.Multiple Parties. If more than one person or entity is named as either Lessor
or Lessee herein, except as otherwise expressly provided herein, the obligations
of the Lessor or Lessee herein shall be the joint and several responsibility of
all persons or entities named herein as such Lessor or Lessee, respectively.
48.Work Letter. This Lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49.Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
Addendum to Lease, paragraphs 50 through 56.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT,AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN
PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR
HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION
IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES
OF THIS LEASE.
<TABLE>
<CAPTION>
LESSOR LESSEE
<S> <C>
SILVER GENESIS, INC., a California corporation NET VANTAGE INC., a California corporation
- ----------------------------------------------- -----------------------------------------------
By /s/ Eugene E. Elling By [SIGNATURE APPEARS HERE]
--------------------------------------------- ----------------------------------------------
Eugene E. Elling
Its PRESIDENT Its Vice President Finance & CFO
---------------------------------- ---------------------------------
By [SIGNATURE APPEARS HERE] HIS ATTORNEY IN FACT
By_____________________________________________ By______________________________________________
Its__________________________________ Its_________________________________
Executed at____________________________________ Executed at Santa Monica, CA
-------------------------------------
on_____________________________________________ on 4/12/96
----------------------------------------------
Address________________________________________ Address_________________________________________
</TABLE>
(C) 1984 American Industrial Real Estate Association
FULL SERVICE-GROSS
PAGE 10 OF 10 PAGES
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa Street, Suite 275, Los Angeles, CA 90071, (213) 687-8777.
(C) 1984-By American Industrial Association. All rights reserved. No part of
these words may be reproduced in any form without permission in writing.
<PAGE>
STANDARD OFFICE LEASE
FLOOR PLAN
[LOGO OF AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION APPEARS HERE]
EXHIBIT A
(C) 1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
[LOGO OF AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION APPEARS HERE]
Dated:______________________________
By and Between__________________________________________________________________
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or interfere
with other lessees or persons having business within the Office Building
Project.
4. Lessee shall not keep animals or birds within the Office Building Project,
and shall not bring bicycles, motorcycles or other vehicles into areas not
designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet rooms,
plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out of
the building only with the Lessor's knowledge and consent, and subject to such
reasonable limitations, techniques and timing, as may be designated by Lessor.
Lessee shall be responsible for any damage to the Office Building Project
arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work to
be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of _____ P.M.
and _____ A.M. of the following day. If Lessee uses the Premises during such
periods, Lessee shall be responsible for securely locking any doors it may have
opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and shall
be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or
cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other than
as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or
food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or regulations,
and/or as to any particular Lessee, and any such waiver shall not constitute a
waiver of any other rule or regulation or any subsequent application thereof to
such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of Lessor
and be returned to Lessor by the holder thereof upon termination of the holder's
parking privileges. Lessee will pay such replacement charge as is reasonably
established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces from
floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissable only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations, laws and
agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
Initials: [INITIALS APPEAR HERE]
----------------------
[INITIALS APPEAR HERE]
----------------------
(C) 1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
EXHIBIT B
PAGE 1 OF 1 PAGES
<PAGE>
WORK LETTER TO STANDARD OFFICE LEASE
Dated:
-----------------------------
By and between:
-----------------------------------------------------------------
The Premises shall be constructed in accordance with Lessor's Standard
improvements, as follows:
1. Partitions
2. Wall Surfaces
3. Draperies
4. Carpeting
5. Doors
6. Electrical and Telephone Outlets
7. Ceiling
8. Lighting
9. Heating and Air Conditioning Ducts
10. Sound Proofing
11. Plumbing
Initials: [INITIALS APPEAR HERE]
-----------------------
[INITIALS APPEAR HERE]
-----------------------
(C) 1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
EXHIBIT C
PAGE 1 OF 2 PAGES
<PAGE>
12. Entrance Doors
13. Completion of Improvements
Lessor shall construct and complete improvements to the Premises in
accordance with the plans and specifications prepared by_______________________
_____________________________________________, dated__________________________,
consisting of sheets________________________.(the "Improvements")
14. Preparation of Plans and Specifications
Within______days after the date of this Lease Lessor shall prepare at its
cost and deliver to Lessee for its approval______copies of preliminary plans and
specifications for the completion of the Improvements, which plans and
specifications shall itemize the work to be done by each party, including a cost
estimate of any work required of Lessor in excess of Lessor's Standard
Improvements. Lessee shall approve said preliminary plans and specifications and
preliminary cost estimate or specify with particularity its objection thereto
within______days following receipt thereof. Failure to so approve or disapprove
within said period of time shall constitute approval thereof. If Lessee shall
reject said preliminary plans and specifications either partially or totally,
and they cannot in good faith be modified within ten (10) days after such
rejection to be acceptable to Lessor and Lessee, this Lease shall terminate and
neither party shall thereafter be obligated to the other party for any reason
whatsoever having to do with this Lease, except that Lessee shall be refunded
any security deposit or prepaid rent. The plans and specifications, when
approved by Lessee, shall supersede any prior agreement concerning the
Improvements.
15. Construction
If Lessor's cost of constructing the Improvements to the Premises exceeds
the cost of Lessor's Standard Improvements, Lessee shall pay to Lessor in cash
before the commencement of such construction a sum equal to such excess.
If the final plans and specifications are approved by Lessor and Lessee, and
Lessee pays Lessor for such excess, then Lessor shall, at its sole cost and
expense, construct the Improvements in accordance with said approved final plans
and specifications and all applicable rules, regulations, laws or ordinances.
16. Completion.
16.1 Lessor shall obtain a building permit to construct the Improvements as
soon as possible.
16.2 Lessor shall complete the construction of the Improvements as soon as
reasonably possible after the obtaining of necessary building permits.
16.3 The term "Completion," as used in this Work Letter, is hereby defined
to mean the date the building department of the municipality having jurisdiction
of the Premises shall have made a final inspection of the Improvements and
authorized a final release of restrictions on the use of public utilities in
connection therewith and the same are in a broom-clean condition.
16.4 Lessor shall use its best efforts to achieve Completion of the
Improvements on or before the Commencement Date set forth in paragraph 1.5 of
the Basic Lease Provisions or within one hundred eighty (180) days after Lessor
obtains the building permit from the applicable building department, whichever
is later.
16.5 In the event that the Improvements or any portion thereof have not
reached Completion by the Commencement Date, this Lease shall not be invalid,
but rather Lessor shall complete the same as soon thereafter as is possible and
Lessor shall not be liable to Lessee for damages in any respect whatsoever.
16.6 If Lessor shall be delayed at any time in the progress of the
construction of the Improvements or any portion thereof by extra work, changes
in construction ordered by Lessee, or by strikes, lockouts, fire, delay in
transportation, unavoidable casualties, rain or weather conditions, governmental
procedures or delay, or by any other cause beyond Lessor's control, then the
Commencement Date established in paragraph 1.5 of the Lease shall be extended by
the period of such delay.
17. Term
Upon Completion of the Improvements as defined in paragraph 16.3, above,
Lessor and Lessee shall execute an amendment to the Lease setting forth the date
of Tender of Possession as defined in paragraph 3.2.1 of the Lease or of actual
taking of possession, whichever first occurs, as the Commencement Date of this
Lease.
18. Work Done By Lessee
Any work done by Lessee shall be done only with Lessor's prior written
consent and in conformity with a valid building permit and all applicable rules,
regulations, laws and ordinances, and be done in a good and workmanlike manner
with good and sufficient materials. All work shall be done only with union labor
and only by contractors approved by Lessor, it being understood that all
plumbing, mechanical, electrical wiring and ceiling work are to be done only by
contractors designated by Lessor.
19. Taking of Possession of Premises
Lessor shall notify Lessee of the Estimated Completion Date at least ten
(10) days before said date. Lessee shall thereafter have the right to enter the
Premises to commence construction of any Improvements. Lessee is to construct
and to equip and fixturize the Premises, as long as such entry does not
interfere with Lessor's work. Lessee shall take possession of the Premises upon
the tender thereof as provided in paragraph 3.2.1 of the Lease to which this
Work Letter is attached. Any entry by Lessee of the Premises under this
paragraph shall be under all of the terms and provisions of the Lease to which
this Work Letter is attached.
20. Acceptance of Premises
Lessee shall notify Lessor in writing of any items that Lessee deems
incomplete or incorrect in order for the Premises to be acceptable to Lessee
within ten (10) days following Tender of Possession as set forth in paragraph
3.2.1 of the Lease to which this Work Letter is attached. Lessee shall be
deemed to have accepted the Premises and approved construction if Lessee does
not deliver such a list to Lessor within said number of days.
Initials: [INITIALS APPEAR HERE]
----------------------
[INITIALS APPEAR HERE]
----------------------
(C) 1984 American Industrial Real Estate Association
FULL SERVICE-GROSS
EXHIBIT C
PAGE 2 OF 2 PAGES
<PAGE>
ADDENDUM TO STANDARD OFFICE LEASE - GROSS
By and Between SILVER GENESIS, INC. (Lessor)
and NET VANTAGE INC. (Lessee) for
201 Continental Boulevard
EL Segundo, California 90245
Dated April 10, 1996
4.2 Base Year Operating Expense. The Base Year Operating Expense shall be
adjusted to compensate for vacancies in the Building during the Base Year so
that Operating Expenses shall be based on a 90% occupied building.
4.2 Audit. The following is hereby added as Section 4.2(h):
"Lessee shall have the right to audit, at Lessee's expense, Operating Expenses
for the Base Year and each Comparison Year within the twelve (12) month period
following the calculation of any Operating expense Increase and shall provide
Lessor with the results of such audit. In the event Lessee has overpaid
Operating Expenses, Lessor shall refund the amount of the overpayment within
thirty (30) days. In the event Lessee has underpaid Operating Expenses, Lessee
shall pay the amount of the underpayment within thirty (30) days."
6.2 Environmental. Lessor warrants that the Building does not contain any
Hazardous Substances, as herein defined, in a condition or in amounts which
exceed legally permissible limits effective as of the date possession is
delivered to Lessee.
6.2 Compliance with Law. Notwithstanding Section 6.2(b) of the Lease, Lessee
shall not be required to make structural changes to the Premises or the Building
Systems, unless such changes are related to Lessee's particular use of the
Premises or improvements constructed by Lessee.
7.2 Lessee's Obligations. Section 6.3(b) is hereby supplemented as follows:
"Lessee shall have no responsibility to perform or construct any
repair, maintenance or improvement (i) necessitated by the acts or
omissions of Lessor or any other occupant of the Building, or their
respective agents, employees or contractors, (ii) occasioned by a casualty
not caused or contributed to by Lessee, (iii) required as a consequence of
any violation of Law in the Premises or the Building as of the date
possession is delivered to Lessee, (iv) for which Lessor has a right or
reimbursement from third parties, (v) which would be treated as a capital
expenditure under generally accepted accounting principals and are
unrelated to Lessee's particular use of the Premises or improvements
constructed by Lessee."
7.3 Alterations and Additions. Section 7.3(a) is hereby supplemented as
follows:
"Notwithstanding the foregoing, Lessee shall have the right to make
non-structural modifications up to a maximum cost of FIFTEEN THOUSAND
DOLLARS ($15,000.00) without Lessor's consent. Lessee shall, however, in
connection with such improvements provide the notice set forth in Section
7.3(b) in order for Lessor to post a notice of non-responsibility."
8.10 Indemnity by Lessor. Notwithstanding anything herein to the contrary,
Lessor shall indemnify and hold harmless Lessee and its agents from and against
all costs, attorneys' fees, expenses and liabilities incurred by Lessee as a
result of the active negligence or willful misconduct of Lessor or Lessor's
failure to perform its obligations hereunder.
<PAGE>
12.1 Lessor's Consent Required. Lessor shall provide its written consent, or
its disapproval of such transfer, within five (5) business days following
receipt of a written request for approval, together with information
reasonably requested by Lessor concerning such proposed sublessee or
assignee, including financial information reasonably requested. In the
event Lessee is a publicly traded company, the transfer of its stock on
any exchange or national market system shall not be deemed a Transfer
under this Section 12.1. The provisions of this Section 12.1 shall not
prohibit Lessee from entering into licenses with customers or agents of
customers of Lessee which require space for the purpose of testing or
inspecting products produced by Lessee, provided such license is temporal
in nature and does not constitute a grant of exclusive space within the
Premises by Lessee.
32. Lessor's Access. Lessor and Lessor's agents shall provide Lessee with
twenty-four (24) hours' notice prior to entry of the Premises, except in
the event of an emergency which shall require no notice. Such entry by
Lessor and Lessor's agents shall not impair Lessee's obligations more than
reasonably necessary. During any such entry, except emergency entries,
Lessor and Lessor's agents shall at all times be accompanied by Lessee or
Lessee's agent. In the event of an emergency entry, Lessor shall use
reasonable efforts to be accompanied by a representative of Lessee.
49. Final Calculation of Rentable Square Footage. The Premises, as defined in
Paragraph 1.2 and the calculation of rent (Paragraph 1.6), security
deposits (Paragraph 1.9) and Lessee's share of operating expenses
(Paragraph 1.10) shall be computed upon $1.06 per rentable square foot
pursuant to the final approved space plan. Rentable square footage shall
be computed based upon the usable square feet multiplied by 1.15% (15%
load factor). The vehicle parking spaces allocated to Lessee pursuant to
Paragraph 2.2 shall be based upon 1,000 square feet of usable area. In the
event a discrepancy is determined regarding the square footage of the
Premises, the foregoing amounts may be adjusted, provided that in the
event shall either party be entitled to any retroactive adjustment whether
for operating expenses, rent or parking.
50. Right of First Notice of Lease. In the event that space on the second
floor becomes available for lease during the term of Lessee's Lease,
Lessor shall notify Lessee of the availability of such space. Lessee shall
have ten (10) working days to provide Lessor with written notice of its
desire to negotiate a lease for the available space. In the event Lessee
provides Lessor with written notice of its desire to negotiate a lease for
such space, Lessor and Lessee shall negotiate in good faith the terms of
the lease for the available space for the thirty (30) day period following
receipt of Lessee's election to negotiate. In no event shall this right of
first notice provide Lessee with an option to lease such other space or a
right of first refusal. Lessor shall have the right to market such
expansion space, despite Lessee's election, but shall negotiate in good
faith with Lessee concerning a lease for such expansion space. Upon
written notice by Lessor to Lessee of the date of availability of the
proposed space, Lessee shall have ten (10) working days to enter a thirty
(30) day period of "good faith" negotiations.
51. Option to Renew Lease. Lessee is given the option to extend the term on
all the provisions contained in this lease, except for minimum monthly
rent, for a five (5) year period ("Extended Term") following expiration of
the initial term, by giving notice of exercise of the option ("Option
Notice") to Lessor at least six (6) months, but not more than one (1) year
before the expiration of the term. Provided that, if Lessee is in default
on the date of giving the Option Notice, the Option Notice shall be
totally ineffective, or if Lessee is in
-2-
<PAGE>
default on the date the Extended Term is to commence, the Extended Term
shall not commence and this lease shall expire at the end of the initial
term.
The parties shall have thirty (30) days after Lessor receives the Option
Notice in which to agree on Base Rent during the Extended Term. If the
parties agree on the Base Rent for the Extended Term during that period,
they shall immediately execute an amendment to this lease stating the Base
Rent.
If the parties are unable to agree on the Base Rent for the Extended Term
within that period, then within ten (10) days after the expiration of that
period each party, at its cost and by giving notice to the other party,
shall appoint a real estate appraiser with at least 5 years' full-time
commercial appraisal experience in the area in which the premises are
located to appraise and set the Base Rent for the Extended Term based upon
ninety-five percent (95%) of the fair market rental for the Premises based
upon the prevailing market rates for similar space in similar buildings. If
a party does not appoint an appraiser within ten (10) days after the other
party has given notice of the name of its appraiser, the single appraiser
appointed shall be the sole appraiser and shall set the Base Rent for the
Extended Term. If the two appraisers are appointed by the parties as stated
in this paragraph, they shall meet promptly and attempt to set the Base
Rent for the Extended Term. If they are unable to agree within thirty (30)
days after the second appraiser has been appointed, they shall attempt to
elect a third appraiser meeting the qualifications stated in this paragraph
within ten (10) days after the last day the two appraisers are given to set
the Base Rent. If they are unable to agree on the third appraiser, either
of the parties to this lease by giving ten (10) days' notice to the other
party can file a petition with the American Arbitration Association solely
for the purpose of selecting a third appraiser who meets the qualifications
stated in this paragraph. Each party shall bear half the cost of the
American Arbitration Association appointing the third appraiser and of
paying the third appraiser's fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity for either
party.
Within thirty (30) days after the selection of the third appraiser, a
majority of the appraisers shall set the Base Rent for the Extended Term.
If a majority of the appraisers are unable to set the Base Rent within the
stipulated period of time, the three appraisals shall be added together and
their total divided by three; the resulting quotient shall be the Base Rent
for the premises during the Extended Term. If, however, the low appraisal
and/or the high appraisal are more than ten percent (10%) lower and/or
higher than the middle appraisal, the low appraisal and/or the high
appraisal shall be disregarded. If only one appraisal is disregarded, the
remaining two appraisals shall be added together and their total divided by
two; the resulting quotient shall be the Base Rent for the premises during
the Extended Term. If both the low appraisal and the high appraisal are
disregarded as stated in this paragraph, the middle appraisal shall be the
Base Rent for the premises during the Extended Term.
After the Base Rent for the Extended Term has been set, the appraisers
shall immediately notify the parties.
Lessee shall have no other right to extend the term beyond the Extended
Term.
52. Increases in Property Taxes During the First Three (3) Years of the Lease
Term. During the first three (3) years of the initial lease term, Lessee
shall not be responsible for any increases in property taxes resulting from
the reassessment of the property caused by a sale of the property by Lessor
("Proposition 13").
-3-
<PAGE>
53. Signage. Lessee shall have the right to install its sign on one (1)
position of the shared monument sign at the parking lot entrance to the
property. All signage is subject to City of El Segundo approval.
54. Microwave Dish. Lessee may install a microwave dish on the roof of the
Premises subject to Lessor's reasonable approval and in a location of
Lessor's reasonable discretion.
55. Non-Disturbance Agreements. Lessor shall use commercially reasonable
efforts to obtain promptly following the execution of the Lease, non-
disturbance, subordination and attornment agreements from Lessor's lender
in a form reasonably satisfactory to Lessor's lender, Lessor and Lessee.
Lessor and Lessee shall use reasonable and diligent efforts to satisfy the
foregoing obligation.
56. Early Possession of Lessee's Construction Work. Lessor shall grant Lessee
early possession of the Premises upon mutual execution of this Lease in its
existing condition. During this period up to the commencement date of the
Lease (February 1, 1997), all terms of this Lease shall be in effect with
the exception of the payment of Base Rent. Irrespective of Lessee's
occupancy, the payment of Base Rent and the calculation of the initial term
shall begin February 1, 1997. Lessee acknowledges that Lessor is completing
a refurbishment of the Building simultaneously with Lessee's completing its
improvements. Lessee shall complete the improvements to the Premises in
conformance with the Floor Plan attached to the Lease as Exhibit "A".
-----------
Lessor and Lessee shall use reasonable and diligent efforts to promptly
complete their respective improvements. All such improvements shall be
substantially completed on or before November 1, 1996.
Lessor Lessee
SILVER GENESIS, INC., NET VANTAGE INC.,
a California corporation a California corporation
By: [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
------------------------- -------------------------
Date: 4/12 , 1996 Date: 4/12 , 1996
----------- -----------
by [SIGNATURE APPEARS HERE]
HIS ATTORNEY-IN-FACT
-4-
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE ("Amendment") is made and entered as of the
1st day of November, 1996 by and between SILVER GENESIS, INC. ("Lessor") and NET
VANTAGE INC. ("Lessee").
R E C I T A L S
- - - - - - - -
A. Lessor and Lessee entered into that certain Standard Office Lease -
Gross (the "Lease") dated May 1, 1996, regarding a portion of that certain real
property located at 201 Continental Boulevard, El Segundo, California 90245,
more particularly described therein. All capitalized terms, unless specifically
defined herein, shall have the same meaning as set forth in the Lease.
B. Lessor and Lessee desire to amend the Lease upon the terms and
conditions contained herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Term. This Amendment shall be effective as of the date of this
----
Amendment (the "Effective Date") and shall terminate on October 31, 1997 (the
"Expiration Date"). Following the Effective Date, all provisions of the Lease
shall refer to the Premises as revised hereunder until the Expiration Date.
2. Addition to Premises. The description of the Premises is hereby
--------------------
amended to include the basement within the Building in addition to the existing
Premises until the Expiration Date.
3. Basement Rent. Lessee shall pay Lessor the sum of TWO THOUSAND
-------------
EIGHTY-SEVEN DOLLARS ($2,087.00) per month on the first day of each month,
commencing on the Effective Date until this Amendment expires under Section 1
above.
4. Lessee's Share. The addition of the additional space shall not affect
-------------- ---
the calculation of Lessee's Share under Section 4.2.
5. Effect of Amendment. Except as specifically set forth herein, the
-------------------
Lease shall continue in full force and effect as previously written.
Lessor Lessee
SILVER GENESIS, INC., NET VANTAGE INC.,
a California corporation a California corporation
By: [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
------------------------- -------------------------
Vice President
Date: December 19, 1996 Date: December 19, 1996
-- --
<PAGE>
STANDARD OFFICE LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO APPEARS HERE]
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only, May 1,
1996, is made by and between SILVER GENESIS INC., a California corporation ,
----------------------------------------------------
(herein called "Lessor") and NET VANTAGE INC., a California corporation ,
----------------------------------------------------
doing business under the name of Same (herein called
------------------------
"Lessee").
1.2 Premises: Suite Number(s) 200 200B second floors, consisting of
-------------------
approximately 4,021 RSP* feet, more or less, as defined in paragraph 2
--------------------
and as shown on Exhibit "A" hereto (the "Premises").
1.2 Premises. The Premises shall consist of the remaining portions of the
second floor other than as leased under that certain Standard Office Lease--
Gross dated April 10, 1996 by and between Lessor and Lessee (the "Primary
Lease").
1.3 Building: Commonly described as being located at 201 Continental
----------------------
Boulevard in the City of El Segundo
- --------- --------------------------------------------------------
County of Los Angeles
-----------------------------------------------------------------------
State of California as more particularly described in Exhibit
----------------------- --------
hereto, and as defined in paragraph 2.
1.4: Use: General office use and computer/electronics dry laboratories
--------------------------------------------------------------------
, subject to paragraph 6.
- -------------------------------------------------------
1.5 Term: Sixty (60) months commencing May 1, 1996 ("Commencement Date")
--------------------- ---------------
and ending January 31, 2002 , as defined in paragraph 3.
------------------------------------------
1.6 Base Rent: $ 4,262.26 per month, payable on the day of
------------------------ -----
each month, per paragraph 4.1 Rent shall be calculated based upon $1.06 per
---------------------------------------------
rentable square foot.
Base Rent. Base rent for the months of February, March, April and May
1997 shall be abated.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1.7 Base Rent Increase: On (None) the monthly Base Rent
------------------------
payable under paragraph 1.6 above shall be adjusted as provided in paragraph 4.3
below.
1.8 Rent Paid Upon Execution:
-----------------------------------------------
for
-----------------------------------------------------------------------------
1.9 Security Deposit: $4,262.26
-------------------------------------------------------
1.10 Lessee's share of Operating Expense Increase: 8.34 % as defined in
------
paragraph 4.2.
2. Premises, Parking and Common Areas.
2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises," including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: So long as Lessee is not in default, and subject to the
rules and regulations attached hereto, and as established by Lessor from time to
time, Lessee shall be entitled to rent and use, without preference, 12 parking
------
spaces in the Office Building Project at the monthly rate applicable from time
to time for monthly parking as set by Lessor and/or its licensee. 1.2 Premises.
The Premises shall consist of the remaining portions of the second floor other
than as leased under that certain Standard Office Lease--Gross dated April 10,
1996 by and between Lessor and Lessee (the "Primary Lease").
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $ -0- per
---------
month at the commencement of the term of this Lease, and is subject to change
upon five (5) days prior written notice to Lessee. Monthly parking fees shall be
payable one month in advance prior to the first day of each calendar month.
2.3 Common Areas--Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other leasees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 Common Areas--Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
reasonably and non-discriminatorily modify, amend and enforce said rules and
regulations. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees, their agents, employees and
invitees of the Office Building Project.
2.5 Common Areas--Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries of
the Office Building Project to be a part of the Common Areas, provided that such
other land and improvements have a reasonable and functional relationship to the
Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in, to
or with respect to the Common Areas and Office Building Project as Lessor may,
in the exercise of sound business judgment deem to be appropriate.
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as specified
in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date
and subject to paragraph 3.2.2, Lessor shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Lease or the
obligations of Lessee hereunder or extend the term hereof; but, in such case,
Lessee shall not be obligated to pay rent or perform any other obligation of
Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee. Lessee may, at Lessee's
[*] subject to Paragraph 50
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option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided, however, that, as to Lessee's obligations, Lessee first
reimburses-Lessor for all costs incurred for Non-Standard Improvements and, as
to Lessor's obligations, Lessor shall return any money previously deposited by
Lessee (less any offsets due Lessor for Non-Standard Improvements); and provided
further, that if such written notice by Lessee is not received by Lessor within
said ten (10) day period. Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect.
3.2.1 Possession Tendered-Defined. Possession of the Premises shall be
deemed tendered to Lessee upon mutual execution("Tender of Possession")
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent, and
the sixty (60) day period following the Commencement Date before which Lessee's
right to cancel this Lease accrues under paragraph 3.2, shall be deemed extended
to the extent of any delays caused by acts of omissions of Lessee, Lessee's
agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the Lease term is
defined as the completion of the improvements, Lessee and Lessor shall execute
an amendment to this Lease establishing the date of Tender of Possession (as
defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of
the Basic Lease Provisions, without offset or deduction. Lessee shall pay Lessor
upon execution hereof the advance Base Rent described in paragraph 1.8 of the
Basic Lease Provisions. Rent for any period during the term hereof which is for
less than one month shall be prorated based upon the actual number of days of
the calendar month involved. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing.
4.2 Operating Expense Increase. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year,
such excess being hereinafter referred to as the "Operating Expense Increase,"
in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as the
percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project.
(b) "Base Year" is defined as the first twelve (12) months of occupancy.
(c) "Comparison Year" is defined as each calendar year during the term of
this Lease subsequent to the Base Year; provided, however, Lessee shall have no
obligation to pay a share of the Operating Expense increase applicable to the
first twelve (12) months of the Lease Term (other than such as are mandated by a
governmental authority, as to which government mandated expenses Lessee shall
pay Lessee's Share, notwithstanding they occur during the first twelve (12)
months). Lessee's Share of the Operating Expense Increase for the first and last
Comparison Years of the Lease Term shall be prorated according to that portion
of such Comparison Year as to which Lessee is responsible for a share of such
increase.
(d) "Operating Expenses" is defined, for purposes of this Lease, to
include all costs, if any, incurred by Lessor in the exercise of its reasonable
discretion, for:
(i) The operation, repair, maintenance, and replacement, in neat,
clean, safe, good order and condition, of the Office Building Project, including
but not limited to, the following:
(aa) The Common Areas, including their surfaces, covering,
decorative items, carpets, drapes and window coverings, and including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
stairways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, building exteriors and roofs, fences
and gates;
(bb) All heating, air conditioning, plumbing, electrical systems,
life safety equipment, telecommunication and other equipment used in common by,
or for the benefit of, lessees or occupants of the Office Building Project,
including elevators and escalators, tenant directories, fire detection systems
including sprinkler system maintenance repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is elsewhere
in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by Lessor
under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and costs,
materials, supplies and tools, used in maintaining and/or cleaning the Office
Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal Income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a useful
life for depreciation purposes according to Federal income tax guidelines of
five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements of
equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any lessee
directly to third parties, or as to which Lessor is otherwise reimbursed by any
third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable by
Lessee within thirty (30) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expense Increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense Increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
the last Comparison Year for which Lessee is responsible as to Operating Expense
increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
4.3 Rent Increase.
4.3.1 At the times set forth in paragraph 1.7 of the Basic Lease
Provisions, the monthly Base Rent payable under paragraph 4.1 of this Lease
shall be adjusted by the increase, if any, in the Consumer Price Index of the
Bureau of Labor Statistics of the Department of Labor for All Urban Consumers.
(1967=100), "All Items," for the city nearest the location of the
Building, herein referred to as "C.P.I.", since the date of this Lease.
4.3.2 The monthly Base Rent payable pursuant to paragraph 4.3.1 shall be
calculated as follows: the Base Rent payable for the first month of the term of
this Lease, as set forth in paragraph 4.1 of this Lease, shall be multiplied by
a fraction the numerator of which shall be the C.P.I. of the calendar month
during which the adjustment is to take effect, and the denominator of which
shall be the C.P.I. for the calendar month in which the original Lease term
commences. The sum so calculated shall constitute the new monthly Base Rent
hereunder, but, in no event, shall such new monthly Base Rent be less than the
Base Rent payable for the month immediately preceding the date of the rent
adjustment.
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4.3.5 At such time as the amount of any change in rental required by
this Lease is known or determined, Lessor and Lessee shall execute an amendment
to this Lease setting forth such change.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies all or any portion of
said deposit, Lessee shall within ten (10) days after written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. Lessor shall not be required to keep said
security deposit separate from its general accounts. If Lessee performs all of
Lessee's obligations hereunder, said deposit, or so much thereof as has not
heretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest hereunder) within thirty (30)
days following the expiration of the term hereof, and the date Lessee has
vacated the Premises. No trust relationship is created herein between Lessor and
Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date that the Lease term commences, but without regard to alterations or
improvements made by Lessee or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance or applicable laws in effect
on such Lease term Commencement Date. In the event it is determined that this
warranty has been violated, then it shall be the obligation of the Lessor, after
written notice from Lessee, to promptly, at Lessor's sole cost and expense,
rectify any such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition on
the Lease Commencement Date (unless Lessee is already in possession) and Lessor
warrants to Lessee that the plumbing, lighting, air conditioning, and heating
system, electrical systems, elevators and all building systems in the Premises
shall be in good operating condition. In the event that it is determined that
this warranty has been violated, then it shall be the obligation of Lessor,
after receipt of written notice from Lessee setting forth with specificity the
nature of the violation, to promptly, at Lessor's sole cost, rectify such
violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5 there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
subject to all provisions of this Lease regarding the condition of the Premises,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting, window and wall
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee sole cost and expense, a lien
and completion bond involving improvements, additions or Utility Installations
costing in excess of $100,000.00. In calculating the foregoing amount, amounts
incurred under the Primary Lease shall be aggregated with amounts incurred
hereunder. In addition, for purposes of the Primary Lease, costs incurred
hereunder shall be aggregated with the costs incurred under the Primary Leases
in an amount equal to one and one-half times the estimated cost of such
improvements, to insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Lessee make any
alterations, improvements, additions or Utility Installations without the prior
approval of Lessor, or use a contractor not expressly approved by Lessor, Lessor
may, at any time during the term of this Lease, require that Lessee remove any
part or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee shall desire
to make shall be presented to Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy
(C) 1984 American Industrial Real Estate Association
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any such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this paragraph
7.3(e), Lessee's personal property and equipment other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Building, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, improvements, additions or Utility Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. Insurance: Indemnity.
8.1 Liability Insurance--Lessee. Lessee shall at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance--Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance--Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage,
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance--Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other
perils as Lessor deems advisable or may be required by a lender having a lien on
the Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy rental value insurance covering a period
of one year, with loss payable to Lessor, which insurance shall also cover all
Operating Expenses for said period. Lessee will not be named in any such
policies carried by Lessor and shall have no right to any proceeds therefrom.
The policies required by these paragraphs 8.2 and 8.4 shall contain such
deductibles as Lessor or the aforesaid lender may determine. In the event that
the Premises shall suffer an insured loss as defined in paragraph 9.1(f) hereof,
the deductible amounts under the applicable insurance policies shall be deemed
an Operating Expense. Lessee shall not do or permit to be done anything which
shall invalidate the insurance policies carried by Lessor. Lessee shall pay the
entirety of any increase in the property insurance premium for the Office
Building Project over what it was immediately prior to the commencement of the
term of this Lease if the increase is specified by Lessor's insurance carrier as
being caused by the nature of Lessee's occupancy or any act or omission of
Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation or Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire steam, electricity, gas, water or rain, or from the breakage leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures, or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the buildings
on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean if
the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused by
an event required to be covered by the insurance described in paragraph 8. The
fact that an insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
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9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Damage
or Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss; Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) to the extent such Premises Damage exceeds five
percent (5%) of the Replacement Cost of the Building give written notice to
Lessee within thirty (30) days after the date of the occurrence of such damage
of Lessor's intention to cancel and terminate this Lease as of the date of the
occurrence of such damage, in which event this Lease shall terminate as of the
date of the occurrence of such damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraph 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classification of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises which exceeds five percent (5%) of the Replacement Cost of the Building
Lessor may at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired. Lessee shall exercise such option, if it is
to be exercised at all, no later than twenty (20) days after the occurrence of
an insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period, notwithstanding any term or provision
in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
increase) for the period during which such damage, repair or restoration
continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee, and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, or such repair or restoration.
In such event this lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination - Advance Payments. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined in
paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying any
increase in real property tax specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy
assessment or charge hereinabove included within the definition of "real
property tax", or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide heating, ventilation,
air conditioning, elevator, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall be
subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
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11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold or delay, Lessor shall respond to Lessee's request for consent
hereunder in a timely manner and any attempted assignment, transfer, mortgage,
encumbrance or subletting without such consent shall be void, and shall
constitute a material default and breach of this Lease without the need for
notice to Lessee under paragraph 13.1. "Transfer" within the meaning of this
paragraph 12 shall included the transfer or transfers aggregating: (a) if Lessee
is a corporation, more than twenty-five percent (25%) of the voting stock of
such corporation, or (b) if Lessee is a partnership, more than twenty-five
percent (25%) of the profit and loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligations hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense increase, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed
by third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such persons from liability under this Lease
or said sublease; however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible for
the performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgement that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) No sublease entered into by Lessee shall be effective unless
and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublessee as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublease shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing, which shall not be unreasonably
withheld or delayed.
(b) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(c) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(d) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater, as is necessary to satisfy Lessor's then
current underwriting requirements for a subtenant or assignee or Lessor's
internal requirements.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee.
Vacation of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a),(b) or (d)(alterations), 12.1(assignment or
subletting), 13.1(a)(vacation or abandonment), 13.1(e)(insolvency), 13.1(f)
(false statement), 16(a)(estoppel certificate), 30(b)(subordination),
33(auctions), or 41.1(easements), all of which are hereby deemed to be
material, non-curable defaults without the necessity of any notice by Lessor
to Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
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(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day notice shall constitute the sole and exclusive notice required
to be given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. (Section)101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provison of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.1 Default.
(g) A default under the Primary Lease.
In addition, the Primary Lease is hereby amended to provide that a default
hereunder shall be a default under the Primary Lease.
13.2 Remedies. In the event of any material default or breach of this Lease
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not lessee shall have vacated or abandoned
the Premises, in such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy new or hereafter available to Lessor under
the laws or judicial decision of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to
perform obligations required of Lessor within a reasonable time, but in no event
later than thirty (30) days after written notice by Lessee to Lessor and to the
holder of any first mortgage or deed of trust covering the Premises whose name
and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other sums
due hereunder will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to , processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Office Building Project. Accordingly, if any installment of
Base Rent, Operating Expense increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within (30) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within (30) days after the condemning authority shall have taken
possession), to terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent and Lessee's Share of
Operating Expense increase shall be reduced in the proportion that the floor
area of the Premises taken bears to the total floor area of the Premises. Common
Areas taken shall be excluded from the Common Areas usable by Lessee and no
reduction of rent shall occur with respect thereto or by reason thereof, Lessor
shall have the option in its sole discretion to terminate this Lease as of the
taking of possession by the condemning authority, by giving written notice to
Lessee of such election within thirty (30) days after receipt of notice of a
taking by condemnation of any part of the Premises or the Office Building
Project. Any award for the taking of all or any part of the Premises or the
Office Building Project under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority, Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) The brokers involved in this transaction are THE SEELEY COMPANY and CB
-------------------------
COMMERCIAL INC. as "listing broker" and THE KAUFMAN GROUP as "cooperating
- --------------- ----------------
broker," licensed real estate broker(s). A "cooperating broker" is defined as
any broker other than the listing broker entitled to a share of any commission
arising under this Lease. Upon execution of this Lease by both parties, Lessor
shall pay to said brokers jointly, or in such separate shares as they may
mutually designate in writing, a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of $ (per separate
----------------
agreement) , for brokerage services rendered by said broker(s) to Lessor in this
- -----------
transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any rights
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the Base
Rent is increased, whether by agreement or operation of an escalation clause
contained herein, then as to any of said transactions or rent increases, Lessor
shall pay said broker(s) a fee in accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Each listing and cooperating broker
shall be a third party beneficiary of the provisions of this paragraph 15 to the
extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder (other than the
person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date
(C) 1984 American industrial Real Estate Association
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to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17.Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18.Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19.Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20.Time of Essence. Time is of the essence with respect to the obligations to be
performed under this Lease.
21.Additional Rent. All monetary obligations of Lessee to Lessor under the terms
of this Lease, including but not limited to Lessee's Share of Operating Expense
increase and any other expenses payable by Lessee hereunder shall be deemed to
be rent.
22.Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23.Notices. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24.Waivers. No waiver by Lessor of any provision hereof shall be deemed a waiver
of any other provision hereof or of any subsequent breach by Lessee of the same
or any other provision. Lessor's consent to, or approval of, any act shall not
be deemed to render unnecessary the obtaining of Lessor's consent to or approval
of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor
shall not be a waiver of any preceding breach by Lessee of any provision hereof,
other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25.Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26.Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination date of this Lease, and all Options, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
27.Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28.Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29.Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30.Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby, at
Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof, Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31.Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to enforce
the terms hereof or declare rights hereunder, the prevailing party in any such
action, trial or appeal thereon, shall be entitled to his reasonable attorneys'
fees to be paid by the losing party as fixed by the court in the same or a
separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32.Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises at
reasonable times for the purpose of inspecting the same, performing any services
required of Lessor, showing the same to prospective purchasers, lenders, or
lessees, taking such safety measures, erecting such scaffolding or other
necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises, Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
(C) American Industrial Real Estate Association
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<PAGE>
32.3 Lessor shall have the right to retain keys to the Premises and to unlock
all doors in or upon the Premises other than to files, vaults and safes, and in
the case of emergency to enter the Premises by any reasonably appropriate means,
and any such entry shall not be deemed a forceable or unlawful entry or detainer
of the Premises or an eviction. Lessee waives any charges for damages or
injuries or interference with Lessee's property or business in connection
therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the day after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(c), or paragraph 13.1(d),
whether or not the defaults are cured, during the 12 month period of time
immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
40. Security Measures--Lessor's Reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building Project
or building in which the Premises are located upon not less than 90 days prior
written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business as
long as such exclusive does not conflict with any rights expressly given herein;
(d) To place such signs, notices or displays as Lessor reasonably deems
necessary or advisable upon the roof, exterior of the buildings or the Office
Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building or
the Office Building Project or their name(s) in connection with Lessee's
business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
(C) 1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
PAGE 9 OF 10 PAGES
[INITIALS APPEAR HERE]
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[INITIALS APPEAR HERE]
----------------------
<PAGE>
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. This Lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
Addendum to Lease, paragraphs 50 through 56.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION
IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE
REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION RELATING THERETO: THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES
OF THIS LEASE.
<TABLE>
LESSOR LESSEE
<S> <C>
SILVER GENESIS, INC., a California corporation NET VANTAGE INC., a Delaware corporation
- ---------------------------------------------- ----------------------------------------
By /s/ Eugene E. Elling By [SIGNATURE APPEARS HERE]
-------------------------------- --------------------------
Eugene E. Elling
Its President Its Vice President
------------------------ -------------------------
By By
-------------------------------- --------------------------
Its Its
------------------------ ------------------
Executed at LOS ANGELES, CA Executed at
----------------------- -----------------
on 6/8/96 on
-------------------------------- --------------------------
Address Address
--------------------------- ---------------------
</TABLE>
(C) 1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
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For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa Street, Suite 275, Los Angeles, CA 90071, (213) 687-8777
(C) 1984 - American Industrial Real Estate Association. All rights reserved.
No part of these words may be reproduced in any form without permission in
writing.
<PAGE>
STANDARD OFFICE LEASE
FLOOR PLAN
[LOGO OF AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION APPEARS HERE]
EXHIBIT A
(C) 1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
[LOGO OF AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION APPEARS HERE]
Dated:____________________________
By and Between__________________________________________________________________
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out
of the building only with the Lessor's knowledge and consent, and subject to
such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work
performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of ____ P.M. and
____ A.M. of the following day. If Lessee uses the Premises during such periods,
Lessee shall be responsible for securely locking any doors it may have opened
for entry.
13. Lessee shall return all keys at the termination of its tenancy and shall
be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars
or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other than
as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or
food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable government agency.
21. Lessor reserves the right to waive any one of these rules or regulations,
and/or as to any particular Lessee, and any such waiver shall not constitute a
waiver of any other rule or regulation or any subsequent application thereof to
such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversize
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or part of parking spaces from
floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations, laws and
agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
Initials: [INITIALS APPEAR HERE]
----------------------
[INITIALS APPEAR HERE]
----------------------
(C) 1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
EXHIBIT B
PAGE 1 OF 1 PAGES
<PAGE>
WORK LETTER TO STANDARD OFFICE LEASE
Dated:____________________________
By and between:_________________________________________________________________
The Premises shall be constructed in accordance with Lessor's Standard
Improvements, as follows:
1. Partitions
2. Wall Surfaces
3. Draperies
4. Carpeting
5. Doors
6. Electrical and Telephone Outlets
7. Ceiling
8. Lighting
9. Heating and Air Conditioning Ducts
10. Sound Proofing
11. Plumbing
1984 American Industrial Real Estate Association
FULL SERVICE - GROSS
EXHIBIT C
PAGE 1 OF 2 PAGES
<PAGE>
12. Entrance Doors
13. Completion of Improvements
Lessor shall construct and complete improvements to the Premises in
accordance with the plans and specifications prepared by _______________________
___________________________________________, dated _____________________________
consisting of sheets ________________________ (the "Improvements")
14. Preparation of Plans and Specifications
Within _____________ days after the date of this Lease Lessor shall prepare
at its cost and deliver to Lessee for its approval __________ copies of
preliminary plans and specifications for the completion of the Improvements,
which plans and specifications shall itemize the work to be done by each party,
including a cost estimate of any work required of Lessor in excess of Lessor's
Standard Improvements. Lessee shall approve said preliminary plans and
specifications and preliminary cost estimate or specify with particularity its
objection thereto within ___________ days following receipt thereof. Failure to
so approve or disapprove within said period of time shall constitute approval
thereof. If Lessee shall reject said preliminary plans and specifications either
partially or totally, and they cannot in good faith be modified within ten (10)
days after such rejection to be acceptable to Lessor and Lessee, this Lease
shall terminate and neither party shall thereafter be obligated to the other
party for any reason whatsoever having to do with this Lease, except that Lessee
shall be refunded any security deposit or prepaid rent. The plans and
specifications, when approved by Lessee, shall supersede any prior agreement
concerning the Improvements.
15. Construction
If Lessor's cost of constructing the Improvements to the Premises exceeds
the cost of Lessor's Standard Improvements, Lessee shall pay to Lessor in cash
before the commencement of such construction a sum equal to such excess.
If the final plans and specifications are approved by Lessor and Lessee, and
Lessee pays Lessor for such excess, then Lessor shall, at its sole cost and
expense, construct the Improvements in accordance with said approved final plans
and specifications and all applicable rules, regulations, laws or ordinances.
16. Completion.
16.1 Lessor shall obtain a building permit to construct the Improvements as
soon as possible.
16.2 Lessor shall complete the construction of the Improvements as soon as
reasonably possible after the obtaining of necessary building permits.
16.3 The term "Completion," as used in this Work Letter, is hereby defined
to mean the date the building department of the municipality having jurisdiction
of the Premises shall have made a final inspection of the Improvements and
authorized a final release of restrictions on the use of public utilities in
connection therewith and the same are in a broom-clean condition.
16.4 Lessor shall use its best efforts to achieve Completion of the
Improvements on or before the Commencement Date set forth in paragraph 1.5 of
the Basic Lease Provisions or within one hundred eighty (180) days after Lessor
obtains the building permit from the applicable building department, whichever
is later.
16.5 In the event that the Improvements or any portion thereof have not
reached Completion by the Commencement Date, this Lease shall not be invalid,
but rather Lessor shall complete the same as soon thereafter as is possible and
Lessor shall not be liable to Lessee for damages in any respect whatsoever.
16.6 If Lessor shall be delayed at any time in the progress of the
construction of the Improvements or any portion thereof by extra work, changes
in construction ordered by Lessee, or by strikes, lockouts, fire, delay in
transportation, unavoidable casualties, rain or weather conditions, governmental
procedures or delay, or by any other cause beyond Lessor's control, then the
Commencement Date established in paragraph 1.5 of the Lease shall be extended by
the period of such delay.
17. Term
Upon Completion of the Improvements as defined in paragraph 16.3, above,
Lessor and Lessee shall execute an amendment to the Lease setting forth the date
of Tender of Possession as defined in paragraph 3.2.1 of the Lease or of actual
taking of possession, whichever first occurs, as the Commencement Date of this
Lease.
18. Work Done by Lessee
Any work done by Lessee shall be done only with Lessor's prior written
consent and in conformity with a valid building permit and all applicable rules,
regulations, laws and ordinances, and be done in a good and workmanlike manner
with good and sufficient materials. All work shall be done only with union labor
and only by contractors approved by Lessor, it being understood that all
plumbing, mechanical, electrical wiring and ceiling work are to be done only by
contractors designated by Lessor.
19. Taking of Possession of Premises
Lessor shall notify Lessee of the Estimated Completion Date at least ten
(10) days before said date. Lessee shall thereafter have the right to enter the
Premises to commence construction of any Improvements Lessee is to construct and
to equip and fixturize the Premises, as long as such entry does not interfere
with Lessor's work. Lessee shall take possession of the Premises upon the tender
thereof as provided in paragraph 3.2.1 of the Lease to which this Work Letter is
attached. Any entry by Lessee of the Premises under this paragraph shall be
under all of the terms and provisions of the Lease to which this Work Letter is
attached.
20. Acceptance of Premises.
Lessee shall notify Lessor in writing of any items that Lessee deems
incomplete or incorrect in order for the Premises to be acceptable to Lessee
within ten (10) days following Tender of Possession as set forth in paragraph
3.2.1 of the Lease to which this Work Letter is attached. Lessee shall be
deemed to have accepted the Premises and approved construction if Lessee does
not deliver such a list to Lessor within said number of days.
(C) 1984 American Industrial Real Estate Association
FULL SERVICE--GROSS
EXHIBIT C
PAGE 2 OF 2 PAGES
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
?????????????????????????????????????????????????????????????????????????
<PAGE>
ADDENDUM TO STANDARD OFFICE LEASE -- GROSS
By and Between SILVER GENESIS, INC. (Lessor)
and NET VANTAGE INC. (Lessee) for
201 Continental Boulevard
El Segundo, California 90245
Dated April 10, 1996
4.2 Base Year Operating Expense. The Base Year Operating Expense shall be
adjusted to compensate for vacancies in the Building during the Base Year so
that Operating Expenses shall be based on a 90% occupied building.
4.2 Audit. The following is hereby added as Section 4.2(h):
"Lessee shall have the right to audit, at Lessee's expense, Operating
Expenses for the Base Year and each Comparison Year within the twelve (12)
month period following the calculation of any Operating expense Increase
and shall provide Lessor with the results of such audit. In the event
Lessee has overpaid Operating Expenses, Lessor shall refund the amount of
the overpayment within thirty (30) days. In the event Lessee has underpaid
Operating Expenses, Lessee shall pay the amount of the underpayment within
thirty (30) days."
6.2(b) Compliance with Law. Notwithstanding Section 6.2(b) of the Lease,
Lessee shall not be required to make structural changes to the Premises or the
Building Systems, unless such changes are related to Lessee's particular use of
the Premises or improvements constructed by Lessee.
6.2(c) Environmental. Lessor warrants that the Building does not contain
any Hazardous Substances, as herein defined, in a condition or in amounts which
exceed legally permissible limits effective as of the date possession is
delivered to Lessee.
7.2 Lessee's Obligations. Section 6.3(b) is hereby supplemented as
follows:
"Lessee shall have no responsibility to perform or construct any
repair, maintenance or improvement (i) necessitated by the acts or
omissions of Lessor or any other occupant of the Building, or their
respective agents, employees or contractors, (ii) occasioned by a casualty
not caused or contributed to by Lessee, (iii) required as a consequence of
any violation of Law in the Premises or the Building as of the date of
possession is delivered to Lessee, (iv) for which Lessor has a right of
reimbursement from third parties, (v) which would be treated as a capital
expenditure under a generally accepted accounting principles and are
unrelated to Lessee's particular use of the Premises or improvements
constructed by Lessee."
7.3 Alterations and Additions. Section 7.3(a) is hereby supplemented as
follows:
"Notwithstanding the foregoing, Lessee shall have the right to make
non-structural modifications up to a maximum cost of FIFTEEN THOUSAND
DOLLARS ($15,000.00) without Lessor's consent. Lessee shall, however, in
connection with such improvements provide the notice set forth in Section
7.3(b) in order for Lessor to post a notice of non-responsibility."
8.10 Indemnity by Lessor. Notwithstanding anything herein to the contrary,
Lessor shall indemnify and hold harmless Lessee and its agents from and against
all costs, attorneys' fees, expenses and liabilities incurred by Lessee as a
result of the active negligence or willful misconduct of Lessor or Lessor's
failure to perform its obligations hereunder.
<PAGE>
12.1 Lessor's Consent Required. Lessor shall provide its written
consent, or its disapproval of such transfer, within five (5) business days
following receipt of a written request for approval, together with information
reasonably requested by Lessor concerning such proposed sublessee or assignee,
including financial information reasonably requested. In the event Lessee is a
publicly traded company, the transfer of its stock on any exchange or national
market system shall not be deemed a Transfer under this Section 12.1. The
provisions of this Section 12.1 shall not prohibit Lessee from entering into
licenses with customers or agents of customers of Lessee which require space for
the purpose of testing or inspecting products produced by Lessee, provided such
license is temporal in nature and does not constitute a grant of exclusive space
within the Premises by Lessee.
32. Lessor's Access. Lessor and Lessor's agents shall provide Lessee with
twenty-four (24) hours' notice prior to entry of the Premises, except in the
event of an emergency which shall require no notice. Such entry by Lessor and
Lessor's agents shall not impair Lessee's obligations more than reasonably
necessary. During any such entry, except emergency entries, Lessor and Lessor's
agents shall at all times be accompanied by Lessee or Lessee's agent. In the
event of an emergency entry, Lessor shall use reasonable efforts to be
accompanied by a representative of Lessee.
49. Final Calculation of Rentable Square Footage. The Premises, as defined in
Paragraph 1.2 and the calculation of rent (Paragraph 1.6), security deposits
(Paragraph 1.9) and Lessee's share of operating expenses (Paragraph 1.10) shall
be computed based upon $1.06 per rentable square foot pursuant to the final
approved space plan. Rentable square footage shall be computed based upon the
usable square feet multiplied by 1.15% (15% load factor). The vehicle parking
spaces allocated to Lessee pursuant to Paragraph 2.2 shall be based upon 1,000
square feet of usable area. In the event a discrepancy is determined regarding
the square footage of the Premises, the foregoing amounts may be adjusted,
provided that in event shall either party be entitled to any retroactive
adjustment whether for operating expenses, rent or parking.
50. Right of First Notice of Lease - Primary Lease. Section 50 of the Primary
Lease regarding the availability of space on the second floor is hereby deleted
in its entirety.
51. Option to Renew Lease. Lessee is given the option to extend the term on
all the provisions contained in this lease, except for minimum monthly rent, for
a five (5) year period ("Extended Term") following expiration of the initial
term, by giving notice of exercise of the option ("Option Notice") to Lessor at
least six (6) months, but not more than one (1) year before the expiration of
the term. Provided that, if Lessee is in default on the date of giving the
Option Notice, the Option Notice shall be totally ineffective, or if Lessee is
in default on the date the Extended Term is to commence, the Extended Term shall
not commence and this lease shall expire at the end of the initial term.
The parties shall have thirty (30) days after Lessor receives the
Option Notice in which to agree on Base Rent during the Extended Term. If
the parties agree on the Base Rent for the Extended Term during that
period, they shall immediately execute an amendment to this stating the
Base Rent.
If the parties are unable to agree on the Base Rent for the Extended
Term within that period, then within ten (10) days after the expiration of that
period each party, at its cost and by giving notice to the other party, shall
appoint a real estate appraiser with at least 5 years' full-time commercial
appraisal experience in the area in which the premises are located to appraise
and set the Base Rent for the Extended Term based upon ninety-five percent (95%)
of the fair market rental for the Premises based upon the prevailing market
rates for similar space in similar buildings. If a
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<PAGE>
party does not appoint an appraiser within ten (10) days after the other
party has given notice of the name of its appraiser, the single appraiser
appointed shall be the sole appraiser and shall set the Base Rent for the
Extended Term. If the two appraisers are appointed by the parties as stated
in this paragraph, they shall meet promptly and attempt to set the Base
Rent for the Extended Term. If they are unable to agree within thirty (30)
days after the second appraiser has been appointed, they shall attempt to
elect a third appraiser meeting the qualifications stated in this paragraph
within ten (10) days after the last day the two appraisers are given to set
the Base Rent. If they are unable to agree on the third appraiser, either
of the parties to this lease by giving ten (10) days' notice to the other
party can file a petition with the American Arbitration Association solely
for the purpose of selecting a third appraiser who meets the qualifications
stated in this paragraph. Each party shall bear half the cost of the
American Arbitration Association appointing the third appraiser and of
paying the third appraiser's fee. The third appraiser, however selected,
shall be a person who has not previously acted in any capacity for either
party.
Within thirty (30) days after the selection of the third appraiser, a
majority of the appraisers shall set the Base Rent for the Extended Term.
If a majority of the appraisers are unable to set the Base Rent within the
stipulated period of time, the three appraisals shall be added together
and their total divided by three; the resulting quotient shall be the Base
Rent for the premises during the Extended term. If, however, the low
appraisal and/or the high appraisal are more than ten percent (10%) lower
and/or higher than the middle appraisal, the low appraisal and/or the high
appraisal shall be disregarded. If only one appraisal is disregarded, the
remaining two appraisals shall be added together and their total divided by
two; the resulting quotient shall be the Base Rent for the premises during
the Extended Term. If both the low appraisal and the high appraisal are
disregarded as stated in this paragraph, the middle appraisal shall be the
Base Rent for the premises during the Extended Term.
After the Base Rent for the Extended Term has been set, the appraisers
shall immediately notify the parties.
Lessee shall have no other right to extend the term beyond the Extended
Term. In no event shall Lessee have the right to exercise the right to
extend hereunder unless the right to extend under the Primary Lease is
exercised. Furthermore, in no event shall Lessee have the right to exercise
its right to extend the primary Lease unless the term of this Lease is
extended hereunder.
52. Increase in Property Taxes During the First Three (3) Years of the Lease
Term. During the first three (3) year of the initial lease term, Lessee shall
not be responsible for any increases in property taxes resulting from the
reassessment of the property caused by a sale of the property by Lessor
("Proposition 13").
53. Signage. Lessee shall have the right to install its sign on one (1)
position of the shared monument sign at the parking lot entrance to the
property. All signage is subject to City of El Segundo approval.
55. Non-Disturbance Agreements. Lessor shall use commercially reasonable
efforts to obtain promptly following the execution of the Lease,
non-disturbance, subordination and attornment agreements from Lessor's lender in
form reasonable satisfactory to Lessor's lender, Lessor and Lessee. Lessor and
Lessee shall use reasonable and diligent efforts to satisfy the foregoing
obligation.
56. Lessee's Construction Work. Lessee acknowledges that Lessor is completing
a refurbishment of the Building simultaneously with Lessee's completing its
improvements. Lessee shall complete the
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<PAGE>
improvements to the Premises in conformance with the Floor Plan attached to the
Lease as Exhibit "A". Lessor and Lessee shall use reasonable and diligent
----------
efforts to promptly complete their respective improvements. All such
improvements shall be substantially completed on or before November 1, 1996.
57. Coterminous Term. This Lease shall be coterminous with the Primary Lease
and in the event the Primary Lease terminates for any reason whatsoever, this
Lease shall terminate. Similarly, in the event this Lease terminates for any
reason whatsoever, the Primary Lease shall terminate.
Lessor Lessee
SILVER GENESIS, INC., NET VANTAGE INC.,
a California corporation a Delaware corporation
By: [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
------------------------- -------------------------
Date: 6/8 , 1996 Date: 6/4 , 1996
------------ ------------
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<PAGE>
EXHIBIT 10.10
NETVANTAGE, INC.
1996 INCENTIVE STOCK PLAN
1. OBJECTIVES.
The NETVANTAGE, INC. 1996 Incentive Stock Plan (the "Plan") is designed to
retain directors, executives and selected employees and consultants and reward
them for making major contributions to the success of the Company. These
objectives are accomplished by making long-term incentive awards under the Plan
thereby providing Participants with a proprietary interest in the growth and
performance of the Company.
2. DEFINITIONS.
(a) "Board" - The Board of Directors of the Company.
-----
(b) "California Securities Rules" - Chapter 3, Subchapter 2,
---------------------------
Subarticle 4 of Article 4 of Title 10 of the Corporate Securities Rules of the
Commissioner of Corporations of the state of California.
(c) "Code" - The Internal Revenue Code of 1986, as amended from time
----
to time.
(d) "Committee" - The Executive Compensation Committee of the
---------
Company's Board, or such other committee of the Board that is designated by the
Board to administer the Plan, composed of not less than two members of the Board
all of whom are disinterested persons, as contemplated by Rule 16b-3 ("Rule 16b-
3") promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
(e) "Company" - NETVANTAGE, INC. and its subsidiaries including
-------
subsidiaries of subsidiaries.
(f) "Exchange Act" - The Securities Exchange Act of 1934, as amended
------------
from time to time.
(g) "Fair Market Value" - The fair market value of the Company's
-----------------
issued and outstanding Stock as determined in good faith by the Board or
Committee.
(h) "Grant" - The grant of any form of stock option, stock award, or
-----
stock purchase offer, whether granted singly, in combination or in tandem, to a
Participant pursuant to such terms, conditions and limitations as the Committee
may establish in order to
-1-
<PAGE>
fulfill the objectives of the Plan.
(i) "Grant Agreement" - An agreement between the Company and a
---------------
Participant that sets forth the terms, conditions and limitations applicable to
a Grant.
(j) "Option" - Either an Incentive Stock Option, in accordance with
------
Section 422 of Code, or a Nonstatutory Option, to purchase the Company's Stock
that may be awarded to a Participant under the Plan. A Participant who receives
an award of an Option shall be referred to as an "Optionee."
(k) "Participant" - A director, officer, employee or consultant of the
-----------
Company to whom an Award has been made under the Plan.
(l) "Restricted Stock Purchase Offer" - A Grant of the right to
-------------------------------
purchase a specified number of shares of Stock pursuant to a written agreement
issued under the Plan.
(m) "Securities Act" - The Securities Act of 1933, as amended from
--------------
time to time.
(n) "Stock" - Authorized and issued or unissued shares of Class A
-----
Common Stock of the Company.
(o) "Stock Award" - A Grant made under the Plan in stock or
-----------
denominated in units of stock for which the Participant is not obligated to pay
additional consideration.
3. ADMINISTRATION
The Plan shall be administered by the Board, provided however, that
the Board may delegate such administration to the Committee. Subject to the
provisions of the Plan, the Board and/or the Committee shall have authority to
(a) grant, in its discretion, Incentive Stock Options in accordance with Section
422 of the Code, or Nonstatutory Options, Stock Awards or Restricted Stock
Purchase Offers; (b) determine in good faith the fair market value of the Stock
covered by any Grant; (c) determine which eligible persons shall receive Grants
and the number of shares, restrictions, terms and conditions to be included in
such Grants; (d) construe and interpret the Plan; (e) promulgate, amend and
rescind rules and regulations relating to its administration, and correct
defects, omissions and inconsistencies in the Plan or any Grant; (f) consistent
with the Plan and with the consent of the Participant, as appropriate, amend any
outstanding Grant or amend the exercise date or dates thereof; (g) determine the
duration and purpose of leaves of absence which may be granted to Participants
without constituting termination of their employment for the purpose of the Plan
or any Grant; and (h) make all other determinations necessary or advisable for
the Plan's administration. The interpretation and construction by the Board of
any provisions of the Plan or selection of Participants shall be conclusive and
final. No member of the Board or the Committee shall be
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<PAGE>
liable for any action or determination made in good faith with respect to the
Plan or any Grant made thereunder.
4. ELIGIBILITY
(a) General: The persons who shall be eligible to receive Grants
-------
shall be directors, officers, employees or consultants to the Company. The term
consultant shall mean any person, other than an employee, who is engaged by the
Company to render services and is compensated for such services. An Optionee
may hold more than one Option. Any issuance of a Grant to an officer or
director of the Company subsequent to the first registration of any of the
securities of the Company under the Exchange Act shall comply with the
requirements of Rule 16b-3.
(b) Incentive Stock Options: Incentive Stock Options may only be
-----------------------
issued to employees of the Company. Incentive Stock Options may be granted to
officers, whether or not they are directors, provided they are also employees of
the Company. Payment of a director's fee shall not be sufficient to constitute
employment by the Company.
The Company shall not grant an Incentive Stock Option under the Plan
to any employee if such Grant would result in such employee holding the right to
exercise for the first time in any one calendar year, under all Incentive Stock
Options granted under the Plan or any other plan maintained by the Company, with
respect to shares of Stock having an aggregate fair market value, determined as
of the date of the Option is granted, in excess of $100,000. Should it be
determined that an Incentive Stock Option granted under the Plan exceeds such
maximum for any reason other than a failure in good faith to value the Stock
subject to such option, the excess portion of such option shall be considered a
Nonstatutory Option. To the extent the employee holds two (2) or more such
Options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability of such Option as Incentive Stock
Options under the Federal tax laws shall be applied on the basis of the order in
which such Options are granted. If, for any reason, an entire Option does not
qualify as an Incentive Stock Option by reason of exceeding such maximum, such
Option shall be considered a Nonstatutory Option.
(c) Nonstatutory Option: The provisions of the foregoing Section 4(b)
-------------------
shall not apply to any Option designated as a "Nonstatutory Option" or which
sets forth the intention of the parties that the Option be a Nonstatutory
Option.
(d) Stock Awards and Restricted Stock Purchase Offers: The provisions
-------------------------------------------------
of this Section 4 shall not apply to any Stock Award or Restricted Stock
Purchase Offer under the Plan.
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<PAGE>
5. STOCK
(a) Authorized Stock: Stock subject to Grants may be either unissued
----------------
or reacquired Stock.
(b) Number of Shares: Subject to adjustment as provided in Section
----------------
6(i) of the Plan, the total number of shares of Stock which may be purchased or
granted directly by Options, Stock Awards or Restricted Stock Purchase Offers,
or purchased indirectly through exercise of Options granted under the Plan shall
not exceed 800,000. If any Grant shall for any reason terminate or expire, any
shares allocated thereto but remaining unpurchased upon such expiration or
termination shall again be available for Grants with respect thereto under the
Plan as though no Grant had previously occurred with respect to such shares.
Any shares of Stock issued pursuant to a Grant and repurchased pursuant to the
terms thereof shall be available for future Grants as though not previously
covered by a Grant.
(c) Reservation of Shares: The Company shall reserve and keep
---------------------
available at all times during the term of the Plan such number of shares as
shall be sufficient to satisfy the requirements of the Plan. If, after
reasonable efforts, which efforts shall not include the registration of the Plan
or Grants under the Securities Act, the Company is unable to obtain authority
from any applicable regulatory body, which authorization is deemed necessary by
legal counsel for the Company for the lawful issuance of shares hereunder, the
Company shall be relieved of any liability with respect to its failure to issue
and sell the shares for which such requisite authority was so deemed necessary
unless and until such authority is obtained.
(d) Application of Funds: The proceeds received by the Company from
--------------------
the sale of common Stock pursuant to the exercise of Options or rights under
Stock Purchase Agreements will be used for general corporate purposes.
(e) No Obligation to Exercise: The issuance of a Grant shall impose
-------------------------
no obligation upon the Participant to exercise any rights under such Grant.
6. TERMS AND CONDITIONS OF OPTIONS
Options granted hereunder shall be evidenced by agreements between the
Company and the respective Optionees, in such form and substance as the Board or
Committee shall from time to time approve. The form of Incentive Stock Option
Agreement attached hereto as Exhibit "A" and the three forms of a Nonstatutory
Stock Option Agreement for
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<PAGE>
employees, for directors and for consultants, attached hereto as Exhibits "B-1,"
"B-2" and "B-3," respectively, shall be deemed to be approved by the Board.
Option agreements need not be identical, and in each case may include such
provisions as the Board or Committee may determine, but all such agreements
shall be subject to and limited by the following terms and conditions:
(a) Number of Shares: Each Option shall state the number of shares to
----------------
which it pertains.
(b) Exercise Price: Each Option shall state the exercise price, which
--------------
shall be determined as follows:
(i) Any Option granted to a person who at the time the Option is
granted owns (or is deemed to own pursuant to Section 424(d) of the Code)
stock possessing more than ten percent (10%) of the total combined voting
power or value of all classes of stock of the Company, ("Ten Percent
Holder") shall have an exercise price of no less than 110% of the Fair
Market Value of the Stock as of the date of grant; and
(ii) Incentive Stock Options granted to a person who at the time
the Option is granted is not a Ten Percent Holder shall have an exercise
price of no less than 100% of the Fair Market Value of the Class A Common
Stock as of the date of grant.
(iii) Nonstatutory Options granted to a person who at the time
the Option is granted is not a Ten Percent Holder shall have an exercise
price of no less than 85% of the Fair Market Value of the Stock as of the
date of grant.
For the purposes of this Section 6(b), the Fair Market Value per share
shall be the average of the bid and asked prices (or the closing price if such
stock is listed on the NASDAQ National Market System or Small Cap Issue Market)
on the date of grant of the Option, or if listed on a stock exchange, the
closing price on such exchange on such date of grant; provided however, that if
there is no public market for such Stock, the Fair Market Value shall be as
determined by the Board in good faith, which determination shall be conclusive
and binding.
(c) Medium and Time of Payment: The exercise price shall become
--------------------------
immediately due upon exercise of the Option and shall be paid in cash or check
made payable to the Company. Should the Company's outstanding Stock be
registered under Section 12(g) of the Exchange Act at the time the Option is
exercised, then the exercise price may also be paid as follows:
(i) in shares of the Company's Stock held by the Optionee for the
requisite period necessary to avoid a charge to the Company's earnings for
financial
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<PAGE>
reporting purposes and valued at Fair Market Value on the exercise date, or
(ii) through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions (a) to a Company designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Company, out of the
sale proceeds available on the settlement date, sufficient funds to cover
the aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required to
be withheld by the Company by reason of such purchase and (b) to the
Company to deliver the certificates for the purchased shares directly to
such brokerage firm in order to complete the sale transaction.
At the discretion of the Board, exercisable either at the time of
Option grant or of Option exercise, the exercise price may also be paid (i) by
Optionee's delivery of a promissory note in form and substance satisfactory to
the Company and permissible under the California Securities Rules and bearing
interest at a rate determined by the Board in its sole discretion, but in no
event less than the minimum rate of interest required to avoid the imputation of
compensation income to the Optionee under the Federal tax laws, or (ii) in such
other form of consideration permitted by the California Corporations Code as may
be acceptable to the Board.
(d) Term and Exercise of Options: Any Option granted to an employee
----------------------------
of the Company shall become exercisable over a period of no longer than five (5)
years, and no less than twenty percent (20%) of the shares covered thereby shall
become exercisable annually. No Option shall be exercisable, in whole or in
part, prior to one (1) year from the date it is granted unless the Board shall
specifically determine otherwise, as provided herein. In no event shall any
Option be exercisable after the expiration of ten (10) years from the date it is
granted, and no Incentive Stock Option granted to a Ten Percent Holder shall, by
its terms, be exercisable after the expiration of five (5) years from the date
of the Option. Unless otherwise specified by the Board or the Committee in the
resolution authorizing such option, the date of grant of an Option shall be
deemed to be the date upon which the Board or the Committee authorizes the
granting of such Option.
Each Option shall be exercisable to the nearest whole share, in
installments or otherwise, as the respective Option agreements may provide.
During the lifetime of an Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable by the Optionee, and no
other person shall acquire any rights therein. To the extent not exercised,
installments (if more than one) shall accumulate, but shall be exercisable, in
whole or in part, only during the period for exercise as stated in the Option
agreement, whether or not other installments are then exercisable.
(e) Termination of Status as Employee, Consultant or Director: If
---------------------------------------------------------
Optionee's status as an employee shall terminate for any reason other than
Optionee's disability or death, then the Optionee (or if the Optionee shall die
after such termination, but
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<PAGE>
prior to exercise, Optionee's personal representative or the person entitled to
succeed to the Option) shall have the right to exercise the portions of any of
Optionee's Incentive Stock Options which were exercisable as of the date of such
termination, in whole or in part, not less than 30 days nor more than three (3)
months after such termination (or, in the event of "termination for cause" as
that term is defined in Section 2922 of the California Labor Code and case law
related thereto, or by the terms of the Plan or the Option Agreement or an
employment agreement, the Option shall automatically terminate as of the
termination of employment as to all shares covered by the Option).
With respect to Nonstatutory Options granted to employees, directors
or consultants, the Board may specify such period for exercise, not less than 30
days (except that in the case of "termination for cause" or termination of a
director pursuant to Section 302 or 304 of the California Corporations Code, the
Option shall automatically terminate as of the termination of employment or
services as to shares covered by the Option), following termination of
employment or services as the Board deems reasonable and appropriate. The
Option may be exercised only with respect to installments that the Optionee
could have exercised at the date of termination of employment or services.
Nothing contained herein or in any Option granted pursuant hereto shall be
construed to affect or restrict in any way the right of the Company to terminate
the employment or services of an Optionee with or without cause.
(f) Disability of Optionee: If an Optionee is disabled (within the
----------------------
meaning of Section 22(e)(3) of the Code) at the time of termination, the three
(3) month period set forth in Section 6(e) shall be a period, as determined by
the Board and set forth in the Option, of not less than six months nor more than
one year after such termination.
(g) Death of Optionee: If an Optionee dies while employed by, engaged
-----------------
as a consultant to, or serving as a Director of the Company, the portion of such
Optionee's Option which was exercisable at the date of death may be exercised,
in whole or in part, by the estate of the decedent or by a person succeeding to
the right to exercise such Option at any time within (i) a period, as determined
by the Board and set forth in the Option, of not less than six (6) months nor
more than one (1) year after Optionee's death, which period shall not be more,
in the case of a Nonstatutory Option, than the period for exercise following
termination of employment or services, or (ii) during the remaining term of the
Option, whichever is the lesser. The Option may be so exercised only with
respect to installments exercisable at the time of Optionee's death and not
previously exercised by the Optionee.
(h) Nontransferability of Option: No Option shall be transferable by
----------------------------
the Optionee, except by will or by the laws of descent and distribution.
(i) Recapitalization: Subject to any required action of shareholders,
----------------
the number of shares of Stock covered by each outstanding Option, and the
Exercise price per share thereof set forth in each such Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock of the Company resulting from a
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<PAGE>
subdivision or consolidation of shares or the payment of a stock dividend, or
any other increase or decrease in the number of such shares affected without
receipt of consideration by the Company; provided, however, the conversion of
any convertible securities of the Company shall not be deemed to have been
"effected" without receipt of consideration by the Company.
In the event of a proposed dissolution or liquidation of the Company,
a merger or consolidation in which the Company is not the surviving entity, or a
sale of all or substantially all of the assets or capital stock of the Company
(collectively, a "Reorganization"), unless otherwise provided by the Board, this
Option shall terminate immediately prior to such date as is determined by the
Board, which date shall be no later than the consummation of such
Reorganization. In such event, if the entity which shall be the surviving
entity does not tender to Optionee an offer, for which it has no obligation to
do so, to substitute for any unexercised Option a stock option or capital stock
of such surviving entity, as applicable, which on an equitable basis shall
provide the Optionee with substantially the same economic benefit as such
unexercised Option, then the Board may grant to such Optionee, in its sole and
absolute discretion and without obligation, the right for a period commencing
thirty (30) days prior to and ending immediately prior to the date determined by
the Board pursuant hereto for termination of the Option or during the remaining
term of the Option, whichever is the lesser, to exercise any unexpired Option or
Options without regard to the installment provisions of Paragraph 6(d) of the
Plan; provided, that any such right granted shall be granted to all Optionees
not receiving an offer to receive substitute options on a consistent basis, and
provided further, that any such exercise shall be subject to the consummation of
such Reorganization.
Subject to any required action of shareholders, if the Company shall
be the surviving entity in any merger or consolidation, each outstanding Option
thereafter shall pertain to and apply to the securities to which a holder of
shares of Class A Common Stock equal to the shares subject to the Option would
have been entitled by reason of such merger or consolidation.
In the event of a change in the Class A Common Stock of the Company as
presently constituted, which is limited to a change of all of its authorized
shares without par value into the same number of shares with a par value, the
shares resulting from any such change shall be deemed to be the Stock within the
meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided in this Section 6(i), the Optionee shall have no rights by
reason of any subdivision or consolidation of shares of stock of any class or
the payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class, and the number or price of shares of
Stock subject to any Option shall not be affected by, and no adjustment shall be
made by reason of, any dissolution, liquidation, merger, consolidation or sale
of assets or capital stock, or any issue by the Company of shares of stock of
any class or securities convertible into
-8-
<PAGE>
shares of stock of any class.
The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make any adjustments,
reclassifications, reorganizations or changes in its capital or business
structure or to merge, consolidate, dissolve, or liquidate or to sell or
transfer all or any part of its business or assets.
(j) Rights as a Shareholder: An Optionee shall have no rights as a
-----------------------
shareholder with respect to any shares covered by an Option until the effective
date of the issuance of the shares following exercise of such Option by
Optionee. No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued,
except as expressly provided in Section 6(i) hereof.
(k) Modification, Acceleration, Extension, and Renewal of Options:
-------------------------------------------------------------
Subject to the terms and conditions and within the limitations of the Plan, the
Board may modify an Option, or, once an Option is exercisable, accelerate the
rate at which it may be exercised, and may extend or renew outstanding Options
granted under the Plan or accept the surrender of outstanding Options (to the
extent not theretofore exercised) and authorize the granting of new Options in
substitution for such Options, provided such action is permissible under Section
422 of the Code and the California Securities Rules. Notwithstanding the
provisions of this Section 6(k), however, no modification of an Option shall,
without the consent of the Optionee, alter to the Optionee's detriment or impair
any rights or obligations under any Option theretofore granted under the Plan.
(l) Exercise Before Exercise Date: At the discretion of the Board,
-----------------------------
the Option may, but need not, include a provision whereby the Optionee may elect
to exercise all or any portion of the Option prior to the stated exercise date
of the Option or any installment thereof. Any shares so purchased prior to the
stated exercise date shall be subject to repurchase by the Company upon
termination of Optionee's employment as contemplated by Section 6(n) hereof
prior to the exercise date stated in the Option and such other restrictions and
conditions as the Board or Committee may deem advisable.
(m) Other Provisions: The Option agreements authorized under the Plan
----------------
shall contain such other provisions, including, without limitation, restrictions
upon the exercise of the Options, as the Board or the Committee shall deem
advisable. Shares shall not be issued pursuant to the exercise of an Option, if
the exercise of such Option or the issuance of shares thereunder would violate,
in the opinion of legal counsel for the Company, the provisions of any
applicable law or the rules or regulations of any applicable governmental or
administrative agency or body, such as the Code, the Securities Act, the
Exchange Act, the California Securities Rules, California Corporations Code, and
the rules promulgated under the foregoing or the rules and regulations of any
exchange upon which the shares of the Company are listed. Without limiting the
generality of the foregoing, the exercise of each
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<PAGE>
Option shall be subject to the condition that if at any time the Company shall
determine that (i) the satisfaction of withholding tax or other similar
liabilities, or (ii) the listing, registration or qualification of any shares
covered by such exercise upon any securities exchange or under any state or
federal law, or (iii) the consent or approval of any regulatory body, or (iv)
the perfection of any exemption from any such withholding, listing,
registration, qualification, consent or approval is necessary or desirable in
connection with such exercise or the issuance of shares thereunder, then in any
such event, such exercise shall not be effective unless such withholding,
listing registration, qualification, consent, approval or exemption shall have
been effected, obtained or perfected free of any conditions not acceptable to
the Corporation.
(n) Repurchase Agreement: The Board may, in its discretion, require
--------------------
as a condition to the grant of an Option hereunder, that an Optionee execute an
agreement with the Company, in form and substance satisfactory to the Board in
its discretion ("Repurchase Agreement"), (i) restricting the Optionee's right to
transfer shares purchased under such Option without first offering such shares
to the Company or another shareholder of the Company upon the same terms and
conditions as provided therein; and (ii) providing that upon termination of
Optionee's employment with the Company, for any reason, the Company (or another
shareholder of the Company, as provided in the Repurchase Agreement) shall have
the right at its discretion (or the discretion of such other shareholders) to
purchase and/or redeem all such shares owned by the Optionee on the date of
termination of his or her employment at a price equal to (A) the fair value of
such shares as of such date of termination, or (B) if such repurchase right
lapses at 20% of the number of shares per year, the original purchase price of
such shares, and upon terms of payment permissible under the California
Securities Rules; provided that in the case of Options or Stock Awards granted
to officers, directors, consultants or affiliates of the Company, such
repurchase provisions may be subject to additional or greater restrictions as
determined by the Board or Committee.
7. STOCK AWARDS AND RESTRICTED STOCK PURCHASE OFFERS
(a) Types of Grants.
----------------
(i) Stock Award . All or part of any Stock Award under the Plan
------------
may be subject to conditions established by the Board or the Committee, and
set forth in the Stock Award Agreement, which may include, but are not
limited to, continuous service with the Company, achievement of specific
business objectives, increases in specified indices, attaining growth rates
and other comparable measurements of Company performance. Such Awards may
be based on Fair Market Value or other specified valuation. All Stock
Awards will be made pursuant to the execution of a Stock Award Agreement
substantially in the form attached hereto as Exhibit "C".
(ii) Restricted Stock Purchase Offer. A Grant of a Restricted
-------------------------------
Stock Purchase Offer under the Plan shall be subject to such (i) vesting
contingencies related to the Participant's continued association with the
Company
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<PAGE>
for a specified time and (ii) other specified conditions as the Board or
Committee shall determine, in their sole discretion, consistent with the
provisions of the Plan. All Restricted Stock Purchase Offers shall be made
pursuant to a Restricted Stock Purchase Offer substantially in the form
attached hereto as Exhibit "D".
(b) Conditions and Restrictions. Shares of Stock which Participants
----------------------------
may receive as a Stock Award under a Stock Award Agreement or Restricted Stock
Purchase Offer under a Restricted Stock Purchase Offer may include such
restrictions as the Board or Committee, as applicable, shall determine,
including restrictions on transfer, repurchase rights, right of first refusal,
and forfeiture provisions. When transfer of Stock is so restricted or subject
to forfeiture provisions it is referred to as "Restricted Stock". Further, with
Board or Committee approval, Stock Awards or Restricted Stock Purchase Offers
may be deferred, either in the form of installments or a future lump sum
distribution. The Board or Committee may permit selected Participants to elect
to defer distributions of Stock Awards or Restricted Stock Purchase Offers in
accordance with procedures established by the Board or Committee to assure that
such deferrals comply with applicable requirements of the Code including, at the
choice of Participants, the capability to make further deferrals for
distribution after retirement. Any deferred distribution, whether elected by the
Participant or specified by the Stock Award Agreement, Restricted Stock Purchase
Offers or by the Board or Committee, may require the payment be forfeited in
accordance with the provisions of Section 7(c). Dividends or dividend
equivalent rights may be extended to and made part of any Stock Award or
Restricted Stock Purchase Offers denominated in Stock or units of Stock, subject
to such terms, conditions and restrictions as the Board or Committee may
establish.
(c) Cancellation and Rescission of Grants. Unless the Stock Award
--------------------------------------
Agreement or Restricted Stock Purchase Offer specifies otherwise, the Board or
Committee, as applicable, may cancel any unexpired, unpaid, or deferred Grants
at any time if the Participant is not in compliance with all other applicable
provisions of the Stock Award Agreement or Restricted Stock Purchase Offer, the
Plan and with the following conditions:
(i) A Participant shall not render services for any organization
or engage directly or indirectly in any business which, in the judgment of
the chief executive officer of the Company or other senior officer
designated by the Board or Committee, is or becomes competitive with the
Company, or which organization or business, or the rendering of services to
such organization or business, is or becomes otherwise prejudicial to or in
conflict with the interests of the Company. For Participants whose
employment has terminated, the judgment of the chief executive officer
shall be based on the Participant's position and responsibilities while
employed by the Company, the Participant's post-employment responsibilities
and position with the other organization or business, the extent of past,
current and potential competition or conflict between the Company and the
other organization or business, the effect on the Company's customers,
suppliers and competitors and such other considerations as are deemed
relevant given the applicable facts and circumstances. A Participant who
has retired shall be free, however, to purchase as
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<PAGE>
an investment or otherwise, stock or other securities of such organization
or business so long as they are listed upon a recognized securities
exchange or traded over-the-counter, and such investment does not represent
a substantial investment to the Participant or a greater than 10 percent
equity interest in the organization or business.
(ii) A Participant shall not, without prior written authorization
from the Company, disclose to anyone outside the Company, or use in other
than the Company's business, any confidential information or material, as
defined in the Company's Proprietary Information and Invention Agreement or
similar agreement regarding confidential information and intellectual
property, relating to the business of the Company, acquired by the
Participant either during or after employment with the Company.
(iii) A Participant, pursuant to the Company's Proprietary
Information and Invention Agreement, shall disclose promptly and assign to
the Company all right, title and interest in any invention or idea,
patentable or not, made or conceived by the Participant during employment
by the Company, relating in any manner to the actual or anticipated
business, research or development work of the Company and shall do anything
reasonably necessary to enable the Company to secure a patent where
appropriate in the United States and in foreign countries.
(iv) Upon exercise, payment or delivery pursuant to a Grant, the
Participant shall certify on a form acceptable to the Committee that he or
she is in compliance with the terms and conditions of the Plan. Failure to
comply with all of the provisions of this Section 7(c) prior to, or during
the six months after, any exercise, payment or delivery pursuant to a Grant
shall cause such exercise, payment or delivery to be rescinded. The
Company shall notify the Participant in writing of any such rescission
within two years after such exercise, payment or delivery. Within ten days
after receiving such a notice from the Company, the Participant shall pay
to the Company the amount of any gain realized or payment received as a
result of the rescinded exercise, payment or delivery pursuant to a Grant.
Such payment shall be made either in cash or by returning to the Company
the number of shares of Stock that the Participant received in connection
with the rescinded exercise, payment or delivery.
(d) Nonassignability.
-----------------
(i) Except pursuant to Section 7(e)(iii) and except as set forth
in Section 7(d)(ii), no Grant or any other benefit under the Plan shall be
assignable or transferable, or payable to or exercisable by, anyone other
than the Participant to whom it was granted.
(ii) Where a Participant terminates employment and retains a
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<PAGE>
Grant pursuant to Section 7(e)(ii) in order to assume a position with a
governmental, charitable or educational institution, the Board or
Committee, in its discretion and to the extent permitted by law, may
authorize a third party (including but not limited to the trustee of a
"blind" trust), acceptable to the applicable governmental or institutional
authorities, the Participant and the Board or Committee, to act on behalf
of the Participant with regard to such Awards.
(e) Termination of Employment. If the employment or service to the
-------------------------
Company of a Participant terminates, other than pursuant to any of the following
provisions under this Section 7(e), all unexercised, deferred and unpaid Stock
Awards or Restricted Stock Purchase Offers shall be cancelled immediately,
unless the Stock Award Agreement or Restricted Stock Purchase Offer provides
otherwise:
(i) Retirement Under a Company Retirement Plan. When a
------------------------------------------
Participant's employment terminates as a result of retirement in accordance
with the terms of a Company retirement plan, the Board or Committee may
permit Stock Awards or Restricted Stock Purchase Offers to continue in
effect beyond the date of retirement in accordance with the applicable
Grant Agreement and the exercisability and vesting of any such Grants may
be accelerated.
(ii) Resignation in the Best Interests of the Company. When a
------------------------------------------------
Participant resigns from the Company and, in the judgment of the Board or
Committee, the acceleration and/or continuation of outstanding Stock Awards
or Restricted Stock Purchase Offers would be in the best interests of the
Company, the Board or Committee may (i) authorize, where appropriate, the
acceleration and/or continuation of all or any part of Grants issued prior
to such termination and (ii) permit the exercise, vesting and payment of
such Grants for such period as may be set forth in the applicable Grant
Agreement, subject to earlier cancellation pursuant to Section 10 or at
such time as the Board or Committee shall deem the continuation of all or
any part of the Participant's Grants are not in the Company's best
interest.
(iii) Death or Disability of a Participant.
------------------------------------
(1) In the event of a Participant's death, the
Participant's estate or beneficiaries shall have a period up to the
expiration date specified in the Grant Agreement within which to receive or
exercise any outstanding Grant held by the Participant under such terms as
may be specified in the applicable Grant Agreement. Rights to any such
outstanding Grants shall pass by will or the laws of descent and
distribution in the following order: (a) to beneficiaries so designated by
the Participant; if none, then (b) to a legal representative of the
Participant; if none, then (c) to the persons entitled thereto as
determined by a court of competent jurisdiction. Grants so passing shall be
made at such times and in such manner as if the Participant were living.
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<PAGE>
(2) In the event a Participant is deemed by the Board or
Committee, to be unable to perform his or her usual duties by reason of
mental disorder or medical condition which does not result from facts which
would be grounds for termination for cause, Grants and rights to any such
Grants may be paid to or exercised by the Participant, if legally
competent, or a committee or other legally designated guardian or
representative if the Participant is legally incompetent by virtue of such
disability.
(3) After the death or disability of a Participant, the
Board or Committee may in its sole discretion at any time (1) terminate
restrictions in Grant Agreements; (2) accelerate any or all installments
and rights; and (3) instruct the Company to pay the total of any
accelerated payments in a lump sum to the Participant, the Participant's
estate, beneficiaries or representative - notwithstanding that, in the
absence of such termination of restrictions or acceleration of payments,
any or all of the payments due under the Grant might ultimately have become
payable to other beneficiaries.
(4) In the event of uncertainty as to interpretation of
or controversies concerning this Section 7, the determinations of the Board
or Committee, as applicable, shall be binding and conclusive.
8. INVESTMENT INTENT
All Grants under the Plan are intended to be exempt from registration
under the Securities Act provided by Rule 701 thereunder. Unless and until the
granting of Options or sale and issuance of Stock subject to the Plan are
registered under the Securities Act or shall be exempt pursuant to the rules
promulgated thereunder, each Grant under the Plan shall provide that the
purchases or other acquisitions of Stock thereunder shall be for investment
purposes and not with a view to, or for resale in connection with, any
distribution thereof. Further, unless the issuance and sale of the Stock have
been registered under the Securities Act, each Grant shall provide that no
shares shall be purchased upon the exercise of the rights under such Grant
unless and until (i) all then applicable requirements of state and federal laws
and regulatory agencies shall have been fully complied with to the satisfaction
of the Company and its counsel, and (ii) if requested to do so by the Company,
the person exercising the rights under the Grant shall (i) give written
assurances as to knowledge and experience of such person (or a representative
employed by such person) in financial and business matters and the ability of
such person (or representative) to evaluate the merits and risks of exercising
the Option, and (ii) execute and deliver to the Company a letter of investment
intent and/or such other form related to applicable exemptions from
registration, all in such form and substance as the Company may require. If
shares are issued upon exercise of any rights under a Grant without registration
under the Securities Act, subsequent registration of such shares shall relieve
the purchaser thereof of any investment restrictions or representations made
upon the exercise of such rights.
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<PAGE>
9. AMENDMENT, MODIFICATION, SUSPENSION OR DISCONTINUANCE OF THE PLAN.
The Board may, insofar as permitted by law, from time to time, with
respect to any shares at the time not subject to outstanding Grants, suspend or
terminate the Plan or revise or amend it in any respect whatsoever, except that
without the approval of the shareholders of the Company, no such revision or
amendment shall (i) increase the number of shares subject to the Plan, (ii)
decrease the price at which Grants may be granted, (iii) materially increase the
benefits to Participants, or (iv) change the class of persons eligible to
receive Grants under the Plan; provided, however, no such action shall alter or
impair the rights and obligations under any Option, or Stock Award, or
Restricted Stock Purchase Offer outstanding as of the date thereof without the
written consent of the Participant thereunder. No Grant may be issued while the
Plan is suspended or after it is terminated, but the rights and obligations
under any Grant issued while the Plan is in effect shall not be impaired by
suspension or termination of the Plan.
In the event of any change in the outstanding Stock by reason of a
stock split, stock dividend, combination or reclassification of shares,
recapitalization, merger, or similar event, the Board or the Committee may
adjust proportionally (a) the number of shares of Stock (i) reserved under the
Plan, (ii) available for Incentive Stock Options and Nonstatutory Options and
(iii) covered by outstanding Stock Awards or Restricted Stock Purchase Offers;
(b) the Stock prices related to outstanding Grants; and (c) the appropriate Fair
Market Value and other price determinations for such Grants. In the event of
any other change affecting the Stock or any distribution (other than normal cash
dividends) to holders of Stock, such adjustments as may be deemed equitable by
the Committee, including adjustments to avoid fractional shares, shall be made
to give proper effect to such event. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Committee shall be authorized to issue or assume stock options,
whether or not in a transaction to which Section 424(a) of the Code applies, and
other Grants by means of substitution of new Grant Agreements for previously
issued Grants or an assumption of previously issued Grants.
10. TAX WITHHOLDING.
The Company shall have the right to deduct applicable taxes from any
Grant payment and withhold, at the time of delivery or exercise of Options,
Stock Awards or Restricted Stock Purchase Offers or vesting of shares under such
Grants, an appropriate number of shares for payment of taxes required by law or
to take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for withholding of such taxes. If Stock is used to
satisfy tax withholding, such stock shall be valued based on the Fair Market
Value when the tax withholding is required to be made.
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<PAGE>
11. AVAILABILITY OF INFORMATION.
During the term of the Plan and any additional period during which a
Grant granted pursuant to the Plan shall be exercisable, the Company shall make
available, not later than one hundred and twenty (120) days following the close
of each of its fiscal years, such financial and other information regarding the
Company as is required by the bylaws of the Company and applicable law to be
furnished in an annual report to the shareholders of the Company.
12. NOTICE.
Any written notice to the Company required by any of the provisions of
the Plan shall be addressed to the chief personnel officer or to the chief
executive officer of the Company, and shall become effective when it is received
by the office of the chief personnel officer or the chief executive officer.
13. UNFUNDED PLAN.
Insofar as it provides for Grants, the Plan shall be unfunded.
Although bookkeeping accounts may be established with respect to Participants
who are entitled to Grants or rights thereto under the Plan, any such accounts
shall be used merely as a bookkeeping convenience. The Company shall not be
required to segregate any assets that may at any time be represented by Grants
or rights thereto, nor shall the Plan be construed as providing for such
segregation, nor shall the Company nor the Board nor the Committee be deemed to
be a trustee of any Grants or rights thereto to be granted under the Plan. Any
liability of the Company to any Participant with respect to a grant of Stock or
rights thereto under the Plan shall be based solely upon any contractual
obligations that may be created by the Plan and any Grant Agreement; no such
obligation of the Company shall be deemed to be secured by any pledge or other
encumbrance on any property of the Company. Neither the Company nor the Board
nor the Committee shall be required to give any security or bond for the
performance of any obligation that may be created by the Plan.
14. INDEMNIFICATION OF BOARD
In addition to such other rights or indemnifications as they may have
as directors or otherwise, and to the extent allowed by applicable law, the
members of the Board and the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any claim, action, suit
or proceeding, or in connection with any appeal thereof, to which they or any of
them may be a party by reason of any action taken, or failure to act, under or
in connection with the Plan or any Grant granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such claim, action, suit or proceeding, except
in any case in relation to matters as to which it shall be
-16-
<PAGE>
adjudged in such claim, action, suit or proceeding that such Board or Committee
member is liable for negligence or misconduct in the performance of his or her
duties; provided that within sixty (60) days after institution of any such
action, suit or Board proceeding the member involved shall offer the Company, in
writing, the opportunity, at its own expense, to handle and defend the same.
15. GOVERNING LAW.
The Plan and all determinations made and actions taken pursuant
hereto, to the extent not otherwise governed by the Code or the securities laws
of the United States, shall be governed by the law of the State of California
and construed accordingly.
16. EFFECTIVE AND TERMINATION DATES.
The Plan shall become effective on the date it is approved by the
holders of a majority of the shares of Stock then outstanding. The Plan shall
terminate ten years later, subject to earlier termination by the Board pursuant
to Section 9.
-17-
<PAGE>
EXHIBIT 10.11
NETVANTAGE, INC.
1996 BONUS AND NONSTATUTORY STOCK OPTION PLAN
1. Purpose
-------
This Bonus and Nonstatutory Stock Option Plan (the "Plan") is intended to
further the growth and financial success of NETVANTAGE, INC. (the "Corporation")
by providing additional incentives to Executive officers and selected
consultants to the Corporation or parent corporation or subsidiary corporation
of the Corporation as those terms are defined in Sections 424(e) and 424(f) of
the Internal Revenue Code of 1986, as amended (the "Revenue Code") (such parent
corporations and subsidiary corporations hereinafter collectively referred to as
"Affiliates"), provided such persons are California residents and meet the
investor suitability standards pursuant to Section 25102(f) of the California
Corporations Code ("CA Code"). Stock options granted under the Plan (hereinafter
"Options") may only be "Nonstatutory Options" (i.e. not intended as Incentive
Stock Options under Section 422 of the Revenue Code) as reflected in the written
stock option agreements granted pursuant hereto, and are not assignable except
as specifically set forth herein.
2. Administration
--------------
The Plan shall be administered by the Board of Directors of the Corporation
(the "Board") provided however, that any bonuses or Options granted to executive
officers hereunder shall be approved by a majority of those directors who are
the "disinterested", as contemplated by Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3").
Subject to the provisions of the Plan, the Board shall have authority to
(a) grant bonuses and/or Nonstatutory Options; (b) determine in good faith the
fair market value of the stock covered by an Option; (c) determine which
eligible persons shall be granted bonuses and/or Options; (d) determine the
number of shares, exercise price, term and vesting conditions of any Options;
(e) construe and interpret the Plan; (f) promulgate, amend and rescind rules and
regulations relating to its administration, and correct defects, omissions and
inconsistencies in the Plan or any Option; (f) consistent with the Plan and with
the consent of the Participant, as appropriate, amend any outstanding Bonus
agreement or Option or amend the exercise date or dates thereof and (g) make all
other determinations necessary or advisable for the Plan's administration. The
interpretation and construction by the Board of any provisions of the Plan, any
Option or any bonus agreement shall be conclusive and final. No member of the
Board shall be liable for any action or determination made in good faith with
respect to the Plan or any bonus or Option.
-1-
<PAGE>
3. Eligibility
-----------
The persons who shall be eligible to receive bonuses and/or Options shall
be executive officers of or consultants to the Corporation or any of its
Affiliates ("Participants"). The term consultant shall mean any person who is
engaged by the Corporation to render services and is compensated for such
services. THE TOTAL NUMBER OF PERSONS TO WHOM OPTIONS MAY BE GRANTED HEREUNDER
IS LIMITED TO THIRTY-FIVE PERSONS EACH OF WHOM MEETS THE REQUIREMENTS SET FORTH
IN SECTION 25102(f) OF THE CA CODE AND THE SECURITIES RULES PROMULGATED
THEREUNDER.
4. Bonuses The aggregate amount of funds available for the grant of bonuses
-------
under this Plan is $300,000. Such bonuses shall be granted upon such terms and
conditions as are proposed by the Chief Executive Officer and Chief Financial
Officer of the Corporation and approved by the Board of Directors.
5. Stock
-----
The stock subject to Options shall be shares of the Corporation's
authorized but unissued or reacquired common stock (the "Stock").
(a) Number of Shares. Subject to adjustment as provided in Paragraph
----------------
6(i) of this Plan, the total number of shares of Stock which may be purchased
through exercise of Options granted under this Plan shall not exceed 105,000.
If any Option shall for any reason terminate or expire, any shares allocated
thereto but remaining unpurchased upon such expiration or termination shall
again be available for the grant of Options with respect thereto under this Plan
as though no Option had been granted with respect to such shares.
(b) Reservation of Shares. The Corporation shall reserve and keep
---------------------
available at all times during the term of the Plan such number of shares as
shall be sufficient to satisfy the requirements of the Plan. If, after
reasonable efforts, which efforts shall not include the registration of the Plan
or Options under the Securities Act of 1933, the Corporation is unable to obtain
authority from any applicable regulatory body, which authorization is deemed
necessary by legal counsel for the Corporation for the lawful issuance of shares
hereunder, the Corporation shall be relieved of any liability with respect to
its failure to issue and sell the shares for which such requisite authority was
so deemed necessary unless and until such authority is obtained.
(c) Application of Funds. The proceeds received by the Corporation
--------------------
from the sale of common stock pursuant to the exercise of Options will be used
for general corporate purposes.
6. Terms and Conditions of Options
-------------------------------
-2-
<PAGE>
Each Option granted hereunder shall be designated as a "Nonstatutory Stock
Option Agreement" and shall set forth the intention of the parties that it be a
Nonstatutory Option. Options granted hereunder shall be evidenced by agreements
between the Corporation and the respective Participants, in such form and
substance as the Board shall from time to time approve. Such agreements need
not be identical, and in each case may include such provisions as the Board may
determine, but all such agreements shall be subject to and limited by the
following terms and conditions:
(a) Number of Shares: Each Option shall state the number of shares to
----------------
which it pertains.
(b) Option Price: Each Option shall state the Option Price, which in
------------
no event shall be less than 85% of the fair market value of the common stock as
of the date of grant. For the purposes of this Paragraph 6(b), the fair market
value shall be the average of the bid and asked prices (or the closing price if
such stock is listed on the NASDAQ National Market System) on the date of grant
of the Option, or if listed on a stock exchange, the closing price on such
exchange on such date of grant.
(c) Medium and Time of Payment: To the extent permissible by
--------------------------
applicable law, the Option price shall be paid, at the discretion of the Board,
at either the time of grant or the time of exercise of the Option (i) in cash or
by check, (ii) by delivery of other common stock of the Corporation, provided
such tendered stock was not acquired directly or indirectly from the
Corporation, or, if acquired from the Corporation, has been held by the
Participant for more than six (6) months, (iii) by the Participant's promissory
note in a form satisfactory to the Corporation and bearing interest at a rate
determined by the Board, in its sole discretion, but in no event less than 6%
per annum, or (iv) such other form of legal consideration permitted by the
California Corporations Code as may be acceptable to the Board.
(d) Term and Exercise of Options: Any Option granted hereunder shall
----------------------------
become exercisable at such times or upon the occurrences of such events as are
determined by the Board; provided that no Option shall be exercisable after the
expiration of six (6) years from the date it is granted. Unless otherwise
specified by the Board in the resolution authorizing such option, the date of
grant of an Option shall be deemed to be the date upon which the Board
authorizes the granting of such Option.
Each Option shall be exercisable to the nearest whole share, in
installments or otherwise, as the respective option agreements may provide.
During the lifetime of a Participant, the Option shall be exercisable only by
the Participant and shall not be assignable or transferable by the Participant,
and no other person shall acquire any rights therein. To the extent not
exercised, installments (if more than one) shall accumulate, but shall be
exercisable, in whole or in part, only during the period for exercise as stated
in the option agreement, whether or not other installments are then exercisable.
-3-
<PAGE>
(e) Termination of Status as Employee or Consultant: If Participant's
-----------------------------------------------
status as an Executive officer or consultant shall terminate for any reason
other than Participant's disability or death, then the Participant (or if the
Participant shall die after such termination, but prior to exercise,
Participant's personal representative or the person entitled to succeed to the
Option) shall have the right to exercise the portions of any of Participant's
Options which were exercisable as of the date of such termination, in whole or
in part, at any time during the remaining term of the Option, or such shorter
period as determined by the Board and set forth in the Option agreement;
provided that, absent a termination "for cause" as contemplated by the
California Labor Code, such period shall not be shorter than (i) ninety (90)
days or (ii) the remaining term of the Option, whichever is lesser. The Option
may not be exercised with respect to installments that the Participant could not
have exercised at the date of termination. Nothing contained herein or in any
Option granted pursuant hereto shall be construed to affect or restrict in any
way the right of the Corporation to terminate or otherwise discharge Participant
with or without cause.
(f) Nontransferability of Option: No Option shall be transferable by
----------------------------
the Participant, except by will or by the laws of descent and distribution.
(g) Recapitalization: Subject to any required action of stockholders,
----------------
the number of shares of common stock covered by each outstanding Option, and the
price per share thereof set forth in each such Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of common
stock of the Corporation resulting from a subdivision or consolidation of shares
or the payment of a stock dividend, or any other increase or decrease in the
number of such shares affected without receipt of consideration by the
Corporation.
Subject to any required action of stockholders, if the Corporation
shall be the surviving entity in any merger or consolidation, each outstanding
Option thereafter shall pertain to and apply to the securities to which a holder
of shares of common stock equal to the shares subject to the Option would have
been entitled by reason of such merger or consolidation. In the event of a
proposed dissolution or liquidation of the Company, a merger or consolidation in
which the Company is not the surviving entity, or a sale of all or substantially
all of the assets or capital stock of the Company (collectively, a
"Reorganization"), unless otherwise provided by the Board, this Option shall
terminate immediately prior to such date as is determined by the Board, which
date shall be no later than the consummation of such Reorganization. In such
event, if the entity which shall be the surviving entity does not tender to
Participant an offer, for which it has no obligation to do so, to substitute for
any unexercised Option a stock option or capital stock of such surviving entity,
as applicable, which on an equitable basis shall provide the Participant with
substantially the same economic benefit as such unexercised Option, then the
Board may grant to such Participant, in its sole and absolute discretion and
without obligation, the right for a period commencing thirty (30) days prior to
and ending immediately prior to the date determined by the Board pursuant hereto
for
-4-
<PAGE>
termination of the Option or during the remaining term of the Option, whichever
is the lesser, to exercise any unexpired Option or Options without regard to the
vesting provisions of Paragraph 6(d) of the Plan; provided, that any such right
granted shall be granted to all Participants not receiving an offer to receive
substitute options on a consistent basis, and provided further, that any such
exercise shall be subject to the consummation of such Reorganization.
In the event of a change in the common stock of the Corporation as
presently constituted, which is limited to a change of all of its authorized
shares without par value into the same number of shares with a par value, the
shares resulting from any such change shall be deemed to be the common stock
within the meaning of this Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided in this Paragraph 6(g), the Participant shall have
no rights by reason of any subdivision or consolidation of shares of stock of
any class or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class, and the number or price of shares
of common stock subject to any Option shall not be affected by, and no
adjustment shall be made by reason of, any Reorganization or any issue by the
Corporation of shares of stock of any class or securities convertible into
shares of stock of any class.
The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Corporation to make any adjustments,
reclassifications, reorganizations or changes in its capital or business
structure or to merge, consolidate, dissolve, or liquidate or to sell or
transfer all or any part of its business or assets.
(h) Rights as a Stockholder: A Participant shall have no rights as a
-----------------------
stockholder with respect to any shares covered by an Option until the date of
the issuance of a stock certificate to Participant for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Paragraph 6(g) hereof.
(i) Modification, Acceleration, Extension, and Renewal of Options:
-------------------------------------------------------------
Subject to the terms and conditions and within the limitations of the Plan and
of the Revenue Code the Board may modify an Option, or once an Option is
exercisable, accelerate the rate at which it may be exercised, and may extend or
renew outstanding Options granted under the Plan or accept the surrender of
outstanding Options (to the extent not theretofore exercised) and authorize the
granting of new Options in substitution for such Options, subject to any
limitations as may be applicable under Section 424 of the Revenue Code and
Section 260.140.41 of the Corporate
-5-
<PAGE>
Securities Rules of the California Corporations Commissioner. Notwithstanding
the provisions of this Paragraph 6(i), however, no modification of an Option
shall, without the consent of the Participant, alter to the Participant's
detriment or impair any rights or obligations under any Option theretofore
granted under the Plan.
(j) Investment Intent: Unless and until the issuance and sale of the
-----------------
shares subject to the Plan are registered under the Securities Act of 1933, as
amended (the "Act"), each Option under the Plan shall provide that the purchases
of stock thereunder shall be for investment purposes and not with a view to, or
for resale in connection with, any distribution thereof. Further, unless the
issuance and sale of the stock have been registered under the Act, each Option
shall provide that no shares shall be purchased upon the exercise of such Option
unless and until (i) any then applicable requirements of state and federal laws
and regulatory agencies shall have been fully complied with to the satisfaction
of the Corporation and its counsel, and (ii) if requested to do so by the
Corporation, the person exercising the Option shall (i) give written assurances
as to knowledge and experience of such person (or a representative employed by
such person) in financial and business matters and the ability of such person
(or representative) to evaluate the merits and risks of exercising the Option,
and (ii) execute and deliver to the Corporation a letter of investment intent,
all in such form and substance as the Corporation may require. If shares are
issued upon exercise of an Option without registration under the Act, subsequent
registration of such shares shall relieve the purchaser thereof of any
investment restrictions or representations made upon the exercise of such
Options.
(k) Exercise Before Exercise Date: At the discretion of the Board, the
-----------------------------
Option may, but need not, include a provision whereby the Participant may elect
to exercise all or any portion of the Option prior to the stated exercise date
of the Option or any installment thereof. Any shares so purchased prior to the
stated exercise date shall be subject to repurchase by the Corporation upon
termination of Participant's employment as contemplated by Paragraph 6(e) hereof
prior to the exercise date stated in the Option and such other restrictions and
conditions as the Board may deem advisable.
(l) No Obligation to Exercise Option: The granting of an Option shall
--------------------------------
impose no obligation upon the Participant to exercise such Option.
(m) Other Provisions: The Option agreements authorized under this Plan
----------------
shall contain such other provisions, including, without limitation, restrictions
upon the exercise of the Options, as the Board shall deem advisable. Shares
shall not be issued pursuant to the exercise of an Option, if the exercise of
such Option or the issuance of shares thereunder would violate, in the opinion
of legal counsel for the Corporation, the provisions of any applicable law or
the rules or regulations of any applicable governmental or administrative agency
or body, such as the Revenue Code, the Act, the Securities Exchange Act of 1934,
the rules promulgated under the foregoing or the rules and regulations of any
exchange upon which the shares of the Corporation are listed. Without limiting
the generality of the foregoing, the exercise of each Option shall be
-6-
<PAGE>
subject to the condition that if at any time the Corporation shall determine
that (i) the satisfaction of withholding tax or other similar liabilities, or
(ii) the listing, registration or qualification of any shares covered by such
exercise upon any securities exchange or under any state or federal law, or
(iii) the consent or approval of any regulatory body, or (iv) the perfection of
any exemption from any such withholding, listing, registration, qualification,
consent or approval is necessary or desirable in connection with such exercise
or the issuance of shares thereunder, then in any such event, such exercise
shall not be effective unless such withholding, listing registration,
qualification, consent, approval or exemption shall have been effected, obtained
or perfected free of any conditions not acceptable to the Corporation.
7. Effectiveness of Plan; Expiration
---------------------------------
This Plan shall be deemed effective as of September 19, 1996 and shall
expire on August 31, 2001 but such expiration shall not affect the validity of
outstanding Options.
8. Amendment and Termination of the Plan
-------------------------------------
The Board may, insofar as permitted by law, from time to time, with respect
to any funds not reserved for outstanding bonus grants or any shares at the time
not subject to Options, suspend or terminate the Plan or revise or amend it in
any respect whatsoever; provided, however, no such action shall alter or impair
the rights and obligations under any bonus agreement or Option then outstanding
as of the date thereof without the written consent of the Participant
thereunder. No bonus nor Option may be granted while the Plan is suspended or
after it is terminated, but the rights and obligations under any bonus agreement
or Option granted while the Plan is in effect shall not be impaired by
suspension or termination of the Plan.
9. Indemnification of Board
------------------------
In addition to such other rights or indemnifications as they may have as
executive officers or otherwise, and to the extent allowed by applicable law,
the members of the Board and the Committee shall be indemnified by the
Corporation against the reasonable expenses, including attorneys' fees, actually
and necessarily incurred in connection with the defense of any claim, action,
suit or proceeding, or in connection with any appeal thereof, to which they or
any of them may be a party by reason of any action taken, or failure to act,
under or in connection with the Plan or any bonus or Option granted thereunder,
and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Corporation)
or paid by them in satisfaction of a judgment in any such claim, action, suit or
proceeding, except in any case in relation to matters as to which it shall be
adjudged in such claim, action, suit or proceeding that such Board member is
liable for negligence or misconduct in the performance of his or her duties;
provided that within sixty (60) days after institution of any such action, suit
or Board proceeding the member involved shall offer the Corporation, in writing,
the opportunity, at its own expense, to handle and defend the same.
-7-
<PAGE>
10. Notices
-------
All notices, requests, demands, and other communications pursuant to this
Plan shall be in writing and shall be deemed to have been duly given on the date
of service if served personally on the party to whom notice is to be given, or
on the third day following the mailing thereof to the party to whom notice is to
be given, by first class mail, registered or certified, postage prepaid.
11. Availability of Information
---------------------------
During the term of the Plan and any additional period during which a bonus
agreement or Option granted pursuant to the Plan shall be exercisable, the
Corporation shall make available, not later than one hundred and twenty (120)
days following the close of each of its fiscal years, such financial and other
information regarding the Corporation as is required by the bylaws of the
Corporation and applicable law to be furnished in an annual report to the
stockholders of the Corporation.
<PAGE>
EXHIBIT 10.14
AUTOMATIC DATA PROCESSING
PROTOTYPE 401(k) PLAN
Expanded Non-Standardized Adoption Agreement
(Plan 003)
Upon acceptance by the Trustee, the undersigned Company adopts the Automatic
Data Processing Prototype 401(k) Plan (the "Plan") incorporated by this
reference, agrees to the terms of the Plan, certifies the accuracy of the
following information, and makes the following elections under the Plan:
I. COMPANY AND PLAN REGISTRATION INFORMATION
A. Company Information
1. Name and address of Company
NetVantage, Inc.
--------------------------------------------------------------------
1800 Stewart St. Ste. R.
--------------------------------------------------------------------
Santa Monica, CA 90404
--------------------------------------------------------------------
2. Telephone number: (310) 828-9898
--------------------------------------------
3. Type of business entity (choose one):
[_] Sole Proprietorship [_] Partnership
[X] Corporation [_] Subchapter S Corporation
[_] Other (specify)
--------------------------------------------------
4. Date of incorporation or date business began: 3-12-91
-----------------------
5. Employer Identification Number: 95-4324525
--------------------------------------
B. Plan Information
1. Name of Plan: NetVantage 401(k) Profit Sharing Plan
-----------------------------------------------------
2. Plan Number: 001
------------------------------------------------------
3. Effective date of this Plan: Jan. 1, 1996
--------------------------------------
C. Plan Administration
1. Plan Year (Plan Article I) means the calendar year.
2. The initial Plan Year begins on the effective date of this Plan and
ends on the following December 31.
II. ELIGIBILITY AND PARTICIPATION REQUIREMENTS
A. Eligible Employees (Plan Article I)
Choose one:
[_] All Employees of an Employer are eligible to participate in the
Plan.
<PAGE>
All Employees of an Employer are eligible to participate in the Plan, except
(choose desired):
[_] Salaried Employees
[_] Hourly Employees
[_] Any nondiscriminatory classification of Employees employed in or by
one or more specified divisions, plants, locations, job categories, or
other identifiable groups of Employees as determined by the Board of
Directors. Please specify:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
[_] Employees included in a bargaining unit covered by a collective
bargaining agreement with the Employer in the negotiation of which
retirement benefits were the subject of good faith bargaining (unless
the bargaining agreement provides for participation in the Plan).
Please specify:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
[_] Employees covered under any other tax-qualified retirement plan with
respect to which the Employer is obligated to contribute. Please
specify:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
[X] Leased employees.
B. Minimum Age for Participation (Plan Section 2.1.1(a))
Choose one:
[_] no minimum age requirement; or
[X] after reaching age 21 (in whole years, not to exceed 21).
C. Minimum Service for Participation (Plan Section 2.1.1(b))
Choose one:
[_] immediate participation
[_] after completing one Year of Eligibility Service
[X] after completing 1 month (not to exceed 6) months in a year.
<PAGE>
III. COMPENSATION (Plan Article I)
Choose one:
[X] Compensation is the compensation paid to a Participant during a
Plan Year as reflected on a Form W-2, with no exclusions.
Except for nondiscrimination testing under Code Sections 401(k)(3) (the
Actual Deferral Percentage test) and 401(m) (the Average Contribution
Percentage test), the following items are excluded from Compensation
(choose as desired):
[_] overtime [_] employee business expenses
[_] bonuses [_] sick pay payable from 3rd party
[_] commissions [_] group-term life insurance
[_] severance pay [_] moving expenses
[_] dependent care [_] nonqualified plan distributions
[_] company car [_] other noncash fringe benefits
[_] tips
[_] all of the above
IV. CONTRIBUTIONS
A. Matching Contributions
The Matching Contribution equals 25% (insert 0 - 100% in multiples of
5) on the first 6% of the Participant's Elective Deferral.
B. Elective Deferrals
The minimum percentage of Compensation a Participant may elect to defer
is 1% (at least 1) and the maximum percentage of Compensation a
Participant may elect to defer is 15%.
Nonelective Contributions
Nonelective Contributions are permitted under the Plan.
V. VESTING (Plan Article IV)
A. Vesting Schedule:
Each Participant whose employment terminates for reasons other than
death, Disability, or attainment of Normal Retirement Age is entitled
to a nonforfeitable right to his or her Employer Contribution Account
based on the following schedule (choose one):
[_] immediate 100% nonforfeitability
[_] 100% nonforfeitability after 5 Years of Service
[_] 100% nonforfeitability after 3 Years of Service
[X] graded vesting as set forth below:
<TABLE>
<CAPTION>
Nonforfeitable
Years of Service Percentage Percentage
--------------------------- --------------
<S> <C>
Less than 2...................................... 0%
At least 2, but less than 3...................... 20%
At least 3, but less than 4...................... 40%
At least 4, but less than 5...................... 60%
At least 5, but less than 6...................... 80%
6 or more........................................100%
</TABLE>
<PAGE>
B. Vesting Service
(Choose one):
[X] All Years of Service are credited to determine a Participant's
Vesting Service.
[_] All Years of Service are credited to determine a Participant's
Vesting Service except Years of Service before the Employer
maintained this Plan or a predecessor plan.
VI. MISCELLANEOUS
A. Other Plans
Does the Company maintain, or has the Company ever maintained, another
qualified plan in which any Participant in this Plan is (or was) a
participant or could possibly become a participant?
[_] Yes
[X] No
If the answer is Yes, the Addendum For Employers Who Maintain Another
Plan must be completed and signed.
B. Inquiries
If you have any questions about the legal and tax implications of
adopting the Plan, you should consult with your attorney. However, if you
have any questions about either the Prototype Plan or the Adoption
Agreement, please write to the sponsoring organization at the following
address:
Automatic Data Processing Federal Credit Union
One ADP Boulevard
Roseland, New Jersey 07068
Att: 401(k) Plan Administrator
201/994-5000
C. Notification
The plan sponsor will notify you as adopting Company of any amendments
made to the Plan, or the discontinuance or abandonment of the Plan.
D. Cautionary Statement
It is important that you complete the Adoption Agreement with great care.
Failure to fill out the Adoption Agreement properly may result in
disqualification of the Plan.
E. Reliance on Opinion Letter
The adopting Company may not rely on an opinion letter issued by the
National Office of the Internal Revenue Service, or a notification letter
issued by a Key District Office, as evidence that the Plan is qualified
under Code Section 401. To obtain reliance with respect to Plan
qualification, the Company must apply to the appropriate Key District
Office for a determination letter. This Adoption Agreement may be used
only in conjunction with basic plan document No. 01.
IN WITNESS WHEREOF, the Company has caused this Plan to be adopted
effective as of Jan 1, 1996.
NETVANTAGE, INC.
---------------------------------
(Company Name)
/s/ [SIGNATURE APPEARS HERE] By: /s/ Thomas V. Baker
- -------------------------------- ------------------------------
Witness
Date: 12-21-95 Title: Vice President Finance
--------------------------- ---------------------------
<PAGE>
- --------------------------------------------------------------------------------
AUTOMATIC DATA PROCESSING
PROTOTYPE 401(k) PLAN
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
TABLE OF CONTENTS............................................................i
ARTICLE I....................................................................1
Definitions and Rules of Construction......................................1
1.1 Definitions..........................................................1
"Account"...........................................................1
"Account Balance"...................................................1
"Administrative Committee"..........................................1
"Adoption Agreement"................................................1
"Affiliate".........................................................1
"Beneficiary".......................................................1
"Benefit Commencement Date".........................................1
"Board of Directors"................................................1
"Code"..............................................................1
"Company"...........................................................1
"Compensation"......................................................1
"Determination Year"................................................2
"Early Retirement Age"..............................................2
"Earned Income".....................................................2
"Effective Date"....................................................2
"Elective Deferrals"................................................2
"Eligible Employee".................................................2
"Employee"..........................................................2
"Employer"..........................................................2
"Employer Contribution Account".....................................2
"Employment"........................................................2
"Entry Date"........................................................2
"ERISA".............................................................2
"Family Member".....................................................2
"Highly Compensated Employee".......................................2
"Hour of Service"...................................................3
"Investment Fund"...................................................3
"Look-Back Year"....................................................3
"Matching Contribution".............................................3
"Nonelective Contributions".........................................3
"Non-Highly Compensated Employee"...................................4
"Normal Retirement Age".............................................4
"Owner-Employee"....................................................4
"Participant".......................................................4
"Participant 401(k) Account"........................................4
"Participant 401(k) Election".......................................4
"Participating Affiliate"...........................................4
"Period of Severance"...............................................4
"Plan"..............................................................4
"Plan Year".........................................................4
"Qualified Domestic Relations Order"................................4
"Qualified Matching Contributions"..................................4
"Qualified Nonelective Contribution"................................4
"Rollover Contribution".............................................4
"Self-Employed Individual"..........................................5
"Sponsor"...........................................................5
"Transfer Contribution".............................................5
"Trust".............................................................5
"Trustee"...........................................................5
"Valuation Date"....................................................5
</TABLE>
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"Vesting Service"........................................5
"Year of Eligibility Service"............................5
"Years of Service".......................................5
1.2 Additional Definitions....................................5
1.3 Rules of Construction.....................................5
1.4 Controlling Law...........................................6
1.5 Savings Clause............................................6
ARTICLE II.............................................................7
Participation.....................................................7
2.1 Admission as a Participant................................7
2.2 Termination of Participation..............................7
2.3 Provision of Information..................................7
2.4 Minimum Number of Participants............................7
ARTICLE III............................................................8
Contributions and Account Allocations.............................8
3.1 Employer Contributions....................................8
3.2 General Provisions Concerning Employer Contributions......8
3.3 Rollover Contributions....................................8
3.4 Transfer Contributions....................................8
3.5 Establishing of Accounts..................................9
3.6 Multiple Trades and Businesses............................9
ARTICLE IV............................................................10
Vesting..........................................................10
4.1 Determination of Vesting.................................10
4.2 Rules for Crediting Vesting Service......................10
4.3 Forfeitures..............................................10
ARTICLE V.............................................................11
Amount and Payment of Account Balances...........................11
5.1 Termination of Employment................................11
5.2 Payment of Account Balances on Termination of Employment.11
5.3 Death Benefit............................................11
5.4 Beneficiaries............................................11
5.5 Limitation on Commencement of Benefits...................12
5.6 Withdrawals before Termination of Employment.............12
5.7 Loans....................................................13
5.8 Additional Distribution Events...........................14
ARTICLE VI............................................................15
Forms of Payment of Accounts.....................................15
6.1 Normal Form of Payment...................................15
6.2 Optional Form of Payment.................................15
6.3 Election of Optional Form................................15
6.4 Limitation on Options....................................15
6.5 Change in Form or Timing of Payment......................15
6.6 Conditions to Distribution...............................15
ARTICLE VII...........................................................16
Fiduciaries......................................................16
7.1 Named Fiduciaries........................................16
7.2 Employment of Advisers...................................16
</TABLE>
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7.3 Multiple Fiduciary Capacities..................................16
7.4 Payment of Expenses............................................16
7.5 Indemnification................................................16
ARTICLE VIII................................................................17
Plan Administration....................................................17
8.1 Administrative Committee.......................................17
8.2 Powers and Duties of the Administrative Committee..............17
8.3 Delegation of Responsibility...................................17
8.4 Trustee........................................................17
8.5 Investment of Accounts.........................................18
8.6 Valuation of Accounts..........................................18
ARTICLE IX..................................................................19
Plan Amendment or Termination..........................................19
9.1 Plan Amendment.................................................19
9.2 Limitations on Plan Amendment..................................19
9.3 Right of the Company to
Terminate Plan or Discontinue Contributions...................19
9.4 Effect of Partial or Complete Termination
or Complete Discontinuance of Contributions...................20
9.5 Distribution Upon Termination..................................20
9.6 Bankruptcy.....................................................20
9.7 Action by Company..............................................20
ARTICLE X...................................................................21
Miscellaneous Provisions...............................................21
10.1 Exclusive Benefit of Participants.............................21
10.2 Plan Not a Contract of Employment.............................21
10.3 Type of Plan..................................................21
10.4 Source of Benefits............................................21
10.5 Benefits Not Assignable.......................................21
10.6 Merger or Transfer of Assets..................................21
10.7 Participation in the Plan by an Affiliate.....................22
10.8 Conditional Adoption..........................................22
10.9 Inability to Locate Participant or Beneficiary................22
10.10 Application of Prior Plan....................................22
10.11 Failure of Qualified Status..................................22
APPENDIX A..................................................................23
Limitations on Elective Deferrals and Matching Contributions...........23
A.1 Definitions....................................................23
"Actual Deferral Percentage"..................................23
"Aggregate Limit".............................................23
"Average Actual Deferral Percentage"..........................23
"Average Contribution Percentage".............................23
"Contribution Percentage".....................................23
"Eligible Participant"........................................23
"Excess Aggregate Contributions"..............................23
"Excess Contributions"........................................23
"Excess Deferral Amount"......................................23
A.2 Maximum Amount of Elective Deferrals...........................24
A.3 Excess Deferral Amounts........................................24
A.4 Actual Deferral Percentage Test................................24
</TABLE>
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A.5 Excess Contributions............................................... 25
A.6 Average Contribution Percentage Test............................... 26
A.7 Excess Aggregate Contributions..................................... 27
A.8 Coordination of Distributions of Excess Deferral Amounts,
Excess Contributions, and Excess Aggregate Contributions.......... 27
A.9 Multiple Use of Alternative Limitation............................. 27
APPENDIX B................................................................. 28
Limitations on Annual Additions.......................................... 28
B.1 Definitions
"Annual Addition"................................................. 28
"Controlled Group Member"......................................... 28
"Defined Benefit Fraction"........................................ 28
"Defined Contribution Dollar Limitation".......................... 28
"Defined Contribution Fraction"................................... 28
"Excess Amount"................................................... 29
"Limitation Compensation"......................................... 29
"Limitation Year"................................................. 29
"Master or Prototype Plan"........................................ 29
"Projected Annual Benefit"........................................ 29
B.2 Maximum Annual Addition............................................ 29
B.3 Excess Amounts..................................................... 30
APPENDIX C................................................................. 32
Top-Heavy Provisions..................................................... 32
C.1 Definitions........................................................ 32
"Aggregated Plans"................................................ 32
"Determination Date".............................................. 32
"Group Participant"............................................... 32
"Key Employee".................................................... 32
"Non-Key Employee"................................................ 32
"Top-Heavy Ratio"................................................. 32
C.2 Top-Heavy Plan..................................................... 33
C.3 Minimum Benefits or Contributions.................................. 33
C.4 Adjustment to Maximum Benefits..................................... 34
C.5 Discontinuance of Appendix......................................... 34
APPENDIX D................................................................. 35
Distribution Requirements................................................ 35
D.1 Definitions........................................................ 35
"Applicable Life Expectancy"...................................... 35
"Distribution Calendar Year"...................................... 35
"Participant's Benefit"........................................... 35
"Required Beginning Date"......................................... 35
D.2 General Rules...................................................... 35
</TABLE>
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ARTICLE I
Definitions and Rules of Construction
1.1 Definitions
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These terms have the following meanings in this Plan:
Account: The Participant 401(k) Account and/or Employer Contribution Account.
Account Balance: The value of an Account determined as of any Valuation Date.
Administrative Committee: The committee appointed under, and having the
responsibilities specified in, Articles VII and VIII.
Adoption Agreement: The instrument executed by the Company by which it agrees
to adopt the Plan. The Adoption Agreement contains all the options that the
Company may select under the Plan and is an integral part of the Plan.
Affiliate: Any corporation, partnership, or other entity (other than the
Company) which is:
(a) a member of a "controlled group of corporations" (as defined in Code Section
414(b)) of which the Company is a member;
(b) a member of any trade or business under "common control" (as defined in Code
Section 414(c)) with the Company;
(c) a member of an "affiliated service group" (as defined in Code Section
414(m)) which includes the Company;
(d) a "leasing organization" which "leases" (as defined in Code Section 414(n))
its employees to the Company and which otherwise satisfies the requirements
of Code Sections 414(n)(I) through (4) and which employees who are so leased
to the Company are (i) not covered by a money purchase pension plan
providing (A) a nonintegrated employer contribution rate of at least 10% of
compensation as defined in Code Section 415(c)(3) (but including amounts
contributed under a salary reduction agreement which are excludable from the
Employee's gross income under Code Sections 125, 402(a)(8), 402(h), or
403(b)), (B) immediate participation (other than an individual whose
compensation from the leasing organization in each Plan Year during the 4-
year period ending with the Plan Year is less than $1,000), and (C) full and
immediate vesting or (ii) if covered by such a money purchase pension plan,
constitute more than 20% of the Company's non-highly compensated workforce
within the meaning of Code Section 414(n)(5)(C)(ii); or
(e) an entity described in regulations promulgated by the Secretary of the
Treasury under Code Section 414(o).
Beneficiary: Any person, trust, estate, or charitable organization designated
or deemed designated by a Participant to receive payment of Plan benefits due
after the Participant's death, except to the extent the designation or deemed
designation is superseded by a state statute which is not preempted by ERISA.
Benefit Commencement Date: The first day on which all events have occurred
which entitle the Participant or Beneficiary to a Plan benefit.
Board of Directors: The Company's board of directors or other governing body.
Code: The Internal Revenue Code of 1986, as amended from time to time.
Reference to a specific Code provision includes any valid regulation promulgated
under that provision.
Company: The entity that executes the Adoption Agreement, and any of its
successors.
Compensation: The compensation paid to a Participant during a Plan Year, as
reflected on the Form W-2 filed by the Employer with respect to the Participant
for the Plan Year, and includes Employer contributions made pursuant to a salary
reduction agreement which are not includible in the Participant's gross income
under Code Section 125, 402(a)(8), 402(b), or 403(b). However, except for
determining the Actual Deferral Percentage and the Contribution Percentage under
Appendix A, and except for computing the minimum contribution under Appendix C
if the Plan becomes top-heavy, the Company may elect in Section III. A of the
Adoption Agreement to exclude overtime, bonuses, commissions, severance pay,
and/or other extraordinary remuneration.
For any Self-Employed Individual, Compensation means Earned Income.
Compensation is determined from the Employer's records.
A Participant's Compensation may not exceed $200,000 (as adjusted at the same
time and in the same manner as under Code Section 415(d)). In determining the
Compensation of a Participant under this limitation, the family aggregation
rules of Code Section 414(q)(6) apply. However, in applying those rules,
"family" includes only the spouse of the Participant and any lineal descendants
of the Participant who have not attained age 19 before the close of the year.
If, by applying the family aggregation rules, the adjusted $200,000 limitation
would be exceeded,
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then the limitation is prorated among the affected individuals in proportion to
each individual's Compensation as determined before the application of the
$200,000 limitation.
Determination Year: The period for which Highly Compensated Employees are being
identified. If the Plan Year is a calendar year, the Plan Year is the
Determination Year. Otherwise, the months in the Plan Year which follow the
Look-back Year are the Determination Year.
Early Retirement Age: Age 55.
Earned Income: The net earnings from self-employment in the trade or business
with respect to which the Plan is established, for which personal services of
the individual are a material income producing factor. Net earnings are
determined without regard to items not included in gross income and the
deductions allocable to those items. Net earnings are reduced by contributions
by an Employer to a qualified plan to the extent deductible under Code Section
404. Earned Income is determined with regard to the deduction allowed by Code
Section 164(f) for taxable years beginning after December 31, 1989.
Effective Date: The date designated in Section I.B.3 of the Adoption Agreement
as the date on which the Plan, as originally adopted or as amended and restated,
will apply.
Elective Deferrals: Employer contributions made to the Plan under Participant
401(k) Elections.
Eligible Employee: All Employees of an Employer, except nonresident aliens with
no earned income from the Company or an Affiliate which constitutes United
States source income and those employees in the job classifications specified in
Section II.A of the Adoption agreement.
The Eligible Employees of a Participating Affiliate are those Employees
designated as eligible for the Plan by the Participating Affiliate under
Section 10.8.1.
Employee: All common law or contract employees employed by the Company or an
Affiliate. Employee also includes leased employees within the meaning of Code
Section 414(n)(2). However, if the leased employees constitute less than 20% of
the Employer's non-highly compensated work force within the meaning of Code
Section 414(n)(1)(C)(ii), Employee does not include leased employees covered by
a plan described in Code Section 414(n)(5) unless otherwise provided by this
Plan.
Employer: The Company or Participating Affiliate by whom an Employee is
employed.
Employer Contribution Account: The account under the Plan established for a
Participant under Section 3.5.2.
Employment: An Employee's employment with the Company or an Affiliate. An
Employee will not have terminated Employment while on a leave of absence for
required military service or on a leave of absence for any other purpose
authorized in writing by the Company or an Affiliate under uniform and
nondiscriminatory rules if the Employee completes an Hour of Service with the
Company or an Affiliate within 90 days after his separation from military
service or within 90 days after the expiration of his other leave of absence.
If the Employee does not complete an Hour of Service during the 90-day period,
the Employee will be deemed to have terminated Employment as of the first day of
his leave of absence.
Entry Date: The first day of any month.
ERISA: The Employee Retirement Income Security Act of 1974, as amended from
time to time. Reference to a specific provision of ERISA includes any valid
regulation promulgated under that provision.
Family Member: An individual described in Code Section 414(q)(6)(B); namely,
the spouse of an Employee, the lineal ascendants of an Employee, the lineal
descendants of an Employee, the spouses of lineal ascendants of the Employee,
and the spouses of lineal descendants of the Employee. Under this definition,
Employee refers only to a 5-percent owner of the Company or a top ten Highly
Compensated Employee.
Highly Compensated Employee: An individual described in Code Section 414(q),
including both Highly Compensated active Employees and Highly Compensated former
Employees. A Highly Compensated active Employee is an Employee who performs
service for an Employer during the Determination Year and who, during the
Look-Back Year (a) received Compensation in excess of $75,000 (as adjusted under
Code Section 415(d)), (b) received Compensation from an Employer in excess of
$50,000 (as adjusted under Code Section 415(d)) and was a member of the top-paid
group for that year, or (c) was an officer of an Employer and received
Compensation during that year that is greater than 50% of the dollar limitation
in effect under Code Section 415(b)(1)(A). Highly Compensated active Employees
also include (a) an Employee who is described in the preceding sentence if the
term "Determination Year" is substituted for the term "Look-Back Year" and who
is one of the 100 Employees who received the most Compensation from the Employer
during the Determination Year, and (b) an Employee who is a 5-percent owner at
any time during the Look-Back Year or Determination Year.
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The highest paid officer for a year is treated as a Highly Compensated
Employee if no officer has Compensation in excess of 50% of the dollar
limitation in effect under Code Section 415(b)(1)(A) during either a
Determination Year or a Look-Back Year.
A Highly Compensated former Employee includes any Employee who separated from
service (or was deemed to have separated) before the Determination Year,
performs no service for an Employer during the Determination Year, and was a
Highly Compensated active Employee for either the Determination Year during
which he separated from service (or was deemed to have separated) or any
Determination Year ending on or after the Employee's 55th birthday.
The determination of who is a Highly Compensated Employee, including the
determination of the number and identity of the Employees in the top-paid group,
the top 100 Employees, the number of Employees treated as officers, and the
Compensation that is considered, is made in accordance with Code Section 414(q)
and the following:
(a) Leased Employees covered by a safe harbor pension plan are not treated as
Employees with respect to retirement plans.
(b) In determining Compensation, accrued (not paid) compensation is not used
and amounts other than wages, fees, bonuses, commissions, etc. are ignored
in accordance with Treasury Regulation Section 1.415-2(d)(8).
(c) The top-paid group is the highest paid 20% of the number of "Employees"
employed by the Employer during the testing year, excluding:
(i) nonresident aliens with no U.S. earned income;
(ii) leased Employees covered by a safe harbor pension plan who are not
treated as Employees;
(iii) bargaining unit workers if this Plan excludes all bargaining unit
workers and 90% or more of the Employer's work force consists of
bargaining unit workers;
(iv) probationary Employees who have not completed 6 months of service;
(v) part time Employees who normally work fewer than 17.5 hours per week;
(vi) seasonal workers who normally work during less than 6 months in any
testing year; and
(vii) Employees who have not attained age 21 in any testing period.
(d) The simplified method for determining Highly Compensated Employees under
Code Section 414(q)(12) does not apply.
Hour of Service:
(a) Each hour for which an Employee is paid, or entitled to payment, for the
performance of duties for the Company or an Affiliate. These hours are
credited to the Employee for the computation period in which the duties are
performed; and
(b) Each hour for which an Employee is paid, or entitled to payment, by the
Company or an Affiliate on account of a period of time during which no
duties are performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty, or leave of absence. No more
than 501 hours of service may be credited under this paragraph for any
single continuous period (whether or not the period occurs in a single
computation period). Hours under this paragraph are calculated and credited
pursuant to section 2530.200b-2 of the Department of Labor Regulations
which is incorporated by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Company or an Affiliate. The same Hours
of Service are not credited both under paragraph (a) or paragraph (b), as
the case may be, and under this paragraph (c). These hours are credited to
the Employee for the computation period or periods to which the award or
agreement pertains rather than the computation period in which the award,
agreement, or payment is made.
If an Adoption Agreement allows an Employer to elect to determine an
Employee's eligibility for participation based on months of service, an
Employee will be credited with 190 Hours of Service for a month if the
Employee would be credited with at least 1 Hour of Service during that
month.
Investment Fund: An investment fund selected by the Administrative Committee
under Section 8.5.
Look-Back Year: If the Plan Year is a calendar year, the Look-Back Year is the
preceding calendar year. Otherwise, the Look-Back Year is the calendar year
ending within the Plan Year.
Matching Contribution: An Employer contribution to the Plan for the benefit of a
Participant because of the Participant's Elective Deferral.
Nonelective Contributions: An Employer contribution to the Plan (other than a
Matching Contribution or Qualified Matching Contribution) which the Participant
could not have elected to receive in cash or as another taxable benefit.
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Non-Highly Compensated Employee: An Employee who is neither a Highly Compensated
Employee nor a Family Member.
Normal Retirement Age: Age 65.
Owner-Employee: A sole proprietor, or a partner who owns more than a 10% of
either the capital or profits interest of the partnership.
Participant: An Employee who has commenced, but not terminated, participation in
the Plan under Article II.
Participant 401(k) Account: The account under the Plan established for a
Participant under Section 3.5.1.
Participant 401(k) Election: The election by a Participant to have part of the
amount that otherwise would be paid as Compensation converted to an Employer
contribution in accordance with Section 3.1.1.
Participating Affiliate: An Affiliate which adopts, and has not terminated
participation in or withdrawn from, the Plan in accordance with Section 10.8.
Period of Severance: A period of at least 12 consecutive months beginning on the
later of (a) the date an Employee quits, retires, is discharged, or dies, or (b)
the first anniversary of the date that the Employee is absent from work (with or
without pay) for any other reason, and ending on the date he again becomes an
Employee. A Period of Severance is measured in years with each annual
anniversary of the date on which the Period of Severance began measured as one
year.
However, a Period of Severance does not begin if the Participant is:
(a) on a leave of absence authorized by his Employer in accordance with standard
personnel policies applied in a nondiscriminatory manner to all Employees
similarly situated and returns to active Employment by an Employer within 90
days after expiration of the leave of absence;
(b) on military leave while the Employee's reemployment rights are protected by
law and returns to active Employment by an Employer within 90 days after his
discharge or release (or such longer period as may be prescribed by law); or
(c) on layoff and returns to work within such period and in such a manner as to
maintain seniority according to the rules of the Company in effect on the
date of return.
Solely,to determine whether a Period of Severance has occurred for
participation and vesting purposes for a Participant who is absent from work
for maternity or paternity reasons, the 24-consecutive month period
beginning on the first anniversary of the first date of the absence is not a
Period of Severance. However, the Participant is not credited for a Year of
Service for the 12-month period between the first and second anniversaries
of the absence. An absence from work for maternity or paternity reasons
means an absence (a) because of the Participant's pregnancy, (b) because of
the birth of the Participant's child, (c) because of the placement of a
child with the Participant in connection with the Participant's adoption of
the child, or (d) for caring for the child for a period beginning
immediately after the birth or placement.
Plan: The name of Plan as indicated in Section I.B.1 of the Adoption
Agreement.
Plan Year: The 12-month period specified in Sections I.C.1 & I.C.2 of the
Adoption Agreement.
Qualified Domestic Relations Order: A "qualified domestic relations order"
as defined in Code Section 414(p), or any domestic relations order entered
before January 1, 1985, if either payment of benefits under the order has
begun as of that date or the Administrative Committee decides to treat the
order as a "qualified domestic relations order" within the meaning of Code
Section 414(p) even if it does not otherwise qualify as such.
Qualified Matching Contributions: Matching Contributions which are subject
to the distribution and nonforfeitability requirements of Code Section
401(k) when made.
Qualified Nonelective Contribution: Nonelective Contributions which are
subject to the distribution and nonforfeitability requirements of Code
Section 401(k) when made.
Rollover Contribution: An amount received from a deferred compensation plan
which qualifies under Code Section 401 or Code Section 403(a) and which is
rolled over to the Plan under Code Section 402(a)(5). The following
conditions must be satisfied before a Rollover Contribution can be made:
(a) the transfer to the Plan must occur within 60 days after the Employee's
receipt of the last distribution from the other plan; and
(b) the amount transferred must equal any portion of the distribution the
Employee received from the other plan, subject to the maximum rollover
provision of Code Section 402(a)(5)(B), limiting the amount to the fair
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market value of all property received in the distribution reduced by
employee contributions as defined in Code Section 402(a)(5)(E).
However, if an Employee had deposited a "qualified total distribution"
within the meaning of Code Section 402(a)(5)(E) into an individual retirement
account as defined in Code Section 408, he may transfer the amount of the
distribution plus earnings thereon from the individual retirement account to the
Plan; provided that the rollover amount is deposited with the Trustee within 60
days after receipt from the individual retirement account.
Self-Employed Individual: An individual who has Earned Income for the taxable
year from the trade or business for which the plan is established; also, an
individual who would have had Earned Income except that the trade or business
had no net profits for the taxable year.
Sponsor: Automatic Data Processing Federal Credit Union.
Transfer Contribution: A cash amount transferred on behalf of a Participant to
the Plan in a trust to trust transfer from a deferred compensation plan which
qualifies under Code Section 401 or Code Section 403(a) and in which the
Participant has a 100% nonforfeitable interest.
Trust: The trust established under the Plan to which Plan contributions are made
and in which Plan assets are held.
Trustee: The person appointed as trustee under, and having the responsibilities
specified in, Article VII and VIII, and any successor trustee.
Valuation Date: The last business day of each month.
Vesting Service: The Years of Service credited to a Participant under Section
4.2 for determining the Participant's nonforfeitable percentage in the Account
Balance of his Employer Contribution Account.
Year of Eligibility Service: A 12-consecutive month period during which an
Employee completes 1,000 Hours of Service. The initial 12-month period begins on
the date the Employee first performs an Hour of Service. The succeeding 12-month
periods begin with first Plan Year commencing after the date the Employee first
performs an Hour of Service.
Years of Service: An Employee's period of service with the Company or an
Affiliate. The Employee's Years of Service equals the sum of:
(a) the period beginning on the date the Employee first performs an Hour of
Service and ending on the date the Employee quits, retires, is discharged,
dies, or is absent from work (with or without pay) for any other reason;
and
(b) (i) if the Employee quits, retires, or is discharged, the period beginning
on the date the Employee terminates Employment and ending on the first
date on which the Employee again performs an Hour of Service, if that
date is within 12 months of the date on which the Employee last
performed an Hour of Service; or
(ii) if the Employee is absent from work for any other reason and, within
12 months of the first day of the absence, the Employee quits,
retires, or is discharged, the period beginning on the first date of
the absence and ending on the first day the Employee again performs an
Hour of Service if that date is within 12 months of the date the
absence began.
If the Company maintains this Plan as the plan of a predecessor employer,
service with the predecessor employer is treated as Years of Service. If the
Company does not maintain this Plan as the plan of a predecessor employer,
services with the predecessor employer is treated as Years of Service only if
approved by the Board of Directors.
1.2 Additional Definitions
- --------------------------
Additional definitions which relate only to a specific Appendix in the Plan
can be located as follows:
(a) Limitations on Elective Deferrals and Matching Contributions - Section A.1;
(b) Maximum Annual Addition - Section B.1;
(c) Top-Heavy Provisions - Section C.1;
(d) Distribution Requirements - Section D.1.
1.3 Rules of Construction
- -------------------------
1.3.1 As used in this Plan, a pronoun or adjective in the masculine gender
includes the feminine gender and the singular includes the plural (and vice
versa), unless the context clearly indicates otherwise. Any reference to
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Article, Section, Appendix, or paragraph means the Article, Section, Appendix,
or paragraph so delineated in this Plan.
1.3.2 The titles and headings to Articles, Sections, and Appendices are for
convenience of reference. In case of any conflict, the text of the Plan, rather
than the titles and headings, controls.
1.4 Controlling Law
- -------------------
The Plan is intended to qualify under Code Section 401(a) and to comply with
ERISA, and its terms will be interpreted accordingly. If any Plan provision is
subject to more than one construction, the ambiguity will be resolved in favor
of the interpretation or construction which is consistent with that intent.
Similarly, in the event of any conflict between any provisions of the Plan or
between any Plan provision and Beneficiary designation form or any other form
submitted to the Administrative Committee, the Plan provisions necessary to
retain qualified status under Code Section 401(a) will prevail. Otherwise, to
the extent not preempted by ERISA or as expressly provided, the laws of New
Jersey (other than its conflict of law provisions) will control the
interpretation and performance of the Plan.
1.5 Savings Clause
- ------------------
Each Plan provision is independent of each other provision. If any provision
proves, or is held by any court, or tribunal, board, or authority of competent
jurisdiction, to be void or invalid as to any Participant or group of
Participants, that provision will be disregarded and deemed to be void and no
part of the Plan. However, the invalidation of any provision will not impair or
affect this Plan or any other provision.
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ARTICLE II
Participation
2.1 Admission as a Participant
- ------------------------------
2.1.1 An Eligible Employee becomes a Participant on the Entry Date coincident
with or next following the date he:
(a) attains the age elected in Section II.B of the Adoption Agreement; and
(b) completes the service requirement elected in Section II.C of the Adoption
Agreement.
However, if this Plan is a restatement of an existing Plan, an Eligible
Employee who was a Participant in the existing Plan on the day before the
Effective Date will continue as a Participant on the Effective Date.
2.1.2 An Employee, who is not an Eligible Employee but who has met the age
and service requirements of Section 2.1.1, will become a Participant on the
Entry Date immediately after he becomes an Eligible Employee.
2.1.3 A former Participant who again becomes an Eligible Employee with credit
for at least the minimum service requirement (if any) elected in Section II.C of
the Adoption Agreement will become a Participant on the Entry Date coincident
with or next following the date on which he again is an Eligible Employee.
2.2 Termination of Participation
- --------------------------------
A Participant ceases to be a Participant:
(a) upon his death; or
(b) upon payment to the Participant of all benefits due to him under the Plan.
2.3 Provision of Information
- ----------------------------
Each Employee who becomes a Participant must execute such forms as the
Administrative Committee requires and must make available to the Administrative
Committee any information reasonably requested. By virtue of participation in
this Plan, an Employee agrees, on his own behalf and on behalf of all persons
who may have or claim any right by the Employee's participation in the Plan, to
be bound by all provisions of the Plan and the trust agreement.
2.4 Minimum Number of Participants
- ----------------------------------
2.4.1 The minimum number of Employees deriving a benefit from the Plan must
equal the lesser of:
(a) 50; or
(b) 40% or more of the Employees of the Company and its Affiliates.
An Employee is treated as deriving a benefit from the Plan if he is eligible
to make an Elective Deferral, regardless of whether the Employee makes a
Participant 401(k) Election.
2.4.2 To determine the total number of Employees under subsection 2.4.1(b),
the following Employees are disregarded:
(a) Employees who are included in a bargaining unit covered by a collective
bargaining agreement between the Company (or an Affiliate) and Employee
representatives (provided that "Employee representatives" does not include
an organization more than half of whose members are Employees who are
owners, officers, or executives of the Company or an Affiliate), in the
negotiation of which retirement benefits were the subject of good faith
bargaining (unless the bargaining agreement provides for participation in
the Plan); and
(b) Employees who have not satisfied the age and service requirements of
Section 2.1.1.
2.4.3 With the consent of the Secretary of the Treasury, the Company may
apply this Section on a separate line of business basis within the meaning of
Code Section 414(r) (but without regard to paragraph (7) thereof).
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ARTICLE III
Contributions and Account Allocations
3.1 Employer Contributions
- --------------------------
3.1.1 An Employer shall contribute Elective Deferrals to the Trust for
each Participant who has a Participant 401(k) Election in effect.
3.1.2 If elected by the Company in Section IV.A of the Adoption Agreement,
an Employer shall contribute to the Trust each month a Matching Contribution for
each Participant who has a Participant 401(k) Election in effect.
3.1.3 Each Employer may elect in its sole discretion to make a Nonelective
Contribution for any Plan Year only if the Company executes an Adoption
Agreement which expressly permits Nonelective Contributions to be made. The
Employer shall determine whether the Nonelective Contribution for a Plan Year is
allocated to the Employer Contribution Account for all Participants or only for
Non-Highly Compensated Employees. The allocation is made in the ratio that the
Compensation paid to the Participant for whom the Nonelective Contribution is
made bears to the total Compensation for the Plan Year of all Participants for
whom the Contribution is made.
3.2 General Provisions Concerning Employer Contributions
- --------------------------------------------------------
3.2.1 A Participant 401(k) Election must be in 1% increments and cannot be
less than the minimum percentage, or greater than the maximum percentage,
elected in Section IV.B of the Adoption Agreement. No Participant 401(k)
Election may be made retroactively and no Participant 401(k) Election is
effective before approval by the Administrative Committee.
3.2.2 The amount of the Matching Contribution equals the amount of the
Participant's Elective Deferral multiplied by the percentage elected in Section
IV.A of the Adoption Agreement. The amount of the Matching Contribution is
subject to the maximum percentage of Compensation elected in Section IV.A of the
Adoption Agreement.
3.2.3 All Elective Deferrals are made by payroll deduction.
3.2.4 The Administrative Committee may reduce the amount of any
Participant 401(k) Election, or make such other modifications as necessary so
that the Plan complies with Code Section 401(k).
3.2.5 A Participant 401(k) Election remains in effect until changed or
terminated. The Administrative Committee shall adopt rules and procedures under
which a Participant may make, suspend, reinstate, change, or terminate his
Participant 401(k) Election not less frequently than once a year.
3.2.6 A Participant's initial Participant 401(k) Election and any election
to suspend, reinstate, or change a Participant 401(k) Election must be given to
the Administrative Committee, on a form provided by the Administrative
Committee, and within the time specified by the Administrative Committee.
3.2.7 A Participant 401(k) Election is suspended automatically while a
Participant is not an Eligible Employee.
3.2.8 Contributions to the Plan are not integrated with Social Security.
3.2.9 Contributions to the Plan are subject to the limitations on Elective
Deferrals and Matching Contributions in Appendix A, the limitations on Annual
Additions in Appendix B, and the top-heavy provisions in Appendix C.
3.3 Rollover Contributions
- --------------------------
Any Participant may make a Rollover Contribution to the Plan in cash. If
an Employee makes a contribution that is intended to be a Rollover Contribution
which the Administrative Committee later discovers not to be a Rollover
Contribution, the Administrative Committee will distribute to the Participant as
soon as practicable after discovery that portion of his Participant 401(k)
Account attributable to the mistaken Rollover Contribution. The amount to be
distributed will be determined as of the Valuation Date coincident with or
immediately preceding the discovery.
3.4 Transfer Contributions
- --------------------------
The Trustee may accept, only at the direction of the Administrative
Committee, as part of the Trust a Transfer Contribution. The Administrative
Committee may not approve a Transfer Contribution that would:
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(a) subject the Plan to the requirements of Code Sections 401(a)(11) and 417;
(b) require the Plan to offer a benefit other than a lump sum payment or a
period certain installment; or
(c) include after-tax Employee contributions.
3.5 Establishing of Accounts
- ----------------------------
3.5.1 The Administrative Committee shall establish a Participant 401(k)
Account for each Participant to record all Elective Deferrals that are made on
behalf of a Participant and the earnings and losses allocated to the Elective
Deferrals. The Administrative Committee shall establish separate sub-accounts
(if applicable) within a Participant's Participant 401(k) Account to record:
(a) Rollover Contributions made by a Participant to the Trust and any earnings
or losses allocated to the Rollover Contributions; and
(b) Transfer Contributions transferred to the Trust on behalf of a Participant
and any earnings or losses allocated to the Transfer Contributions.
3.5.2 The Administrative Committee shall establish an Employer Contribution
Account for each Participant to record any Matching Contributions and
Nonelective Contributions that are made to the Trust on behalf of a Participant
and any earnings or losses allocated to those contributions.
3.6 Multiple Trades and Businesses
- ----------------------------------
3.6.1 If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is established
and one or more other trades or businesses, this Plan and all plans established
for the other trades or businesses must, when looked at as a single plan,
satisfy Code Section 401(a) and (d) for the Employees of this and the other
trades or businesses.
3.6.2 If this Plan provides contributions and benefits for one or more
Owner-Employees who control one or more other trades or businesses, the
Employees of each other trade or business must be included in a plan which
satisfies Code Section 401(a) and (d) and which provides contributions and
benefits not less favorable than provided for the Owner-Employees under this
Plan.
3.6.3 If an individual is covered as an Owner-Employee under the plans of two
or more trades or businesses, then the contributions or benefits of the
Employees under a plan of a trade or business which the Owner-Employee controls
must be as favorable as those provided for the Owner-Employee under the most
favorable trade or business which he does not control.
3.6.4 An Owner-Employee is considered to control a trade or business if the
Owner-Employee, either alone or with other Owner-Employees;
(a) owns the entire interest in an unincorporated trade or business; or
(b) in the case of a partnership, owns more than 50% of either the capital
interest or the profits interest in the partnership.
An Owner-Employee is treated as owning any interest in a partnership which is
owned, directly or indirectly, by another partnership controlled by the
Owner-Employee, either alone or with other Owner-Employees.
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ARTICLE IV
Vesting
4.1 Determination of Vesting
- ----------------------------
4.1.1 A Participant has a nonforfeitable percentage of 100% at all times in
the Account Balance of his Participant 401(k) Account.
4.1.2 If the Company elects in Section V of the Adoption Agreement that
Matching Contributions and Nonelective Contributions be immediately 100%
nonforfeitable then Matching Contributions are Qualified Matching Contributions
and Nonelective Contributions are Qualified Nonelective Contributions.
Otherwise, a Participant has a nonforfeitable percentage in the Account Balance
of his Employer Contribution Account determined as follows:
(a) 100%, if he terminates Employment (i) after attaining Normal Retirement Age
or (ii) because of death or disability; or
(b) in accordance with Section V of the Adoption Agreement, if he terminates
Employment for any other reason.
Under this Section, a disability is a physical or mental condition which
results in the Participant becoming eligible for disability benefits under:
(a) the Employer's long term disability plan; or
(b) the Social Security Act, if the Employer does not maintain a long term
disability plan covering the Participant.
4.2 Rules for Crediting Vesting Service
- ---------------------------------------
4.2.1 Unless otherwise elected in Section V of the Adoptation Agreement, all
Years of Service are credited to determine a Participant's Vesting Service.
4.2.2 An Employee's Vesting Service after a Period of Severance of at least 5
years is not counted in computing the nonforfeitable percentage in his Employer
Contribution Account derived from contributions accrued before the Period of
Severance.
4.3 Forfeitures
- ---------------
4.3.1 The non-vested portion of the Employer Contribution Account of a
Participant who has terminated Employment is forfeited as of the date on which
he has a 5-year Period of Severance or, if earlier, upon distribution or deemed
distribution of the Participant's entire Account Balance.
4.3.2 If a Participant who has terminated Employment elects to have
distributed less than the entire nonforfeitable portion of his Employer
Contribution Account, the non-vested portion that is forfeited is the total
nonvested portion multiplied by a fraction, the numerator of which is the amount
of the distribution attributable to Employer contributions and the denominator
of which is the total value of the nonforfeitable portion of his Employer
Contribution Account. The forfeiture will be used to reduce Employer
Contributions. The forfeiture will be restored, however, if the Participant
returns Employment as an Eligible Employee and the Participant repays to the
Plan the full amount of the distribution attributable to his Employer
Contribution Account before the earlier of 5 years after the first date on which
the Participant is subsequently reemployed by an Employer, or the date the
Participant incurs a 5-year Period of Severance following the date of
distribution. For a Participant who has been deemed to have received a
distribution, the forfeiture will be restored, upon reemployment, to the amount
on the date of the deemed distribution, if the Participant returns to Employment
as an Eligible Employee before the Participant incurs a 5-year Period of
Severance.
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ARTICLE V
Amount and Payment of Account Balances
5.1 Termination of Employment
- -----------------------------
Upon termination of Employment, a Participant shall receive, subject to the
rules described below, the sum of:
(a) the Account Balance of his Employer Contribution Account as of the
Valuation Date coincident with or immediately after the date the
Participant terminates Employment, multiplied by his nonforfeitable
percentage determined under Article IV; and
(b) the Account Balance of his Participant 401(k) Account as of that Valuation
Date.
5.2 Payment of Account Balances on Termination of Employment
- ------------------------------------------------------------
5.2.1 If the nonforfeitable portion of a Participant's Account Balances as
of the Valuation Date coincident with or immediately after the termination of
Employment is not more than $3,500, the nonforfeitable portion of the Account
Balances will be paid in a lump sum as soon as practicable thereafter.
5.2.2 If the nonforfeitable portion of a Participant's Account Balances as
of the Valuation Date coincident with or immediately after termination of
Employment is more than $3,500, the Administrative Committee shall notify the
Participant of the right to defer payment of the nonforfeitable portion. The
notification must describe the material features and, if applicable, explain the
relative values of the optional forms of payment available under the Plan in a
manner that would satisfy the notice requirements of Code Section 417(a)(3). The
notification must be provided not less than 30 or more than 90 days before the
Benefit Commencement Date. The nonforfeitable portion of the Participant's
Account Balances will be distributed as soon as practicable after the
Participant elects to receive the distribution, but not later than the close of
the Plan Year in which the Participant attains Normal Retirement Age.
5.2.3 A Participant is deemed to have received a distribution if the
nonforfeitable percentage in his Employer Contribution Account is 0% on
termination of Employment.
5.3 Death Benefit
- -----------------
5.3.1 The benefit payable to a Beneficiary on the death of a Participant
before the commencement of benefits equals the sum of the Participant's Account
Balances as of the Valuation Date coincident with or immediately after the date
of the Participant's death. The benefit payable to a Beneficiary on the death of
a Participant after distribution of his interest has begun, but before
distribution has been completed, equals the remaining portion of the
Participant's interest. The Beneficiary will be paid the benefit in a lump sum
within 90 days after the Administrative Committee has been notified of the
Participant's death unless payment is impracticable or the Beneficiary cannot be
located.
5.4 Beneficiaries
- -----------------
5.4.1 Each Participant shall designate one or more direct or contingent
Beneficiaries to receive any amounts which may become payable under the Plan
upon the Participant's death. A Participant's designation of a Beneficiary must
be filed with the Administrative Committee on a form provided by the
Administrative Committee.
5.4.2 Any designation of a Beneficiary may be revoked by filing a later
designation or an instrument of revocation with the Administrative Committee in
a time and manner designated by the Administrative Committee. The last
designation received by the Administrative Committee is controlling over any
testamentary or other disposition. However, no designation, or change or
cancellation of a designation, is effective unless received by the
Administrative Committee before the Participant's death, and in no event may it
be effective as of a date before receipt.
5.4.3 A married Participant's spouse must consent to a designation of a
Beneficiary other than the spouse. The spouse's consent to the designation must
be witnessed by a notary public or by a Plan representative and is effective
only with respect to the Beneficiary or Beneficiaries specified in the
designation (unless the consent expressly provides that the designation may be
changed without further consent from the spouse). If the Participant establishes
to the satisfaction of a Plan representative that written consent cannot be
obtained because there is no spouse or the spouse cannot be located, the
designation will be deemed effective. In addition, if the spouse is legally
incompetent to give consent, then the spouse's legal guardian, even if the
guardian is the Participant, may give consent. If a Participant is legally
abandoned or has been separated (under the state law of the Participant's
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<PAGE>
residence) and the Participant has a court order to that effect, spousal
consent is not required unless a Qualified Domestic Relations Order provides
otherwise. Any consent necessary under this provision is valid only with respect
to the spouse who signs the consent. A Participant may revoke a prior waiver
without the consent of the spouse at any time before the commencement of
benefits. The number of revocations is not limited.
5.5.4 If a Participant is not married and fails to designate a Beneficiary,
or if no designated Beneficiary survives the Participant, any amounts due after
the Participants death will be paid to his then living issue, per stirpes, but
if the Participant is not survived by issue, then to the legal representative of
his estate in a single lump sum.
5.4.5 Subject to any Qualified Domestic Relations Order procedures as may be
established, if at any time any doubt exists about the right of any person to
any payment under the Plan, or about the amount or time of the payment, the
Administrative Committee may direct the Trustee to (a) hold the sum as
segregated amount in trust until the right, amount, or time is determined or
until there is an order of a court of competent jurisdiction, (b) pay the sum
into court in accordance with appropriate rules of law in such case then
provided, or (c) pay the sum only upon receipt of a bond or similar
indemnification (in such amount and in such form as is satisfactory to the
Administrative Committee).
5.4.6 If a period certain distribution is elected, and a Beneficiary dies
after the death of the Participant but before distribution of the Participant's
entire Account Balances, then the remainder is paid to the estate of the
Beneficiary.
5.4.7 No Beneficiary has any rights to benefits under the Plan unless he
survives the Participant.
5.4.8 A Participant's former spouse is treated as his spouse to the extent
provided under a Qualified Domestic Relations Order.
5.4.9 If the Participant and his Beneficiary die so that it is not possible
to determine who died first, it is presumed that the Participant survived the
Beneficiary.
5.5 Limitation on Commencement of Benefits
- ------------------------------------------
5.5.1 A Participant must begin to receive his benefits no later than the
60th day after the close of the Plan Year in which the latest of the following
occurs:
(a) the Participant attains Normal Retirement Age;
(b) the 10th anniversary of the year in wich the Participant commenced
participation; or
(c) the Participant terminates Employment.
If the amount of benefits payable cannot be determined within the 60-day
period, or if it is not possible to pay the benefits within that period because
the Administrative Committee has been unable to locate the Participant after
making reasonable efforts to do so, then a payment, retroactive to the 60th day,
will be made no later than 60 days after the earliest date on which the amount
of the benefits can be determined or the Participant can be located, as the case
may be.
5.5.2 In addition, a Participant must begin to receive his benefits no later
than the first day of April following the calendar year in which he attains age
70 1/2. All distributions under this Plan must be made in accordance with
Appendix D.
5.6 Withdrawals Before Termination of Employment
- ------------------------------------------------
5.6.1 Each Participant who has attained age 59 1/2 may withdraw, as of the
Valuation Date immediately preceding the filing of an application with the
Administrative Committee, all or any part of the nonforfeitable portion of his
Account Balances.
5.6.2 Each Participant who has not attained age 59 1/2 may make a hardship
withdrawal from his Participant 401(k) Account if he demonstrates to the
Administrative Committee that the withdrawal is necessitated by the
Participant's immediate and heavy financial need and the Participant lacks the
available resources. A hardship withdrawal may not exceed the amount of the
immediate and heavy financial need and is limited to the Participant's Elective
Deferrals, Rollover Contributions, and Transfer Contributions and may not
include amounts treated as Elective Deferrals under Section A.4.
5.6.3 A distribution is deemed to be made on account of an immediate or
heavy financial need of the Participant only if the distribution is on account
of:
(a) medical expenses described in Code Section 213(d), incurred by the
Participant, Participant's spouse, or any dependents of the Participant
(within the meaning of Code Section 152);
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<PAGE>
(b) purchase (excluding mortgage payments) of a principal residence for the
Participant;
(c) payment of tuition for the next semester or quarter of post-secondary
education for the Participant, his spouse, children, or dependents; or
(d) the need to prevent the eviction of the Participant from his principal
residence or foreclosure on the mortgage of the Participant's principal
residence.
5.6.4 Before receiving a hardship withdrawal, a Participant must obtain all
distributions and all nontaxable loans under all plans maintained by the Company
or an Affiliate.
5.6.5 A Participant who receives a hardship withdrawal is suspended from
making any Elective Deferrals for 12 months after receiving the distribution.
The maximum amount of Elective Deferrals for the Participant's taxable year
after the taxable year of the hardship withdrawal is the dollar limit under
Section A.2 less the amount of the Participant's Elective Deferrals for the
taxable year of the hardship withdrawal.
5.6.6 The minimum hardship withdrawal is $500.
5.6.7 The Adminstrative Committee shall establish rules and procedures with
respect to any withdrawal, including (a) the requirements for requesting and
receiving the hardship withdrawals and (b) suspension from further Elective
Deferrals.
5.7 Loans
- ---------
5.7.1 A Participant may submit an application to borrow from his Participant
401(k) Account and Employer Contribution Account (on such terms and conditions
as the Administrative Committee may prescribe). The amount of the loan may not
exceed the lesser of: (a) $50,000 reduced by the excess (if any) of the highest
outstanding balance of all other loans from the Plan during the one-year period
ending on the date on which the loan was made, over the outstanding balance of
loans from the Plan on the date on which the loan was made or (b) 50% of the sum
of the Account Balance in his Participant 401(k) Account and the nonforfeitable
portion of the Account Balance in his Employer Contribution Account on the
Valuation Date coincident with or immediately preceding the filing of the loan
application with the Administrative Committee.
5.7.2 If approved, each loan must comply with the following conditions:
(a) it must be evidenced by a negotiable promissory note;
(b) the rate of interest payable on the unpaid balance of the loan must equal
the prevailing interest rate charged by a bank for a secured personal loan,
but may not exceed the rate that may be imposed by the state's usury law,
if violation of that law subjects the violator to criminal sanctions;
(c) the loan, by its terms, must be entirely repaid within 5 years;
(d) the loan must be secured by the Participant's interest in his Account
Balances and such additional collateral as the Administrative Committee may
from time to time consider prudent;
(e) the loan must be repaid with respect to both principal and interest in
substantially equal payments over the life of the loan, with payments not
less frequently than quarterly;
(f) the minimum loan under the Plan will be $500;
(e) no more than one loan may be outstanding at any time; and
(h) in the event of the Participant's termination from Employment, the
remaining payments on the loan will be due immediately.
The level amortization requirement in paragraph (e) does not apply to a period
when a Participant is on leave of absence without pay for up to one year.
Nothing in the Plan precludes repayment or acceleration of the loan before the
end of the commitment period or the use of a variable interest rate under
paragraph (b).
5.7.3 If a Participant is granted a loan, the Administrative Committee shall
establish a "loan account" for the Participant. The Trustee shall hold all loan
accounts as part of the Trust. The Trustee shall transfer the amount of the loan
to the loan account from the Participant 401(k) Account and Employer
Contribution Account on a pro rata basis. The amounts transferred shall be
--- ----
withdrawn from the Investment Funds in accordance with rules established by the
Administrative Committee. The Trustee shall deposit the promissory note executed
by the Participant in his loan account. For purposes of the Plan, the promissory
note is deemed to have a fair market value at any given time equal to the unpaid
balance of the note plus accrued but unpaid interest.
5.7.4 Principal and interest payments of a Participant's loan are credited
initially to that Participant's loan account and are transferred as soon as
reasonably practicable to the Participant's Accounts from which the loan amount
was originally withdrawn on a pro rata basis. The amounts transferred are
--- ----
reinvested in the Investment Funds in accordance with rules established by the
Administrative Committee.
5.7.5 Any loss caused by nonpayment or other default on a Participant's loan
obligations is borne solely by the Participant's loan account. The the extent
permissable at law, in the event of a default, foreclosure on the promissory
note and attachment of security will not occur until an event occurs that would
allow or require a distribution of a Participant's Account Balances.
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<PAGE>
5.7.6 All fees and expenses incurred in connection with a Participant's loan
obligation are borne solely by the Participant's loan account.
5.7.7 The Administrative Committee shall make loans available to all
Participants and Beneficiaries who are parties in interest with respect to the
Plan within the meaning of ERISA Section 3(14).
5.7.8 Loans may not be made available to Highly Compensated Employees in an
amount greater than that available to other Employees.
5.7.9 A Participant's loan request will be cancelled if the Participant dies
before the loan amount requested is actually distributed.
5.7.10 No loans may be made available to any shareholder-employee or
Owner-Employee unless the Plan receives an exemption from the Department of
Labor for such loan which exemption is received wholly at the Employee's
expense. A shareholder-employee is an employee or officer of an electing small
business (Subchapter S) corporation who owns (or is considered as owning under
Code Section 318(a)(1)), on any day during the taxable year of the Corporation,
more than 5% of the outstanding stock of the Corporation.
5.8 Additional Distribution Events
- ----------------------------------
In addition to the other distribution events set forth in this Article and
Appendix A, a Participant is eligible to receive a distribution from the Plan,
either total or partial, upon the occurrence of any of the following events:
(a) termination of the Plan without the establishment of another defined
contribution plan;
(b) disposition by a corporation to an unrelated corporation of substantially
all of the assets (within the meaning of Section 409(d)(2) of the Code) used
in a trade or business of such corporation if such corporation continues to
maintain this Plan after the disposition, but only with respect to Employees
who continue employment with the corporation acquiring such assets; or
(c) disposition by a corporation to an unrelated entity of such corporation's
interest in a subsidiary (within the meaning of Section 409(d)(3) of the
Code) if such corporation continues to maintain this Plan, but only with
respect to Employees who continue employment with such subsidiary.
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ARTICLE VI
Forms of Payment of Accounts
6.1 Normal Form of Payment
- --------------------------
The normal form of payment is a lump sum benefit.
6.2 Optional Form of Payment
- ----------------------------
The only optional form of payment is in installments over a period certain.
The period may not extend beyond the life expectancy of the Participant or the
joint life expectancy of the Participant and his beneficiary.
6.3 Election of Optional Form
- -----------------------------
6.3.1 Not more than 90 nor less than 30 days before a Participant's Benefit
Commencement Date, the Administrative Committee shall furnish the Participant
with a notice containing information about electing the form in which benefits
are to be paid. Each participant may elect in writing not to take the normal
form of payment and to elect the optional form of payment. The election period
is the 90-day period ending on the Participant's Benefit Commencement Date. The
Administrative Committee may, on a uniform and nondiscriminatory basis, provide
for other periods that comply with regulations issued under Code Section
401(a)(11) and Code Section 417.
6.3.2 A Participant may revoke an election to take an optional form of
payment, and elect the normal form of payment, at any time during the election
period.
6.4 Limitation on Options
- -------------------------
A Participant or a Beneficiary may not elect to receive benefits in either
of the following forms:
(a) a benefit in such form that, as of the time payment commences, the present
value of the benefits payable to the Participant or Beneficiary is less
than 50% of the total benefits payable or that would violate the incidental
death benefit rule; or
(b) a benefit in such form that all or any portion of the value of the benefit
otherwise payable to the Participant during his lifetime is either (i) paid
instead to his Beneficiary or (ii) set aside for payment to his survivor at
death.
6.5 Change in the Form or Timing of Payment
- --------------------------------------------
Any Participant or Beneficiary whose payments are being deferred or who is
receiving installment payments may request acceleration or other
modification of the form of distribution.
6.6 Conditions to Distribution
- ------------------------------
Before any distribution is made, the Participant or Beneficiary must furnish
the Administrative Committee with all applications, certificates, tax waivers,
signature guarantees, and any other documents which the Administrative Committee
considers necessary or advisable.
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ARTICLE VII
Fiduciaries
7.1 Named Fiduciaries
- ---------------------
7.1.1 The Board of Directors, the Administrative Committee, and the Trustee
are each a "named fiduciary" of the Plan, as that term is defined in ERISA
Section 402(a)(2), but only for the specific responsibilities of each described
in the Plan or the trust agreement establishing the Trust.
7.1.2 The Board of Directors has the sole authority to appoint and remove the
members of the Administrative Committee and the Trustee. The Administrative
Committee has the sole authority to control and manage the operation and
administration of the Plan, other than authority to manage and control Plan
assets. The Administrative Committee has the sole authority to approve the
Investment Funds established by the Trustee. The Administrative Committee is the
"administrator" and "plan administrator" of the Plan, as those terms are defined
in ERISA Section 3(16)(A) and in Code Section 414(g), respectively. The Trustee
has the sole authority to manage and control all Trust assets.
7.2 Employment of Advisers
- --------------------------
A named fiduciary, and any fiduciary appointed by a named fiduciary, may
employ one or more persons to render advice with regard to any responsibility of
the named fiduciary or fiduciary under the Plan.
7.3 Multiple Fiduciary Capacities
- ---------------------------------
Any fiduciary may serve in more than one fiduciary capacity with respect to
the Plan.
7.4 Payment of Expenses
- -----------------------
7.4.1 The Administrative Committee may elect that all transactional costs or
charges imposed or incurred for an Investment Fund be charged to the Account of
the Participant directing the investment. Transactional costs and charges
include charges for the acquisition, sale, or exchange of assets, brokerage
commissions, service charges, loan expenses, and professional fees.
7.4.2 All other Plan expenses, including expenses of the Administrative
Committee and the Trustee, to the extent permitted by law, are paid by the
Trust. However, an Employer may elect to pay these expenses.
7.5 Indemnification
- -------------------
To the extent not prohibited by state or federal law, the Company or an
Affiliate will indemnify and hold harmless any named fiduciary or any other
Employee, officer, or director of the Company or an Affiliate from all claims
for liability, loss, or damage (including payment of expenses in connection with
defense against any claim) which result from any exercise or failure to exercise
any responsibilities with respect to the Plan, other than willful misconduct or
willful failure to act.
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<PAGE>
ARTICLE VIII
Plan Administration
8.1 Administrative Committee
- ----------------------------
8.1.1 Unless the Board of Directors otherwise provides, any member of the
Administrative Committee who is an Employee of the Company or an Affiliate when
appointed will be considered to have resigned from the Administrative Committee
when no longer an Employee. Employees of the Company or an Affiliate may receive
no compensation for their services rendered to or as members of the
Administrative Committee.
8.1.2 The Administrative Committee shall act by a majority of its members at
the time in office and any action may be taken either by a vote at a meeting or
in writing without a meeting. However, if less than three members are appointed,
the Administrative Committee shall act only upon the unanimous consent of its
members. The Administrative Committee may authorize in writing any person to
execute any document or documents on its behalf. Any interested person, upon
receipt of notice of the authorization directed to it may accept and rely on any
document executed by the authorized person until the Administrative Committee
delivers to the interested person a written revocation of the authorization.
8.1.3 A member of the Administrative Committee who is also a Participant may
not vote or act upon any matter relating to himself.
8.2 Powers and Duties of the Administrative Committee
- -----------------------------------------------------
8.2.1 The Administrative Committee has discretionary authority to construe
the Plan and determine all questions of fact or interpretation that may arise.
Any construction or determination is conclusively binding on all persons
interested in the Plan.
8.2.2 The Administrative Committee may promulgate such rules and procedures
and issue such forms as it considers necessary or proper for the administration
of the Plan.
8.2.3 The Administrative Committee shall maintain or cause to be maintained
sufficient records of employment, compensation, and other relevant data
pertaining to Participants, including records which demonstrate compliance with
the nondiscrimination requirements with Code Section 401(k) (including the
extent to which Qualified Matching Contributions are treated as Elective
Deferrals) and 401(m) (including the extent to which Elective Deferrals are
treated as Matching Contributions).
8.2.4 Subject to the terms of the Plan, the Administrative Committee shall
determine the time and manner in which all elections authorized by the Plan will
be made or revoked.
8.2.5 The Administrative Committee shall establish a claims procedure.
8.2.6 The Administrative Committee may require a Participant or Beneficiary
to file an application for a benefit and to furnish all pertinent information it
may request. The Administrative Committee may rely on all information furnished,
including the Participant's or Beneficiary's current mailing address.
8.2.7 The Administrative Committee may make and deal with any investment of
the Trust in any manner consistent with the Plan which it considers advisable.
8.2.8 The Administrative Committee shall establish and carry out a funding
policy consistent with the objectives of the Plan and the requirements of ERISA.
8.2.9 The Administrative Committee has all the rights, power, duties, and
obligations granted or imposed upon it elsewhere in the Plan.
8.2.10 The Administrative Committee must exercise its responsibilities in a
uniform and nondiscriminatory manner.
8.3 Delegation of Responsibility
- --------------------------------
The Administrative Committee may designate persons, including persons other
than named fiduciaries, to carry out the specified responsibilities of the
Administrative Committee and will not be liable for any act or omission of a
person so designated.
8.4 Trustee
- -----------
8.4.1 The Trustee shall accept its appointment by executing a trust agreement
as Trustee.
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<PAGE>
8.4.2 The Trustee may make and deal with any investment of the Trust in any
manner consistent with the Plan and the trust agreement which it considers
advisable.
8.4.3 The Trustee has all the rights, powers, duties, and obligations granted
or imposed upon it elsewhere in the Plan or in the trust agreement.
8.4.4 The Trustee must exercise all of its responsibilities in a uniform and
nondiscriminatory manner.
8.4.5 The Trustee may designate persons, including persons other than named
fiduciaries, to carry out the specified responsibilities of the Trustee and will
not be liable for any act or omission of a person so designated.
8.4.6 The Trustee shall be paid such reasonable compensation, in addition to
its expenses, as the Board of Directors and the Trustee agree upon from time to
time; provided, however, that no compensation may be paid to any person who is
an Employee.
8.5 Investment of Accounts
- --------------------------
8.5.1 It is intended that the Plan meet the requirements of ERISA Section
404(c). In this regard, the Trustee, with the approval of the Administrative
Committee, shall establish, or terminate, Investment Funds for the investment of
a Participant's Accounts. Each Investment Fund shall have the investment
objective or objectives as established by the Trustee in accordance with ERISA
Section 404(c). The Trustee's selection of Investment Funds must comply with the
following rules:
(a) no assets of the Trust, excluding assets which have been invested in an
Investment Fund, shall be invested in any security issued by the Company
or any affiliate of the Company;
(b) each Investment Fund shall limit investment in any security issue by any
Company which establishes a plan using the Sponsor's prototype documents or
by any affiliate of any such Company to the extent required for the
exemption contained in Section 3(a)(2) of the Securities Act of 1933, as
amended, to be available with respect to the plan and the interests
therein; and
(c) each Investment Fund shall, to the extent required to satisfy the
requirements of ERISA Section 404(c), prohibit investment in any security
issued by any Company which establishes a Plan using the Sponsor's
prototype documents or by any affiliate of any such Company.
8.5.2 The Trustee shall adopt rules and procedures for the Investment Funds in
accordance with ERISA Section 404(c) that, among other things, (a) allow
Participants to determine the portion of their Accounts that will be invested
in each Investment Fund and (b) determine what transfers between Investment
Funds will be allowed.
8.6 Valuation of Accounts
- -------------------------
A Participant's Accounts are revalued at fair market value on each Valuation
Date. On that date, the earnings and losses of the Investment Funds are
allocated in the ratio that the portion of the Participant's Account Balances
invested in a particular Investment Fund bears to the total amount invested in
that Investment Fund. The Trustee shall adopt rules and procedures for valuing a
Participant's Account Balances and allocating earnings and losses of the
Investment Funds.
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<PAGE>
ARTICLE IX
Plan Amendment or Termination
9.1 Plan Amendment
- ------------------
9.1.1 The Sponsor may amend any part of the Plan at any time including
retroactive amendments necessary to assure that the Plan qualifies or continues
to qualify under the Code, Regulations, Revenue Rulings, and any other
guidelines published by the Internal Revenue Service. The Sponsor shall provide
written notice of any amendment to the Company.
9.1.2 The Company may at any time amend the choice of options in the Adoption
Agreement, by an instrument in writing, effective retroactively or otherwise.
9.1.3 The Company may at any time amend the Plan by adding overriding
language to the Adoption Agreement where the language is necessary to satisfy
Code Sections 415 or 416 because of the required aggregation of multiple plans
under those sections.
9.1.4 The Company also may at any time amend the Plan by adding model
amendments published by the Internal Revenue Service and which specifically
provide that their adoption will not cause the Plan to be treated as
individually designed.
9.1.5 In accordance with the preceding provisions, the Company shall give the
Sponsor an executed copy of any amendment to the Adoption Agreement or the Plan.
9.1.6 Except for amendments described in this Section, a Company that amends
any portion of this Plan and its Adoption Agreement (other than to change the
choice of options) will be deemed to have adopted an individually designed plan.
In addition, the Sponsor may deem any amendment described in Sections 9.1.3 and
9.1.4 as causing the Plan to be treated as an individually designed plan, and
the Company will no longer be an adopting employer of the Sponsor's "prototype
plan" (as defined in Section 3.02 of Rev. Proc. 89-9).
9.2 Limitations on Plan Amendment
- ---------------------------------
9.2.1 No Plan amendment, including the revision of any option selected in the
Adoption Agreement or the adoption of a new "prototype plan" (as defined in
Section 3.02 of Rev. Proc. 89-9), may:
(a) authorize any part of the Trust to be used for, or diverted to, purposes
other than for the exclusive benefit of Participants or their
Beneficiaries;
(b) increase the duties or liabilities of the Trustee or affect the Trustee's
fees for services, unless the Trustee consents in writing;
(c) decrease the accrued benefits of any Participant or Beneficiary under the
Plan except to the extent permissible under Code Section 412(c)(8);
(d) eliminate an optional form of benefit of any Participant or Beneficiary for
the payment of Account Balances attributable to Employment before the
amendment, except to the extent permissible by law;
(e) reduce the nonforfeitable percentage of any Employee who is a Participant
as of the date the amendment is (i) adopted or if later, (ii) effective; or
(f) change the vesting schedule, unless each Participant having not less than 3
years of Vesting Service is permitted to elect, within a reasonable period
specified by the Administrative Committee after the adoption of the
amendment, to have his nonforfeitable percentage computed without regard to
the amendment. However, no election need be provided to any Participant
whose nonforfeitable percentage under the Plan, as amended, at any time
cannot be less than the percentage determined without regard to the
amendment.
9.2.2 The period during which the election may be made will commence with the
date the amendment is adopted and end as the later of:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice by the
Administrative Committee.
9.3 Right of the Company to
Terminate Plan or Discontinue Contributions
- -----------------------------------------------
The Company has the bona fide intention and expectation that from year to year
it will be able to and will consider it advisable to continue this Plan in
effect and to make contributions. However, the Company reserves the right to
terminate the Plan with respect to its Employees at any time by an instrument in
writing delivered to the Administrative Committee or to completely discontinue
its contributions at any time.
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<PAGE>
9.4 Effect of Partial or Complete Termination
or Complete Discontinuance of Contributions
- -----------------------------------------------
9.4.1 As of the date of a partial termination of the Plan no further
contributions or allocations of forfeitures will be made after that date with
respect to each affected Participant, and each affected Participant who is then
an Employee will become 100% vested in his Employer Contribution Account.
9.4.2 As of the date of the complete termination of the Plan, or the complete
discontinuance of contributions under the Plan:
(a) no further contributions or allocations of forfeitures will be made after
that date;
(b) no Employee may become a Participant after that date; and
(c) each Participant who is then an Employee will become 100% vested in his
Employer Contribution Account.
9.4.3 All other provisions of the Plan will remain in effect unless otherwise
amended.
9.5 Distribution Upon Termination
- ---------------------------------
As soon as administratively feasible after the date of termination of the
Plan, the Participant's Account will, without the Participant's consent, be
distributed to the Participant or transferred to another defined contribution
plan (other than an employee stock ownership plan as defined in Code Section
4975(e)(7)) maintained by the Company or an Affiliate.
9.6 Bankruptcy
- --------------
If the Company is at any time judicially declared bankrupt or insolvent
without any provision being made for the continuation of this Plan, the Plan
will be completely terminated in accordance with Section 9.4.2.
9.7 Action by Company
- ---------------------
If the Company is a corporation, any action by the Company under this Plan
must be by resolution of its Board of Directors, or by any person duly
authorized by resolution of the Board to take the action.
If the Company is a partnership, then any action by the Company must be by
written action of any general partner, and if the Company is a self-employed
business, then by its sole proprietor.
-20-
<PAGE>
ARTICLE X
Miscellaneous Provisions
10.1 Exclusive Benefit of Participants
- --------------------------------------
At no time may any part of the Trust (other than such part as is required to
pay expenses) be used for, or diverted to, purposes other than for the exclusive
benefit of Participants or their Beneficiaries, except that, upon the direction
of the Administrative Committee:
(a) any contribution made by an Employer by a mistake of fact will be returned
by the Trustee within 1 year after the payment of the contribution;
(b) any contribution made by an Employer will be returned by the Trustee within
1 year after the denial of initial qualification of the Plan under Code
Section 401(a); and
(c) any contribution made by an Employer will be returned by the Trustee to the
extent disallowed as a deduction under Code Section 404 within 1 year after
the disallowance.
10.2 Plan Not a Contract of Employment
- --------------------------------------
The Plan is not a contract of Employment. The terms of Employment of any
Employee are not affected in any way by the Plan or related instruments except
as specifically provided therein.
10.3 Type of Plan
- -----------------
The Plan is a profit sharing plan for purposes of Code Sections 401(a), 402,
412, and 417.
10.4 Source of Benefits
- -----------------------
Benefits under the Plan are paid or provided for solely from the Trust, and
the Company, Participant Affiliates, and any fiduciary to the Plan assume no
liability therefor. No Employee, Participant, former Participant, or Beneficiary
has any right to, or interest in, any assets of the Trust on termination of
Employment or otherwise, except as specifically provided under the Plan.
10.5 Benefits Not Assignable
- ----------------------------
Benefits provided under the Plan may not be assigned or alienated either
voluntarily or involuntarily, except for loans as provided in Section 5.7 or as
may otherwise by required by law. The preceding sentence also applies to the
creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless the
order is determined to be a Qualified Domestic Relations Order. The
Administrative Committee has all powers necessary with respect to the Plan for
the proper operation of Code Section 414(p) with respect to Qualified Domestic
Relations Orders including, but not limited to, the power to establish all
necessary or appropriate procedures, to authorize the establishment of new
accounts with such assets and subject to such investment control by the
Administrative Committee as the Administrative Committee may consider
appropriate, and the Trustee may decide upon and make appropriate distributions
therefrom.
10.6 Merger or Transfer of Assets
- ---------------------------------
10.6.1 The merger or consolidation of an Employer with any other person, or
the transfer of the assets of an Employer to any other person, or the merger of
the Plan with any other plan will not constitute a termination of the Plan.
10.6.2 The Plan may not merge or consolidate with, or transfer any assets or
liabilities to, any other plan, unless each Participant would (if the Plan then
terminated) receive a benefit immediately after the merger, consolidation, or
transfer equal to or greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation, or transfer (if the Plan
had then terminated).
-21-
<PAGE>
10.7 Participation in the Plan by an Affiliate
- ----------------------------------------------
10.7.1 With the Company's consent, any Affiliate, by appropriate action of
its board of directors, a general partner, or the sole proprietor, as the case
may be, may adopt the Plan. The Affiliate will determine the classes of its
Employees eligible to participate in this Plan.
10.7.2 A Participating Affiliate may terminate its participation in the Plan
with the Company's consent.
10.7.3 A Participating Affiliate may withdraw from the Plan and the Trust
with the Company's consent. The withdrawal will be deemed an adoption by the
Participating Affiliate of a plan and trust identical to the Plan and the
Trust, except that all references to the Company will be deemed to refer to the
Participating Affiliate. At such time and in such manner as the Trustee directs,
the assets of the Trust allocable to Employees of the Participating Affiliate
will be transferred to the trust deemed adopted by the Participating Affiliate.
10.7.4 A Participating Affiliate has no power with respect to the Plan
except as specifically provided in the Plan.
10.8 Conditional Adoption
- -------------------------
The Company has adopted the Plan on the express condition that the Internal
Revenue Service will consider it as initially qualifying under Code Section
401(a) and the Trust qualifying for exemption from taxation under Code Section
501(a). If the Internal Revenue Service determines that the Plan or Trust does
not so qualify, the Plan may be amended or terminated as decided by the Company.
If the Plan is terminated, the Company may withdraw its contributions and the
rights of all Employees will cease as if the Plan had never been adopted.
10.9 Inability to Locate Participant or Beneficiary
- ---------------------------------------------------
If, after the exercise of due diligence by the Administrative Committee, a
Participant or Beneficiary to whom Plan benefits are due cannot be located, the
Trustee shall hold benefits as a segregated amount in trust for a period one
month less than the relevant state escheat law to the extent that the escheat
law is not preempted by ERISA. If not claimed by that date, the amount will be
treated as a forfeiture and used to reduce future Employer contributions.
However, if the Participant or Beneficiary is subsequently located and makes a
claim for Plan benefits, the amount forfeited under the preceding sentence will
be restored.
10.10 Application of Prior Plan
- -------------------------------
The Plan benefit of any Participant who terminates Employment is determined in
accordance with the provisions of the Plan in effect on the date of the
termination of Employment.
Where the Plan constitutes a restatement and amendment of a predecessor plan
of the Company, that plan will be applied to the extent permitted by law in
determining the rights and duties of any persons with respect to any allocations
before the Effective Date.
10.11 Failure of Qualified Status
- ---------------------------------
If the Company fails to attain or retain this Plan as a plan which qualifies
under Code Section 401, then the Plan as adopted by the Company will no longer
represent a prototype plan covered by an opinion letter issued by the Internal
Revenue Service to the Sponsor as to the acceptability of the form of the Plan
under Code Section 401(a). Rather, it will be considered an individually
designed plan.
-22-
<PAGE>
APPENDIX A
Limitations on Elective Deferrals
and Matching Contributions
A.1 Definitions
- ---------------
These terms have the following meanings in this Appendix:
Actual Deferral Percentage: The ratio of Elective Deferrals (and Qualified
Matching Contributions and Qualified Nonelective Contributions to the extent
treated as Elective Deferrals under Section A.4) on behalf of the Eligible
Participant for the Plan Year to the Eligible Participant's Compensation for the
Plan Year. In calculating the Actual Deferral Percentage, Elective Deferrals
include Excess Deferral Amounts, but do not include Elective Deferrals that are
taken into account in the Average Contribution Percentage Test (provided the
Actual Deferral Percentage test is satisfied both with and without the exclusion
of these Elective Deferrals). The Actual Deferral Percentage of an Eligible
Participant who does not make an Elective Deferral is zero. The amount of
Compensation taken into account for an Employee who is an Eligible Participant
at any time during the Plan Year, including the first Plan Year, equals the
total Compensation received by the Employee for the Plan Year Plan Year
(whether or not the Participant was an Eligible Participant for the entire Plan
Year).
Aggregate Limit: The greater of (a) or (b), where:
(a) is the sum of (i) 1.25 multiplied by the greater of the Average Actual
Deferral Percentage or the Average Contribution Percentage for Eligible
Participants who are Non-Highly Compensated Employees and (ii) the lesser
of 200% or 2 plus the lesser of the Average Actual Deferral Percentage or
the Average Contribution Percentage for Eligible Participants who are Non-
Highly Compensated Employees; and
(b) is the sum of (i) 1.25 multiplied by the lesser of the Average Actual
Deferral Percentage or the Average Contribution Percentage for Eligible
Participants who are Non-Highly Compensated Employees and (ii) the lesser
of 200% or 2 plus the greater of the Average Actual Deferral Percentage or
the Average Contribution Percentage for Eligible Participants who are Non-
Highly Compensated Employees.
Average Actual Deferral Percentage: The average of the Actual Deferral
Percentages of the Eligible Participants in a group.
Average Contribution Percentage: The average of the Contribution Percentages of
the Eligible Participants in a group.
Contribution Percentage: The ratio of Matching Contributions (and Elective
Deferrals and Qualified Nonelective Contributions to the extent treated as
Matching Contributions under Section A.6) on behalf of the Eligible Participant
for the Plan Year to the Eligible Participant's Compensation for the Plan Year.
Eligible Participant: To determine the Actual Deferral Percentage, any Employee
who is eligible to have Elective Deferrals allocated to his Participant 401(k)
Account for the Plan Year. To determine the Contribution Percentage, any
Employee who is eligible to have Matching Contributions allocated to his
Employer Contribution Account for the Plan Year.
Excess Aggregate Contributions: For any Plan Year, the excess of:
(a) the aggregate amount of Matching Contributions (and participant
contributions to another plan and, if applicable, Elective Deferrals and
Qualified Nonelective Contributions) actually made on behalf of Highly
Compensated Employees for the Plan Year, over
(b) the maximum amount of those contributions permitted under the Average
Contribution Percentage test in Section A.6 (determined by reducing
contributions made on behalf of Highly Compensated Employees in the order
of their Contribution Percentages beginning with the highest Contribution
Percentage).
Excess Contributions: For any Plan Year, the excess of:
(a) the aggregate amount of Elective Deferrals (and, if applicable, Qualified
Matching Contributions and Qualified Nonelective Contributions) actually
made on behalf of Highly Compensated Employees for the Plan Year, over
(b) the maximum amount of those contributions permitted under the Actual
Deferral Percentage test in Section A.4 (determined by reducing
contributions made on behalf of Highly Compensated Employees in the order
of their Actual Deferral Percentages beginning with the highest Actual
Deferral Percentage).
Excess Deferral Amount: The amount of Elective Deferrals for a calendar year
that are includible in a Par-
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<PAGE>
ticipant's gross income under Code Section 402(g) to the extent the
Participant's Elective Deferrals exceed the dollar limitation under Code Section
402(g).
Matching Contribution: Under this Appendix, Matching Contribution also includes
Employer contributions made to any other defined contribution plan on behalf of
a Participant on account of a participant contribution made to any other plan of
an Employer or on account of the Participant's Elective Deferrals to this or any
other plan of an Employer.
A.2 Maximum Amount of Elective Deferrals
- ----------------------------------------
No Employee may have Elective Deferrals under this Plan, or any other
qualified plan of an Employer, during any taxable year in excess of the dollar
limitation in Code Section 402(g) in effect at the beginning of that taxable
year.
A.3 Excess Deferral Amounts
- ---------------------------
A.3.1 Excess Deferral Amounts and income allocable to those amounts will be
distributed no later than April 15 of each year to Participants who claim
allocable Excess Deferral Amounts for the preceding calendar year.
A.3.2 The Participant's claim must be written and submitted to the
Administrative Committee no later than March 1. The claim must specify the
Participant's Excess Deferral Amount for the preceding calendar year and must be
accompanied by the Participant's written statement that if those amounts are not
distributed, the Excess Deferral Amount, when added to amounts deferred under
other plans or arrangements described in Code Section 401(k), 402(h)(1)(B),
403(b), 457, 501(c)(18) exceeds the limit imposed on the Participant by Code
Section 402(g) for the year in which the deferral occurred.
A.3.3 The Excess Deferral Amount distributed to a Participant is adjusted for
income or loss. Income and loss allocable to Excess Deferral Amounts equals the
sum of:
(a) income or loss allocable to the Participant's Elective Deferrals for the
taxable year multiplied by a fraction, the numerator of which is the
Participant's Excess Deferral Amount for the taxable year, and the
denominator is the Account Balance in his Participant 401(k) Account
attributable to Elective Deferrals on the last day of that taxable year
without regard to any income or loss occurring during that taxable year;
plus
(b) 10% of the amount determined under (a) multiplied by the number of months
between the end of the Participant's taxable year and the date of
distribution, counting the month of distribution if distribution occurs
after the 15th of the month.
A.3.4 The Excess Deferral Amount distributed to a Participant is reduced by
any Excess Contributions previously distributed to the Participant for the Plan
Year beginning with or within that taxable year. In no event may the amount
distributed exceed the Participant's total Elective Deferrals for the taxable
year.
A.3.5 Excess Deferral Amounts are treated as Annual Additions under
Appendix B.
A.4 Actual Deferral Percentage Test
- -----------------------------------
A.4.1 The Average Actual Deferral Percentage for Eligible Participants who
are Highly Compensated Employees for the Plan Year may not exceed:
(a) the Average Actual Deferral Percentage for Eligible Participants who are
Non-Highly Compensated Employees for the Plan Year multiplied by 1.25; or
(b) The Average Actual Deferral Percentage for Eligible Participants who are
Non-Highly Compensated Employees for the Plan Year multiplied by 2,
provided that the Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees does not exceed the
Average Actual Deferral Percentage for Eligible Participants who are Non-
Highly Compensated Employees by more than 2 percentage points or such
lesser amount as the Secretary of the Treasury may prescribe to prevent the
multiple use of this alternative limitation with respect to any Highly
Compensated Employee.
A.4.2 The provisions of Code Section 401(k)(3) and Department of Treasury
Regulation 1.401(k)-1(b) are incorporated by reference.
A.4.3 To the extent Elective Deferrals are taken into account under Section
A.6, they are disregarded under this Section A.4.
A.4.4 The Administrative Committee shall determine for any Plan Year whether
Qualified Matching Con-
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<PAGE>
tributions and/or Qualified Nonelective Contributions will be treated as
Elective Deferrals in the Actual Deferral Percentage test under this Section
A.4. The Administrative Committee shall also determine whether the amounts
treated as Elective Deferrals, subject to such other requirements as the
Secretary of the Treasury may prescribe are:
(a) all Qualified Matching Contributions;
(b) all Qualified Nonelective Contributions;
(c) such Qualified Matching Contributions as are needed to satisfy the Actual
Deferral Percentage test; or
(d) such Qualified Nonelective Contributions as are needed to satisfy the
Actual Deferral Percentage test.
A.4.5 The Actual Deferral Percentage for any Eligible Participant who is a
Highly Compensated Employee for the Plan Year and who is eligible to have
Elective Deferrals allocated to his account under 2 or more plans or
arrangements described in Code Section 401(k) that are maintained by the Company
or an Affiliate is determined as if all Elective Deferrals (and, if applicable,
Qualified Matching Contributions and Qualified Nonelective Contributions) were
made under a single arrangement. If the cash or deferral arrangements have
different plan years, all cash or deferred arrangements ending within the same
calendar year are treated as a single arrangement.
A.4.6 If this Plan satisfies the requirements of Code Sections 401(a)(4),
401(k), or 410(b) only if aggregated with one or more other plans, or if one or
more other plans satisfy the requirements of those Code sections only if
aggregated with this Plan, then this Section A.4 is applied by determining the
Actual Deferral Percentage of Eligible Participants as if all the plans were a
single plan.
A.4.7 The Administrative Committee also may treat one or more plans as a
single plan with the Plan whether or not the aggregated plans satisfy Code
Sections 401(a)(4) and 410(b). However, those plans must then be treated as one
plan under Code Sections 401(a)(4), 401(k), and 410(b). Plans may be aggregated
under this Section A.4.7 only if they have the same plan year.
A.4.8 To determine the Actual Deferral Percentage of a Participant who is a
5-percent owner or one of the 10 most highly-paid Highly Compensated Employees,
the Elective Deferrals (and, if applicable, Qualified Matching Contributions and
Qualified Non-elective Contributions) and Compensation of the Participant
includes the Elective Deferrals (and, if applicable, Qualified Matching
Contributions and Qualified Nonelective Contributions) and Compensation of
Family Members. Family Members are disregarded as separate employees in
determining the Actual Deferral Percentage both for Participants who are Non-
Highly Compensated Employees and for Participants who are Highly Compensated
Employees.
A.4.9 Elective Deferrals, Matching Contributions, and Nonelective
Contributions are considered made for a Plan Year if made no later than the end
of the 12-month period beginning on the day after the close of the Plan Year.
A.4.10 The determination and treatment of the Elective Deferrals, Qualified
Matching Contributions, Qualified Nonelective Contributions, and Actual Deferral
Percentage of any Participant must satisfy such other requirements as the
Secretary of the Treasury may prescribe.
A.5 Excess Contributions
- ------------------------
A.5.1. Excess Contributions and income allocable to those contributions will
be distributed no later than the last day of each Plan Year to Participants to
whose Account the Excess Contributions were made for the preceding Plan Year.
Excess Contributions are allocated to Participants who are subject to the family
member aggregation rules of Code Section 414(q)(6) in the manner prescribed by
regulations. The Administrative Committee anticipates that the Excess
Contributions will be distributed to affected Participants within 2 1/2 months
after the close of the Plan Year in which the Excess Contribution occurred. If
Excess Contributions are not distributed to affected Participants within 2 1/2
months after the close of the Plan Year, the Employer will be subject to a 10%
excise tax under Code Section 4979.
A.5.2 The Excess Contributions distributed to a Participant are adjusted for
income and losses up to the date of distribution. The income or loss allocable
to Excess Contributions equals the sum of:
(a) income or loss allocable to the Participant's Elective Deferrals (and, if
applicable, Qualified Matching Contributions and Qualified Nonelective
Contributions treated as Elective Deferrals) for the Plan Year multiplied by
a fraction, the numerator of which is the Participant's Excess Contributions
for the Plan Year and the denominator is the Participant's Account Balances
attributable to Elective Deferrals (and, if applicable, Qualified Matching
Contributions and Qualified Nonelective Contributions) on the last day of
the Pan Year without regard to any income or loss occurring during that Plan
Year; plus
(b) 10% of the amount determined under (a) multiplied by the number of months
between the end of the Plan Year and the date of distribution, counting the
month of distribution if distribution occurs after the 15th of the month.
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A.5.3 The Excess Contributions distributed to a Participant are also reduced
by the amount of Excess Deferral Amounts distributed to the Participant.
A.5.4 Amounts distributed under this Section A.5 are first treated as
distributions from the Participant 401(k) Account and are treated as distributed
from the Participant's Employer Contribution Account only to the extent the
Excess Contributions exceed the balance in his Participant 401(k) Account.
A.5.5 Excess Contributions are treated as Annual Additions under Appendix B.
A.6 Average Contribution Percentage Test
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A.6.1 The Average Contribution Percentage for Eligible Participants who are
Highly Compensated Employees for the Plan Year may not exceed:
(a) the Average Contribution Percentage for Eligible Participants who are
Non-Highly Compensated Employees for the Plan Year multiplied by 1.25; or
(b) the Average Contribution Percentage for Eligible Participants who are Non-
Highly Compensated Employees for the Plan Year multiplied by 2, provided
that the Average Contribution Percentage for Eligible Participants who are
Highly Compensated Employees does not exceed the Average Contribution
Percentage for Eligible Participants who are Non-Highly Compensated
Employees by more than 2 percentage points or such lesser amount as the
Secretary of the Treasury may prescribe to prevent the multiple use of this
alternative limitation with respect to any Highly Compensated Employee.
A.6.2 The provisions of Code Section 401(m) and any regulations issued
thereunder are incorporated by reference.
A.6.3 To the extent that Qualified Matching Contributions are taken into
account under Section A.4, they are disregarded under this Section A.6.
A.6.4 The Administrative Committee shall determine for any Plan Year whether
Elective Deferrals and/or Qualified Nonelective Contributions will be treated as
Matching Contributions in the Average Contribution Percentage test under this
Section A.6. The Administrative Committee shall also determine whether the
amounts treated as Matching Contributions, subject to such other requirements as
the Secretary of the Treasury may prescribe, are:
(a) all Elective Deferrals;
(b) all Qualified Nonelective Contributions;
(c) such Elective Deferrals as are needed to satisfy the Average Contribution
Percentage test; or
(d) such Qualified Nonelective Contributions as are needed to satisfy the
Average Contribution Percentage test.
A.6.5 The Contribution Percentage for any Eligible Participant who is a
Highly Compensated Employee for the Plan Year and who is eligible to receive
Matching Contributions under 2 or more plans described in Code Section 401(a)
or arrangements described in Code Section 401(k) that are maintained by the
Company or an Affiliate is determined as if all Matching Contributions (and
participant contributions to another plan) (and, if applicable, Elective
Deferrals and Qualified Nonelective Contributions) were made under a single
plan. If the plans have different plan years, all plans ending within the same
calendar year are treated as a single plan.
A.6.6 If this Plan satisfies the requirements of Code Sections 401(a)(4),
401(m) or 410(b) only if aggregated with one or more other plans, or if one or
more other plans satisfy the requirements of those Code sections only if
aggregated with this Plan, then this Section A.6 is applied by determining the
Contribution Percentages of Eligible Participants as if all the plans were a
single plan. In calculating Contribution Percentages under this paragraph,
participant contributions to the other plans are considered.
A.6.7 The Administrative Committee may treat one or more plans as a single
plan with the Plan whether or not the aggregated plans satisfy Code Sections
401(a)(4) and 410(b). However, those plans must then be treated as one plan
under Code Sections 401(a)(4), 401(m), and 410(b). Plans may be aggregated under
this Section A.6.7 only if they have the same plan year.
A.6.8 To determine the Contribution Percentage of an Eligible Participant who
is a 5-percent owner or one of the 10 most highly-paid Highly Compensated
Employees, Matching Contributions (and participant contributions to another
plan) (and, if applicable, Elective Deferrals and Qualified Nonelective
Contributions) and Compensation of the Participant includes the Matching
Contributions (and participant contributions to another plan) (and, if
applicable, Elective Deferrals and Qualified Nonelective Contributions) and
Compensation of Family Members. Family Members are disregarded as separate
employees in determining the Contribution Percentage both for Eligible
Participants who are Non-Highly Compensated Employees and for Eligible
Participants who are Highly Compensated Employees.
A.6.9 Matching Contributions and Qualified Nonelective Contributions are
considered made for a Plan Year if made no later than the end of the 12-month
period beginning on the day after the close of the Plan Year.
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A.6.10 The determination and treatment of the Contribution Percentage of any
Participant must satisfy such other requirements as the Secretary of the
Treasury may prescribe.
A.7 Excess Aggregate Contributions
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A.7.1 Excess Aggregate Contributions and income allocable to those
contributions are forfeited, if otherwise forfeitable under this Plan, or if not
forfeitable, distributed no later than the last day of each Plan Year, to
Participants to whose Accounts Matching Contributions were allocated for the
preceding Plan Year. Excess Aggregate Contributions are allocated to
Participants who are subject to the family member aggregation rules of Code
Section 414(q)(6) in the manner prescribed by regulations. The Administrative
Committee anticipates that the Excess Aggregate Contribution will be distributed
to affected Participants within 2 1/2 months after the close of the Plan Year in
which the Excess Aggregate Contribution occurred.
A.7.2 If Excess Aggregate Contributions are not distributed to affected
Participants within 2 1/2 months after the close of the Plan Year, the Employer
will be subject to a 10% excise tax under Code Section 4979.
A.7.3 The Excess Aggregate Contributions to be distributed are adjusted for
income and losses up to the date of distribution. The income or loss allocable
to Excess Aggregate Contributions equals the sum of:
(a) income or loss allocable to the Participant's Matching Contributions (and,
if applicable, Elective Deferrals and Qualified Nonelective Contributions
treated as Matching Contributions) for the Plan Year multiplied by a
fraction, the numerator of which is the Participant's Excess Aggregate
Contributions for the Plan Year and the denominator is the Participant's
Account Balances attributable to Matching Contributions (and, if
applicable, Elective Deferrals and Qualified Nonelective Contributions) on
the last day of the Plan Year without regard to any income or loss
occurring during that Plan Year; plus
(b) 10% of the amount determined under (a) multiplied by the number of months
between the end of the Plan Year and the date of distribution, counting the
month of distribution if distribution occurs after the 15th of the month.
A.7.4 Amounts distributed under this Section A.7 are treated as distributions
from the Participant's Employer Contribution Account and, if applicable, on a
pro rata basis from his Participant 401(k) Account.
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A.7.5 Amounts forfeited by Highly Compensated Employees under this Section
A.7 are used to reduce Employer Contributions.
A.7.6 Excess Aggregate Contributions are treated as Annual Additions under
Appendix B.
A.8 Coordination of Distributions of Excess Deferral Amounts,
Excess Contributions, and Excess Aggregate Contributions
- -------------------------------------------------------------
Excess Deferral Amounts, Excess Contributions, and Excess Aggregate
Contributions are calculated and distributed in that order.
A.9 Multiple Use of Alternative Limitation
- ------------------------------------------
If the sum of the Average Actual Deferral Percentage and the Average
Contribution Percentage for Eligible Participants who are Highly Compensated
Employees exceeds the Aggregate Limit, a multiple use of the alternative
limitation (within the meaning of Code Section 401(m)(9)) occurs. However,
multiple use does not occur if either the Average Actual Deferral Percentage or
the Average Contribution Percentage for Eligible Participants who are Highly
Compensated Employees does not exceed 1.25 multiplied by the Average Actual
Deferral Percentage or the Average Contribution Percentage, as applicable, for
Eligible Participants who are Non-Highly Compensated Employees. Under this
Section A.9, the Average Actual Deferral Percentage and the Average Contribution
Percentage for Eligible Participants who are Highly Compensated Employees are
determined after any corrections required to meet the Actual Deferral Percentage
test and the Average Contribution Percentage test. Multiple use is corrected by
reducing the Actual Deferral Percentage of all Highly Compensated Employees so
that the Aggregate Limit is not exceeded. The amount of the reduction is treated
as an Excess Contribution.
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APPENDIX B
Limitations on Annual Additions
B.1 Definitions
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These terms have the following meanings in this Appendix:
Annual Addition: The sum of the following amounts credited to a Participant's
Accounts for any Limitation Year:
(a) contributions made by any Controlled Group Member;
(b) participant contributions to any other qualified plan of a Controlled Group
Member even if withdrawn during the same Limitation Year;
(c) forfeitures allocated to any defined contribution plan maintained by a
Controlled Group Member;
(d) amounts attributable to post-retirement medical benefits, allocated to the
separate account of a key employee as defined in Code Section 419A(d)(3),
under all welfare benefit funds as defined in Code Section 419(e)
maintained by any Controlled Group Member; and
(e) amounts allocated to an individual medical account as defined in Code
Section 415(l)(l) which is part of a pension or annuity plan maintained by
any Controlled Group Member.
Any Excess Amount applied under Section B.3.1 and B.3.3 in the Limitation Year
to reduce Controlled Group Member contributions will be considered Annual
Additions for that Limitation Year.
Controlled Group Member: Any corporation during the time it is a member of a
"controlled group of corporations" (as defined in Code Section 414(b) as
modified by Code Section 415(h)) of which the Company is a member and any trade
or business during the time it is under "common control" (as defined in Code
Section 414(c) as modified by Code Section 414(h)) with the Company, or any
affiliated service group as defined in Code Section 414(m), or any other entity
required to be aggregated with the Employee under Code Section 414(o).
Defined Benefit Fraction: For any Participant, the fraction (determined as of
the last day of the Limitation Year) with a numerator equal to the Projected
Annual Benefit of the Participant and a denominator equal to the lesser of:
(a) 1.25 multiplied by the dollar limitation in effect under Code Section
415(b)(l)(A) and (d) for that Limitation Year; or
(b) 1.4 multiplied by the amount of the Participant's average Limitation
Compensation for the consecutive 3 Years of Service that produces the
highest average.
If the Participant was a participant as of the first day of the Limitation Year
beginning after December 31, 1986, in one or more defined benefit plans
maintained by a Controlled Group Member which were in existence on May 6, 1986,
the denominator of this fraction will not be less than 125 percent of the sum of
the annual benefits under those plans which the Participant had accrued as of
the close of the last Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of the plan after May 5,
1986. The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied requirements of Code Section 415 for
all Limitation Years beginning before January 1, 1987.
Defined Contribution Dollar Limitation: $30,000 or, if greater, 1/4 of the
dollar limitation in effect under Code Section 415(b)(l)(A) as in effect for the
Limitation Year.
Defined Contribution Fraction: For any Participant, the fraction (determined as
of the last day of the Limitation Year) with a numerator equal to the sum of all
the Participant's Annual Additions and a denominator equal to the sum of the
lesser of the following amounts determined for the Limitation Year and for each
prior Limitation Year for which the Participant was credited with a Year of
Service:
(a) 1.25 multiplied by the Defined Contribution Dollar Limitation in effect for
that Limitation Year; or
(b) 1.4 multiplied by 25% of the Participant's Limitation Compensation for that
Limitation Year.
If the Participant was a participant as of the first day of the Limitation
Year beginning after December 31, 1986, in one or more defined benefit plans
maintained by a Controlled Group Member which were in existence on May 6, 1986,
the numerator of this fraction will be adjusted if the sum of this fraction and
the Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the product of (1) the excess of
the sum of the fractions over 1.0 times (2) the denominator of this fraction,
will be permanently subtracted from the numerator of this fraction. The
adjustment is calculated using the fractions as they would be computed as of the
end of the last Limitation Year beginning before January 1, 1987, disregarding
any changes in the terms and conditions of the Plan after May 5, 1986, but using
the Code Section 415 limitation applicable to the first Limitation Year
beginning on or after January 1, 1987.
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The Annual Addition for any Limitation Year beginning before January 1, 1987,
is not recomputed to treat all employee contributions as Annual Additions.
Excess Amount: The excess of the Participant's Annual Additions for the
Limitation Year over the maximum Annual Addition permitted under Section B.2.
Limitation Compensation: A Participant's earned income, wages, salaries, and
fees for professional services and other amounts received for personal services
actually rendered in the course of employment with the Controlled Group Member
maintaining the Plan (including, but not limited to, commissions paid to
salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, and bonuses), and excluding the
following:
(a) Controlled Group Member contributions to a plan of deferred compensation
which are not includible in the Participant's gross income for the taxable
year in which contributed, or Controlled Group Member contributions under a
simplified employee pension plan to the extent those contributions are
deductible by the Participant, or any distributions from a plan of deferred
compensation;
(b) Amounts realized from the exercise of a non-qualified stock option, or when
restricted stock (or property) held by the Participant either becomes
freely transferable or is no longer subject to a substantial risk of
forfeiture;
(c) Amounts realized from the sale, exchange, or other disposition of stock
acquired under a qualified stock option; and
(d) other amounts which received special tax benefits, or contributions made by
the Controlled Group Member (whether or not under a salary reduction
agreement) toward the purchase of an annuity described in Code Section
403(b) (whether or not the amounts are actually excludible from the gross
income of the Participant).
Limitation Compensation for a Limitation Year is the compensation actually
paid or includible in gross income during that Limitation Year. However, for a
Non-Highly Compensated Employee who is permanently and totally disabled within
the meaning of Code Section 22(e)(3) and for whom contributions are
nonforfeitable when made, "Limitation Compensation" means the limitation
compensation the Participant would have received if the Participant was paid at
the same rate as immediately before becoming permanently and totally disabled.
Limitation Year: The Plan Year. All qualified plans maintained by a Controlled
Group Member must use the same Limitation Year. If the Limitation Year is
amended to a different 12-consecutive month period, the new Limitation Year must
begin on a date within the Limitation Year in which the amendment is made.
Master or Prototype Plan: A plan the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
Projected Annual Benefit: The Participant's annual benefit payable in the form
of a straight life annuity or a qualified joint and survivor annuity under all
defined benefit plans qualified under Code Section 401 maintained at any time
(whether or not terminated) by the Company or any other Controlled Group Member.
The Projected Annual Benefit is computed assuming that the Participant will
remain employed until normal retirement age under the Plan (or his current age,
if later) and that the Participant's Compensation (and all other relevant
factors used to determine benefits) will remain at its current level until that
time.
B.2 Maximum Annual Addition
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B.2.1 A Participant's Annual Addition in any Limitation Year may not exceed
the lesser of:
(a) the Defined Contribution Dollar Limitation; or
(b) 25% of the Participant's Limitation Compensation (other than any
contribution for medical benefits within the meaning of Code Sections
401(h) or 419A(f)(2) which is treated as an Annual Addition) for that
Limitation Year;
If a short Limitation Year is created by an amendment changing the Limitation
Year to a different 12-month period, the maximum Annual Addition may not exceed
the Defined Contribution Dollar Limitation multiplied by the following fraction;
number of months in the short Limitation Year over 12.
B.2.2 Before determining the Participant's actual Limitation Compensation for
the Limitation Year, the Employer may determine the maximum Annual Addition
under Section B.2.1 for a Participant on the basis of a reasonable estimation of
the Participant's Limitation Compensation for the Limitation Year, uniformly
determined for all Participants similarly situated.
B.2.3 As soon as administratively feasible after the end of the Limitation
Year, the maximum Annual Addition under Section B.2.1 will be determined on the
basis of the Participant's actual Limitation Compensation for the Limitation
Year.
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B.3 Excess Amounts
- ------------------
B.3.1 If the Participant does not participate in, and has never participated
in another qualified plan maintained by a Controlled Group Member, a welfare
benefit fund as defined in Code Section 419(e) maintained by a Controlled Group
Member, or an individual medical account as defined in Code Section 415(1)(2)
maintained by a Controlled Group Member, which provides an Annual Addition, the
Employer contribution to this Plan that would otherwise be contributed or
allocated to the Participant's Account will be limited to ensure that there will
be no Excess Amount for the Limitation Year. If the Employer contribution that
would otherwise be contributed or allocated to the Participant's Account would
cause the Annual Addition for the Limitation Year to exceed the maximum Annual
Addition, the amount contributed or allocated will be reduced so that the Annual
Additions for the Limitation Year will equal the maximum Annual Addition.
However, if pursuant to Section B.2.3, there is an Excess Amount, the excess
will be disposed of as follows:
(a) If the Participant is covered by the Plan at the end of the Limitation
Year, the Excess Amount in the Participant's Account will be used to reduce
Employer contributions (including any allocation of forfeitures) for that
Participant in the next Limitation Year, and each succeeding Limitation
Year if necessary;
(b) If the Participant is not covered by the Plan at the end of the Limitation
Year, the Excess Amount is held unallocated in a suspense account and will
be used to reduce future Employer contributions for all remaining
Participants in the next Limitation Year and each succeeding Limitation
Year, if necessary.
(c) A suspense account may not participate in the allocation of the gains and
losses of the Investment Funds. All amounts in the suspense account must be
allocated and reallocated to Participants' Accounts before any Employer
contributions may be made for that Limitation Year. Excess Amounts in a
suspense account may not be distributed to Participants or former
Participants.
B.3.2 This Section B.3.2 and Sections B.3.3 and B.3.4 apply if, in addition
to this Plan, the Participant is covered under another qualified defined
contribution Master or Prototype Plan maintained by a Controlled Group Member, a
welfare benefit fund, as defined in Code Section 419(e), maintained by a
Controlled Group Member, or an individual medical account, as defined in Code
Section 415(1)(2), maintained by a Controlled Group Member, which provides an
Annual Addition during any Limitation Year. The Annual Additions which may be
credited to a Participant's account under this Plan for any such Limitation Year
when added to the Annual Additions credited to a Participant's account under the
other plans and welfare benefit funds for the same Limitation Year may not
exceed the maximum Annual Addition under Section B.2.1. If the Annual Additions
with respect to the Participant under other defined contribution plans and
welfare benefit funds maintained by a Controlled Group Member are less than the
maximum Annual Addition under Section B.2.1 and the Controlled Group Member
contribution that would otherwise be contributed or allocated to the
Participant's Account under this Plan would cause the Annual Additions for the
Limitation Year to exceed this limitation, the amount contributed or allocated
will be reduced so that the Annual Additions under all such plans and funds for
the Limitation Year will equal the maximum Annual Addition under Section B.2.1.
If the Annual Additions with respect to the Participant under the other defined
contribution plans and welfare benefit funds in the aggregate are equal to or
greater than the maximum Annual Addition, no amount will be contributed or
allocated to the Participant's Account under this Plan for the Limitation Year.
B.3.3 If, pursuant to Section B.2.3 or as a result of the allocation of
forfeitures, a Participant's Annual Additions under this Plan and the other
plans would result in an Excess Amount for a Limitation Year, the Excess Amount
will be deemed to consist of the Annual Additions last allocated, except that
Annual Additions attributable to a welfare benefit fund or individual medical
account will be deemed to have been allocated first regardless of the actual
allocation date.
B.3.4 If an Excess Amount was allocated to a Participant on an allocation
date of this Plan which coincides with an allocation date of another plan, the
Excess Amount attributed to this Plan will be the product of:
(a) the total Excess Amount allocated as of that date, times
(b) the ratio of (i) the Annual Additions allocated to the Participant for the
Limitation Year as of that date under this Plan to (ii) the total Annual
Additions allocated to the Participant for the Limitation Year as of that
date under this and all the other Master or Prototype Plans. Any Excess
Amount attributed to this Plan will be disposed in the manner described in
Section B.3.1.
B.3.5 This Section B.3.5 applies if the Participant is covered under another
qualified defined contribution plan maintained by a Controlled Group Member
which is not a Master or Prototype Plan. Annual Additions which may be credited
to the Participant's Account under this Plan for any Limitation Year will be
limited in accordance with Sections B.3.2 through B.3.4 as though the other plan
were a Master or Prototype Plan unless the Company provides other limitations in
Section I.A of the Addendum to the Adoption Agreement.
B.3.6 This Section B.3.6 applies in addition to the limitations of Section
B.2.1 if a Participant has participated in any defined benefit plan maintained
at any time (whether or not terminated) by the Company or any other
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Controlled Group Member. The sum of the Participant's Defined Benefit Fraction
and the Participant's Defined Contribution Fraction may not exceed 1.0. If
necessary, the Annual Addition which may be credited under this Plan for any
Limitation Year will be reduced in accordance with Section I.B of the Addendum
to the Adoption Agreement.
B.3.7 If this Plan is a restatement of a plan which satisfied Code Section
415 for all Limitation Years beginning before January 1, 1987, then, in
accordance with regulations promulgated by the Secretary of the Treasury, an
amount (not exceeding the numerator of the Defined Contribution Plan Fraction)
is subtracted from that numerator so that the sum of the Defined Benefit Plan
Fraction and the Defined Contribution Plan Fraction under Code Section 415(e)(1)
does not exceed 1.0 for the year. The adjustment described in the preceding
sentence is determined as if the Tax Reform Act of 1986 changes to the
limitation on contributions and benefits were in effect for the last year
beginning before January 1, 1987.
B.3.8 The amount of Employer contributions which may not be allocated to the
Participant 401(k) Account of a particular Participant because of the
limitations of this Section B.2 will be considered to have been made by mistake
of fact and will be returned to the Employer.
B.3.9 The limitations of this Appendix B are intended to comply with Code
Section 415 so that the maximum contributions and benefits provided by the
Company and Controlled Group Members will exactly equal the maximum amounts
allowed under Code Section 415. Any discrepancy between this Section and Code
Section 415 will be resolved so as to give full effect to Code Section 415.
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APPENDIX C
Top-Heavy Provisions
C.1 Definitions
- ---------------
These terms have the following meanings in this Appendix:
Aggregated Plans: (a) All plans of the Company or an Affiliate which must be
aggregated with the Plan, and (b) all plans of the Company or an Affiliate which
may be aggregated with the Plan and which the Administrative Committee elects to
aggregate with the Plan, in determining whether the Plan is top-heavy. A plan
must be aggregated with the Plan if the plan includes as a participant a Key
Employee or if the plan enables any plan of the Company or Affiliate in which a
Key Employee participates to qualify under Code Section 401(a)(4) or Section
410. A plan of the Company or an Affiliate may be aggregated with the Plan if
the plan satisfies the requirements of Code Sections 401(a)(4) and 410, when
considered together with this Plan and all plans which must be aggregated with
this Plan. No plan may be aggregated with this Plan unless it is a qualified
plan under Code Section 401. The top-heavy status of Aggregated Plans is
determined by aggregating the plans' respective top-heavy determinations that
are made as of the Determination Dates that fall within the same calendar year.
Determination Date: The date as of which it is determined whether a plan is
top-heavy or super top-heavy for the Plan Year immediately after the
Determination Date. The Determination Date for any Plan Year is the last day of
the preceding Plan Year, or for the first Plan Year, the last day of that year.
Group Participant: Anyone who is or was a participant in any Aggregated Plan as
of the Determination Date or any of the 4 immediately preceding Determination
Dates. Any Beneficiary of a Group Participant who has received, or is expected
to receive, a benefit from an Aggregated Plan is considered a Group Participant
solely for determining whether the Plan is top-heavy or super top-heavy.
Key Employee: Any Employee or former Employee, or their Beneficiaries, of the
Company or an Affiliate who, as of a Determination Date, or as of any of the 4
immediately preceding Determination Dates, was:
(a) an officer of the Company earning in excess of 50% of the amount in effect
under Code Section 415(b)(l)(A); or
(b) a 5-percent owner of the Company; or
(c) a 1-percent owner of the Company whose total annual compensation from the
Company and the Affiliates exceeds $150,000; or
(d) an Employee whose compensation equals or exceeds $30,000 (or such higher
amount as may be defined under Code Section 415(c)(l)(A)), and whose
ownership interest (determined in accordance with Code Section 51) in the
Company and the Affiliates is among the 10 largest.
Under this Appendix, "compensation" means compensation as defined in Code
Section 415(c)(3), but including Employer contributions made pursuant to a
salary reduction agreement which are not includible in the individual's gross
income under Code Section 125, 402(a)(8), 402(b), or 403(b).
The determination of who is a Key Employee is made in accordance with Code
Section 416(i)(l).
Non-Key Employee: Any Employee who is not a Key Employee including an Employee
who is a former Key Employee.
Top-Heavy Ratio:
(a) If the Employer maintains one or more defined contribution plans (including
any simplified employee pension plan) and the Employer has not maintained
any defined benefit plan which during the 5-year period ending on the
Determination Date(s) has or has had accrued benefits, the Top-Heavy Ratio
for Aggregated Plans as appropriate is a fraction, the numerator of which
is the sum of the Account Balances of all Key Employees as of the
Determination Date(s) (including any part of any Account Balance
distributed in the 5-year period ending on the Determination Date(s)), and
the denominator of which is the sum of all Account Balances (including any
part of any Account Balance distributed in the 5-year period ending on the
Determination Date(s)), both computed in accordance with Code Section 416
and the regulations thereunder. Both the numerator and denominator of the
Top-Heavy Ratio are increased to reflect any contribution not actually made
as of the Determination Date, but which is required to be taken into
account on that date under Code Section 416 and the regulations thereunder.
(b) If the Employer maintains one or more defined contribution plans (including
any simplified employee pension plan) and the Employer maintains or has
maintained one or more defined plans which during the 5-year period ending
on the Determination Date(s) has or has had any accrued benefits, the Top-
Heavy
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Ratio for the Aggregated Plans is a fraction, the numerator of which is the
sum of Account Balances under the aggregated defined contribution plan or
plans for all Key Employees, determined in accordance with (a) above, and
the present value of accrued benefits under the aggregated defined benefit
plan or plans for all Key Employees as of the Determination Date(s), and
the denominator of which is the sum of the Account Balances under the
aggregated defined contribution plan or plans for all Participants,
determined in accordance with (a) above, and the present value of accrued
benefits under the defined benefit plan or plans for all Participants as of
the determination date(s), all determined in accordance with Code Section
416 and the regulations thereunder. The accrued benefits under a defined
benefit plan in both the numerator and denominator of the Top-Heavy Ratio
are increased for any distribution of an accrued benefit made in the 5-year
period ending on the Determination Date.
(c) For purposes of (a) and (b) above the value of Account Balances and the
present value of accrued benefits will be determined as of the most recent
valuation date that falls within or ends with the 12-month period ending on
the determination date, except as provided in Code Section 416 and the
regulations thereunder for the first and second plan years of a defined
benefit plan. The account balances and accrued benefits of a Participant
(1) who is not a Key Employee but who was a Key Employee in a prior year,
or (2) who has not been credited with at least one hour of service with
any Employer maintaining the plan at any time during the 5-year period
ending on the determination date will be disregarded. The calculation of
the Top-Heavy Ratio, and the extent to which distributions, rollovers, and
transfers are taken into account will be made in accordance with Section
416 of the Code and the regulations thereunder. Deductible employee
contributions will not be taken into account for purposes of computing the
Top-Heavy Ratio. When aggregating plans the value of account balances and
accrued benefits will be calculated with reference to the Determination
Dates that fall within the same calendar year.
The accrued benefit of a Participant other than a Key Employee shall be
determined under (a) the method, if any, that uniformly applies for accrual
purposes under all defined benefit plans maintained by the Employer, or (b) if
there is no such method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional rule of Code Section
411(b)(1)(C).
C.2 Top-Heavy Plan
- ------------------
C.2.1 The rules in this Appendix apply to a Plan for the first Plan Year
beginning after the Determination Date as of which the Plan is top-heavy or
super top-heavy. Except where expressly indicated otherwise, those rules
continue to apply until, as of a later Determination Date, the Plan is no longer
top-heavy or super top-heavy. However, if the Plan changes from being super
top-heavy to being top-heavy, the rules for a top-heavy plan will apply and if
the Plan changes from being top-heavy to being super top-heavy, the rules for a
super top-heavy plan will apply.
C.2.2 For any Plan Year, the Plan is "top-heavy" if the Top-Heavy Ratio
exceeds 60% determined as of the Determination Date immediately before that Plan
Year.
C.2.3 For any Plan Year, the Plan is "super top-heavy" if the Top-Heavy Ratio
exceeds 90% determined as of the Determination Date immediately before that
Plan-Year.
C.2.4 The Value of Accumulated Benefits for Key Employees under all
Aggregated Plans and the Value of Accumulated Benefits for all Group
Participants under all Aggregated Plans are increased to reflect any
contributions not actually made as of the Determination Date, but which must be
taken into account on that date under Code Section 416.
C.3 Minimum Benefits or Contributions
- -------------------------------------
C.3.1 For any Plan Year in which the Plan is top-heavy, the minimum rate of
contributions and forfeitures allocated to the account of any Participant
employed by the Company on the last day of the Plan Year is determined without
regard to any Social Security contribution and regardless of whether the
Participant has completed 1,000 Hours of Service (or any equivalent provided in
the Plan) or whether the Participant has compensation less than a stated amount.
The minimum contribution is equal to the lesser of:
(a) the highest rate of employer contributions and forfeitures (determined as a
percentage of Compensation) allocated to the account of any Key Employee;
and
(b) 3% (4% if the Plan is super top-heavy) of Compensation.
-33-
<PAGE>
C.3.2 If a Participant also participates in another defined contribution plan
of the Company or an Affiliate, the minimum allocation described above will be
provided under the other plan or this Plan as elected in Section VI.A of the
Adoption Agreement. If the Participant also participates in one or more defined
benefit plans of the Company or an Affiliate, the minimum required benefits or
allocations under Code Section 416 will be provided under either this Plan or
the defined benefit plan as elected in Section VI.B of the Adoption Agreement.
C.3.3 Neither Elective Deferrals nor Matching Contributions made on behalf of
Non-Key Employees may be used to satisfy the minimum contribution requirement of
this Section C.3.
C.4 Adjustment to Maximum Benefits
- ----------------------------------
For any Plan Year in which the Plan is top-heavy, the maximum benefit which
may be provided under Appendix B is determined by substituting "1.00" for "1.25"
wherever it appears in that Appendix. However, if the Plan is not super top-
heavy for that Plan Year, then the preceding sentence does not apply if "4%" is
substituted for 3% in Section C.3.1(b).
C.5 Discontinuance of Appendix
- ------------------------------
If any provision of this Appendix is no longer required to qualify the Plan
under the Code, then that provision will become void without the necessity of
further Plan amendment.
-34-
<PAGE>
APPENDIX D
Distribution Requirements
D.1 Definitions
- ---------------
These terms have the following meanings in this Appendix:
Applicable Life Expectancy:
(a) The life expectancy (or joint and last survivor expectancy) calculated
using the attained age of the Participant as of the Participant's birthday
in the applicable calendar year reduced by one for each calendar year which
has elapsed since the date life expectancy was first calculated.
(b) Life expectancy and joint and last survivor expectancy are computed by use
of the expected return multiples in Table V and VI of section 1.72-9 of the
income tax regulations.
Distribution Calendar Year: A calendar year for which a minimum distribution is
required. The first Distribution Calendar Year is the calendar year immediately
preceding the calendar year which contains the Participant's Required Beginning
Date.
Participant's Benefit:
(a) The Account Balances as of the last Valuation Date in the calendar year
immediately preceding the Distribution Calendar Year ("Valuation Calendar
Year") increased by the amount of any contributions as of dates in the
valuation calendar year after the Valuation Date and decreased by
distributions made in the Valuation Calendar Year after the Valuation Date.
(b) For purposes of paragraph (a) above, if any portion of the minimum
distribution for the first Distribution Calendar Year is made in the second
Distribution Calendar Year on or before the Required Beginning Date, the
amount of the minimum distribution made in the second Distribution Calendar
Year is treated as if it had been made in the immediately preceding
Distribution Calendar Year.
Required Beginning Date: The first day of April of the calendar year following
the calendar year in which the Participant attains age 70 1/2.
D.2 General Rules
- -----------------
D.2.1 The requirements of this Appendix apply to any distribution of the
Participant's interest and take precedence over any inconsistent provisions of
this Plan.
D.2.2 All distributions required under this Plan are determined and made in
accordance with the proposed regulations under Code Section 401(a)(9), including
the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2
of the proposed regulations.
D.2.3 The amount required to be distributed for each calendar year, beginning
with distributions for the first Distribution Calendar Year, must at least equal
the quotient obtained by dividing the Participant's Benefit by the lesser of (a)
the Applicable Life Expectancy or (b) if the Participant's spouse is not the
designated beneficiary, the applicable divisor determined from the table set
forth in Q&A 4 of proposed Treasury Regulation Section 1.401(a)(9)-1.
D.2.4 The minimum distribution required for the Participant's first
Distribution Calendar Year must be made on or before the Participant's Required
Beginning Date. The minimum distribution for other calendar years, including
the minimum distribution for the Distribution Calendar Year in which the
Participant's Required Beginning Date occurs, must be made on or before December
31 of that Distribution Calendar Year.
D.2.5 If an amount is transferred or rolled over from another plan to this
Plan the rules in Q&A J-2 and Q&A J-3 of proposed Treasury Regulation Section
1.401(a)(9)-1 apply.
-35-
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
--------------------
I.
--
PARTIES
-------
This Employment Agreement ("Agreement") is made and entered into effective
January 1, 1997, by and between NetVantage Inc., 201 Continental Blvd., Suite
201, El Segundo, CA 90245-4427 ("NVI") and Stephen R. Rizzone residing at 17
Nantucket Place, Manhattan Beach, CA 90266 ("Executive").
II.
---
RECITALS
--------
1. Executive originally joined NVI in November, 1995 as President and
Chief Operating Officer. In conjunction with his employment, a letter agreement
setting forth the terms and conditions of his employment was executed by and
between Executive and NVI on or about November 16, 1995, hereinafter the "Letter
Agreement". On or about June 19, 1996, the parties executed an Employment
Agreement (the "1996 Agreement").
2. The Executive having served successfully in the original position of
President and Chief Operating Officer, and, the former Chairman of the Board and
Chief Executive Officer of NVI having resigned, the Board of Directors of NVI
("the Board"), unanimously promoted the Executive to the position of Chairman of
the Board and Chief Executive Officer of NVI.
3. Employee has successfully performed his duties and responsibilities as
Chairman of the Board, President and Chief Executive Officer from the date of
execution of the 1996 Agreement to the present, and the parties desire that the
Executive continue his employment on the terms and conditions set forth herein.
III.
----
TERMS
-----
1. EFFECTIVE DATE: The 1996 Agreement shall terminate, and this
---------------
Agreement shall become effective on January 1, 1997, except that Executive shall
retain all stock options granted under the Letter Agreement and the 1996
Agreement. Stock options granted herein shall be in addition to the stock
options granted in the Letter Agreement and the 1996 Agreement.
2. EMPLOYMENT OF SPOUSE: The parties acknowledge that Mashid Emdadian
---------------------
Rizzone, who is the spouse of Executive, is currently employed by NVI in direct
marketing and sales. The employment of Executive is separate and apart from,
and shall not have an impact upon the employment of Mashid E. Rizzone. It is
agreed that the performance of Executive and Mashid E. Rizzone will be evaluated
separately, and any future promotion, employment, compensation and/or
incentive packages will be offered on an individual basis and will not be
considered on a collective basis.
3. POSITIONS: Executive shall retain the positions of Chairman of the
----------
Board of Directors, President and Chief Executive Officer.
<PAGE>
EMPLOYMENT AGREEMENT PAGE 2
---------------------------
4. EMPLOYMENT DUTIES: As Chairman of the Board of Directors, President
------------------
and Chief Executive Officer, Executive will have total overall responsibility
for all business activities of NVI, including, without limitation, the tactical
operation and strategic direction of NVI. In conjunction with this
responsibility, all personnel will report either to the Executive or to persons
reporting to him. Executive will report only to the Board. Executive will be
allowed to vote on all matters before the Board concerning NVI, including,
without limitation, Executive's employment, but excluding only matters directly
and solely related to Executive's compensation. In all voting matters,
excluding only matters directly and solely related to Executive's compensation,
in the case of any tie vote, Executive shall have the option of casting multiple
votes. Notwithstanding the foregoing the Chief Financial Officer shall also
report to the Board of Directors with respect to the books, records, financial
condition and financial reporting of the Company.
5. TERM: The term of this Agreement is five (5) years, commencing
-----
January 1, 1997, and terminating December 31, 2001. However, either party may
terminate Executive's employment, with or without cause, upon giving at least
thirty (30) days prior written notice. Termination of Executive's employment by
NVI shall also require a majority vote of the Board. Executive shall be allowed
to vote on this matter and cast the tie breaking vote if required. Termination
of Executive's employment, whether with or without cause, shall not terminate,
modify, reduce or in any way affect any of the provisions of Section 11 of this
Agreement.
6. SALARY: Executive shall be paid $200,000.00 per year, paid bi-weekly
-------
commencing January 1, 1997. Usual and customary expenses will be or reimbursed
to Executive by NVI according to its policy regarding business expenses. The
Board shall review Executive's salary, incentive compensation and stock/stock
option position annually, on January 1, of each year, with the next review to be
January 1, 1998. NVI shall provide annual salary increases, incentive
compensation and stock/stock options consistent with the custom and practice in
the industry for equivalent-sized companies with equivalent executive
responsibilities. No such annual review shall reduce Executive's annual salary,
incentive compensation, stock/stock options, nor shall it terminate or modify
any economic compensation, options, or other rights or benefits granted herein.
7. COMPANY AUTOMOBILE ALLOWANCE: NVI shall, provide to Executive for his
-----------------------------
sole use a 1997 BMW model 750 ("Auto"). NVI shall pay all upkeep and
maintenance and insurance for Auto. Executive shall have the option to purchase
Auto at 40% of the then wholesale Kelly Bluebook value in the event that
Executive terminates his employment voluntarily or if in the event the
Executive's employment is terminated involuntarily NVI shall continue to
maintain the Auto until December 31, 1999 at which time Executive shall have the
option to purchase Auto at 40% of the then wholesale Kelly Bluebook value. If
the Termination Benefits referenced in Section 11 are in effect on December 31,
1999, NVI will pay to the Executive a monthly car allowance of $2,000.00 from
January 1, 2000 through the end of the Termination period.
8. HEALTH CLUB MEMBERSHIP: NVI shall provide Executive with a family
-----------------------
health club membership in a health club selected by Executive, the monthly dues
for such membership shall not exceed $500.00.
9. STOCK OPTIONS: In the Letter Agreement and the 1996 Agreement,
--------------
Executive was granted options to buy shares of stock of NVI. Those stock options
granted in the Letter Agreement and the 1996 Agreement shall remain in full
force and effect. The stock options set forth herein shall be in addition to the
stock options previously granted to Executive and are subject to availability.
a. Upon the execution of this Agreement, Executive will be granted an
Option to purchase an additional 25,000 shares of NVI stock. Price shall be the
average of the bid/ask price for Class A Common stock on January 30, 1997.
<PAGE>
EMPLOYMENT AGREEMENT PAGE 3
---------------------------
b. The NVI 1997 Operating Plan will be presented and accepted by the
Board of Directors. The Plan sets forth, in part, certain quarterly and annual
gross revenue and net profit projections for 1997. (A copy of the Plan shall be
attached hereto as Exhibit A)
c. At the end of each calendar quarter of 1997, Executive shall have
an option to purchase stock, at an option price based on the average of the
bid/ask closing price of Class A Common Stock on January 30, 1997, or the then
-----------
current price, whichever is lower, based on NVI's gross revenue and net profit
- ---------------------------------
for that separate calendar quarter (or cumulative as the case may be) as
measured against the Plan's projections for that quarter (or cumulative as the
case may be), in accordance with the following schedule:
(1) Gross Revenue:
--------------
<TABLE>
<CAPTION>
Percentage of Plan
Projection Actually Number of
Realized Shares
------------------- --------
<S> <C>
90% 5,000
95% 10,000
100% 25,000
105% 30,000
110% 35,000
115% 40,000
120% and above 50,000
</TABLE>
(2) Net Profit:
-----------
<TABLE>
<CAPTION>
Percentage of Plan
Projection Actually Number of
Realized Shares
------------------- --------
<S> <C>
90% 5,000
95% 10,000
100% 25,000
105% 30,000
110% 35,000
115% 40,000
120% and above 50,000
</TABLE>
d. At the end of 1997, Executive shall have an option to purchase
stock, at an option price based on the average of the bid/ask closing price of
Class A Common Stock on January 30, 1997, or the then current average of the
bid/ask price, whichever is lower, based on NVI's gross revenue and net profits
for 1997, as measured against the annual gross revenue and net profits projected
in the Plan, in accordance with the following schedule:
(1) Gross Revenue:
--------------
<TABLE>
<CAPTION>
Percentage of Plan
Projection Actually Number of
Realized Shares
------------------- --------
<S> <C>
90% 10,000
95% 25,000
100% 50,000
105% 60,000
110% and above 75,000
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT PAGE 4
---------------------------
(2) Net Profit:
-----------
<TABLE>
<CAPTION>
Percentage of Plan
Projection Actually Number of
Realized Shares
------------------- ---------
<S> <C>
90% 10,000
95% 25,000
100% 50,000
105% 60,000
110% and above 75,000
</TABLE>
e. The determination of gross revenue and net profit shall be
determined in accordance with generally accepted accounting principals
consistently applied and shall be subject to audit by the Company's independent
auditors. Stock options referred to above shall be granted by the Board within
five (5) days after the determination of the gross revenue and net profit for
each quarter and for 1997.
f. Except as otherwise provided, the stock options referred to
herein will be for class A common stock, in accordance with the terms and
conditions of the 1994 Employee Stock Option Plan, or such other ESOP as may be
in effect from time to time. Prices of options and requirements for exercise of
the options shall be governed by the terms of the ESOP. If NVI issues any class
of stock other than the existing class A common stock, Executive's options shall
apply to such additional class(es) of stock in the same ratio as his options for
class A common stock bear to the total issued and outstanding class A common
stock.
10. HEALTH BENEFITS: NVI will provide Executive with the same health,
----------------
disability and life insurance benefits as are made available to other Executives
of NVI.
11. RIGHTS ON TERMINATION OF EMPLOYMENT:
------------------------------------
a. Executive shall have the rights and benefits described below
(hereinafter "Termination Benefits"), in the event Executive's employment is
terminated as follows:
(1) NVI terminates Executive's employment, either with or
without cause at any time, for any reason, including but not limited to
Executive's voluntary or involuntary inability or failure to perform his duties
hereunder; or
(2) Executive terminates his employment for any of the following
reasons: (a) a change of job duties, title or responsibility from those
described in paragraph 4; (b) Executive is removed from, or not re-elected to
the Board of Directors, or is removed as Chairman of the Board of Directors; (c)
there is a change in the organizational structure of NVI, i.e., who Executive
reports to or who reports to him; (d) NVI for any reason decreases the salary,
benefits or compensation to Executive; (e) Executive is required to travel more
than fifty (50) miles from his principal residence to the principal offices of
NVI; or (f) there is an acquisition or merger of NVI.
b. Executive shall not have Termination Benefits if he voluntarily
terminates his employment for any reason other than as set forth above.
c. Executive's Termination Benefits are as follows:
(1) NVI shall continue to pay Executive his salary for a period
of thirty-six (36) months from the date of termination of employment.
<PAGE>
EMPLOYMENT AGREEMENT PAGE 5
---------------------------
(2) NVI shall continue to pay and/or provide to Executive all
Health, medical, disability, life insurance and other benefits described in
paragraph 10., for a period of thirty-six (36) months from the date of
termination of employment.
(3) NVI shall continue to pay and/or provide to Executive the
car allowance/automobile lease described in paragraph 7., for a period of
thirty-six (36) months from the date of termination.
(4) Stock options shall continue to vest and be exercisable for
--- -- -----------
a period of thirty-six (36) months from the notice of termination for the stock
options granted prior to the notice of termination.
(5) NVI shall pay Executive for accrued but unused vacation time
vested as of the date of termination of his employment.
(6) The termination benefits described herein shall be measured
by the highest level of salary and other benefits paid to or on behalf of
Executive.
(7) All Reorganization Consideration (described below) which
would have been payable to Executive hereinunder, if Executive's employment had
continued, for a period of forty-eight (48) months after the date of termination
of employment.
d. The parties acknowledge that any public discussion of the
circumstances pertaining to the parties' termination of their relationship would
be counter productive to the interests of either party. The parties therefore
agree to refrain from making any negative, disparaging or defamatory remarks
about the other party, or to interfere with the other party's prospective
economic gain.
12. NVI REORGANIZATION:
-------------------
a. For purposes of this Agreement, the term "Reorganization" means
any merger, acquisition, or consolidation of businesses of which NVI is a party,
or any sale of all or substantially all of NVI's assets or stock of any class. A
Reorganization shall be deemed to have occurred on the earlier of (1) execution
of an agreement for an event of Reorganization or (2) the occurrence of any
event of Reorganization.
b. For purposes of the Agreement, the term "Reorganization
Consideration" shall be the total value of all consideration paid or payable to
NVI, or, in the case of a sale or exchange of NVI stock, the cash value, or at
Executive's election, the stock consideration paid or exchanged for NVI stock.
c. The Reorganization Consideration shall be divided by the total
number of outstanding shares of NVI class A common stock as of the date
immediately preceding the occurrence of the Reorganization. The resulting
amount is hereinunder referred to as the "Reorganization Price Per Share".
d. Executive shall be paid a cash bonus (hereinafter "Reorganization
Cash Bonus"), according to the following schedule, within five (5) days of
either (1) the execution of an agreement for an event of Reorganization or (2)
the occurrence of any event of Reorganization, whichever occurs first. Payment
of the bonus will be in cash.
(1) If the Reorganization Price Per Share is $15.00 or less,
Executive will be paid two percent (2%) of the Reorganization Consideration.
(2) If the Reorganization Price Per Share is greater than $15.00
but less than $20.00, Executive will be paid three percent (3%) of the
Reorganization Consideration.
<PAGE>
EMPLOYMENT AGREEMENT PAGE 6
---------------------------
(3) If Reorganization Price Per Share is $20.00 or greater,
Executive will be paid four percent (4%) of the Reorganization Consideration.
e. The Reorganization Cash Bonus as defined above, shall remain in
effect twelve (12) months after the voluntary resignation of the Executive or
Forty-eight (48) months after the date of Termination of Employment as described
in section 11.2 above.
13. SURVIVORSHIP: This agreement is binding on the parties and their
-------------
heirs, successors and assigns. In the event of Executive's death, his employment
shall be deemed terminated under section 11.a above, and the rights and benefits
of this agreement, including termination, shall inure to the estate of the
Executive.
14. DISABILITY: If, during the employment period, The Executive shall, in
-----------
the opinion of the Board of Directors of the Company as confirmed by competent
medical evidence, become physically or mentally incapacitated to perform his
duties, then NVI shall terminate his employment under Section 11.a above.
15. PROPRIETARY INFORMATION:
------------------------
a) Executive recognizes that his position with NVI requires
substantial trust and confidence because of his access to trade secrets and
other proprietary information of NVI (collectively "Proprietary Information").
At all times, during the term of this Agreement, and for a period of five (5)
years after the termination of this Agreement for any reason, Executive shall
use his best efforts and exercise utmost diligence to protect the unauthorized
disclosure of any Proprietary Information. Said Proprietary Information includes
but is not limited to NVI's software, marketing, manufacturing and design
processes, and operating procedures. Executive will not be required to incur
personnel expense to protect the unauthorized disclosure of any Proprietary
Information.
b) Except as may be required in the performance of his duties
hereinunder, Executive shall not use NVI's Proprietary Information for his own
benefit, or disclose NVI's Proprietary Information to another, without NVI's
prior written consent.
c) The provisions of this section 15 are in addition to those set
forth in NVI Employee Proprietary Information and Invention Agreement previously
executed by the Executive.
16. COVENANT NOT TO COMPETE: During the term of Executive's employment,
------------------------
Executive shall not engage in any act in competition with the business or best
interests of NVI. During the term of this Agreement, Executive shall not be an
agent, employee, or consultant for any competitor of NVI. Following any
notification of termination of his employment, Executive may pursue and accept
any employment or occupation whether or not it competes with NVI.
17. NO ORAL MODIFICATION: This Agreement is not subject to oral
---------------------
modification in any fashion. The terms of this Agreement may be modified only by
an agreement in writing executed by the Parties hereto. No subsequent attempt at
an oral novation will be effective to modify or change this agreement.
18. NOTICE: Any notice required by this Agreement shall be in writing and
-------
shall be mailed or delivered to the other party at the addresses set forth
above. If said notice is mailed, it shall be deemed effective five (5) days
after the date of mailing.
19. COVENANTS INDEPENDENT: The covenants set forth herein are independent
----------------------
of one another, and a breach by one party of any promise or covenant set forth
herein, shall not terminate the Agreement or excuse performance by the other
party of his or its obligations set forth herein.
<PAGE>
EMPLOYMENT AGREEMENT PAGE 7
---------------------------
20. ENTIRE AGREEMENT: Except as provided herein, this Agreement
-----------------
constitutes the entire agreement between the parties and supersedes all prior
written or oral agreements. There are no promises, warranties, or
representations other than as contained herein. This Agreement may only be
modified by an Agreement in writing executed by the Parties hereto.
21. GOVERNING LAW: This agreement shall be governed by the laws of the
--------------
State of California. Any action or mediation dispute arising out of this
Agreement shall be conducted in Orange County, California.
22. MEDIATION: In the event of a dispute between the parties arising out
----------
of this Agreement, the parties agree to submit the dispute to mediation prior to
the commencement of litigation. Mediation shall be conducted by any neutral
mediator selected by both parties. If the parties cannot agree on the selection
of a mediator, then either party may seek an order of the court of competent
jurisdiction to appoint a mediator. The party requesting the court to appoint a
mediator shall be entitled to reasonable attorney's fees and costs incurred in
obtaining the order. In the event mediation does not resolve the parties
dispute, then either party may commence an action against the other party.
23. ATTORNEYS FEES: In the event of any action arising out of this
---------------
Agreement, the prevailing party will be entitled to reasonable attorney's fees
and costs, including pre-litigation attorney's fees and costs.
24. FURTHER ASSURANCES: Each party shall execute such documents and
-------------------
perform such acts as may be reasonably necessary or appropriate to carry out the
terms of this Agreement.
25. REVIEW BY COUNSEL: Each party has had the opportunity to review this
------------------
Agreement with an attorney of his or its choice, and each party acknowledges
this Agreement is entered into voluntarily.
AGREED AGREED
/s/ Stephen R. Rizzone /s/ Carlos Tomaszewski 6-Feb-97
- -------------------------/---------- -----------------------/--------
Stephen R. Rizzone Date Authorized Agent Date
NetVantage, Inc.
<PAGE>
AGREEMENT
---------
THIS AGREEMENT is made and entered into as of _____________, 1997, by and
between NETVANTAGE, INC., a Delaware corporation (the "Company"), and STEPHEN R.
RIZZONE ("Employee").
RECITALS
--------
A. The Company and Employee were parties to an Employment Agreement
effective as of March 26, 1996 (the "1996 Employment Agreement"), under which
Employee was entitled to receive certain nonstatutory stock options (the "1996
Employment Agreement Performance Options"), among others, if certain specified
performance criteria were achieved by the Company.
B. In late 1996, the Board of Directors of the Company adopted an
executive bonus plan under which Employee was entitled to receive a nonstatutory
stock option (the "Bonus Plan Performance Option"), if certain specified
performance criteria were achieved by the Company.
C. The Company and Employee are parties to an Employment Agreement
effective as of January 1, 1997 (the "1997 Employment Agreement") (the 1996
Employment Agreement and the 1997 Employment Agreement sometimes being
collectively referred to as the "Employment Agreements"), under which Employee
is entitled to receive certain additional nonstatutory stock options (the "1997
Employment Agreement Performance Options") (the 1996 Employment Agreement
Performance Options, the Bonus Plan Performance Option and the 1997 Employment
Agreement Performance Options sometimes being collectively referred to as the
"Performance Options" and individually referred to as a "Performance Option"),
among others, if certain specified performance criteria are achieved by the
Company.
D. Three Nonstatutory Stock Option Agreements, each dated as of March 26,
1996, covering up to 50,000 shares, 50,000 shares and 10,000 shares,
respectively, of Class A Common Stock of the Company, were prepared to evidence
the 1996 Employment Agreement Performance Options; a Nonstatutory Stock Option
Agreement, dated as of September 19, 1996, covering 35,000 shares of Class A
Common Stock of the Company, was prepared to evidence the Bonus Plan Performance
Option; and agreements were not prepared to evidence the 1997 Employment
Agreement Performance Options.
E. Exhibit A to this Agreement is a complete list of all other options to
purchase shares of capital stock of the Company held by Employee (the "Other
Options").
F. The Company and Employee at the time the Performance Options were
granted were mistaken in their belief that the performance criteria would be
beneficial to the Company and without adverse consequence; but recently they
discovered the potential unintended consequence that such Performance Options
would result in compensation expense to the Company for financial accounting
purposes.
<PAGE>
G. The Company and Employee wish by this Agreement to rescind each of the
Performance Options and amend the Employment Agreements.
ACCORDINGLY, in consideration of the forgoing and for good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged and
accepted by the parties, the parties agree as follows:
AGREEMENT
---------
1. Rescission. Each Performance Option is hereby fully rescinded by the
----------
parties, effective as of the original date of the grant of such Performance
Option, with the effect that each Performance Option shall be treated as if it
had never been granted. Any outstanding agreement related to such Performance
Options shall be marked as rescinded and returned to the Company.
2. Amendment of the 1996 Employment Agreement. Sections 8b, 8c and 8d of
------------------------------------------
the 1996 Employment Agreement are hereby deleted in their entirety, effective as
of the effective date of the 1996 Employment Agreement, with the effect that
such Sections 8b, 8c and 8d shall be treated as if they had never been included
in the 1996 Employment Agreement.
3. Amendment of the 1997 Employment Agreement. Sections 9b, 9c, 9d, 9e
------------------------------------------
and 9f of the 1997 Employment Agreement are hereby deleted in their entirety,
effective as of the effective date of the 1997 Employment Agreement, with the
effect that such Sections 9b, 9c, 9d and 9f shall be treated as if they had
never been included in the 1997 Employment Agreement. Any reference to the
stock options granted under the 1996 Employment Agreement shall not include the
1996 Employment Agreement Performance Options rescinded in Section 1 of this
Agreement.
4. No Other Effect. This Agreement shall not affect in any way the Other
---------------
Options, which shall continue in full force and effect. Except as set forth
above, this Agreement shall not affect in any way the other terms and conditions
of the Employment Agreements, which shall continue in full force and effect.
5. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall constitute one and the same instrument.
6. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the Company and Employee pertaining to the Performance Options and the
amendment of the Employment Agreements and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, between
them pertaining to the subject matter of this Agreement.
7. Governing Law. The parties agree that the validity, construction and
-------------
interpretation of this Agreement shall be governed by the laws of the State of
California.
2
<PAGE>
8. Further Assurances. The parties agree to execute such documents and
------------------
perform such acts as may be reasonably necessary or desirable to carry out the
intents and purposes of this Agreement.
9. Review by Counsel. Each party has had the opportunity to review this
-----------------
Agreement with legal counsel of his or its choice, and each party acknowledges
that this Agreement is entered into voluntarily.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
NetVantage, Inc.,
a Delaware corporation
By___________________________
Its________________________
EMPLOYEE:
______________________________
Stephen R. Rizzone
3
<PAGE>
EXHIBIT 10.16
[LOGO OF NETVANTAGE, INC.]
- --------------------------------------------------------------------------------
JUNE 25, 1996
Mr. George M. Pontiakos
25081 Eaton Lane
Laguna Niguel, CA 92677
Dear George:
I am pleased to extend to you this offer of employment with NetVantage. Your
title will be Vice President, Operations. This position reports to directly to
me. Compensation for this position is as follows:
1) An exempt starting salary of $4,615.38 (reviewed annually) to be paid
bi-weekly. Further, you will be eligible for a quarterly bonus of up to
five percent (5%) of your base salary based on your performance against
mutually agreed to operational objectives. You will also be eligible for
an additional five percent (5%) bonus assuming the company reaches its
revenue objective for the year and a five percent (5%) bonus if the company
reaches its profit objectives for the year. The annual revenue and profit
targets will be finalized at the next Board of Directors meeting in July.
2) NetVantage has established qualified Employee Stock Option Plans
(ESOPs). I will recommend to the Board of Directors that you be granted an
option of 50,000 shares from the NetVantage 1996 ESOP. The per-share
strike price of the 1996 ESOP options will be the average of the bid/ask
price of the common A shares on NASDAQ on the date of the grant by the
Board. These options have a four (4) year vesting period. You will also
be eligible for additional option grants throughout the year based on
outstanding performance and contributions to the company. These grants are
at the discretion of the Board.
3) Should your employment be terminated for any reason, other than cause,
you will be granted a severance package based on the following schedule:
At the end of the first 30 days of employment: 2 months severance
At the end of the first 60 days of employment: an additional 2
months severance
At the end of the first 120 days of employment: an additional 2
months severance
Therefore, at the end of your first 120 days of employment your full 6
months severance package will be vested. Severance will be based on your
base salary in effect at the time of termination. Bonus compensation
and/or any allowances will not apply to the monthly severance dollar
amount. Should you voluntarily resign your position, NetVantage will not
be obligated to provide any severance payments. Finally, should the
current President and CEO be forcibly removed from his position, you will
have the option of resigning from the company within ninety (90) days of
said removal and receiving twelve (12) months severance.
4) You will also be paid a $500.00 monthly car allowance.
5) NetVantage provides health and dental insurance, there is a modest
shared premium equal to one half of the dental premium.
6) Two weeks vacation and 10 paid holidays per year are provided.
<PAGE>
Assuming the above offer is acceptable to you, please sign below and return the
original document, along with a proposed start date, to my attention. If you
have any questions, please feel free to contact me. The members of the
NetVantage team look forward to a long and mutually beneficial business
relationship.
Sincerely, Accepted:
/s/ Stephen R. Rizzone /s/ [Signature Appears Here] 7/8/96
Stephen R. Rizzone ---------------------------- --------------------
President & CEO Proposed start date
NetVantage, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,787,593
<SECURITIES> 0
<RECEIVABLES> 9,508,602
<ALLOWANCES> (50,000)
<INVENTORY> 7,440,038
<CURRENT-ASSETS> 19,857,367
<PP&E> 1,572,804
<DEPRECIATION> 603,392
<TOTAL-ASSETS> 21,963,770
<CURRENT-LIABILITIES> 4,253,653
<BONDS> 0
0
0
<COMMON> 7,172
<OTHER-SE> 39,100,905
<TOTAL-LIABILITY-AND-EQUITY> 21,963,770
<SALES> 26,427,427
<TOTAL-REVENUES> 26,562,927
<CGS> 23,096,871
<TOTAL-COSTS> 36,257,103
<OTHER-EXPENSES> (91,829)
<LOSS-PROVISION> 46,883
<INTEREST-EXPENSE> 294,190
<INCOME-PRETAX> (9,896,537)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,896,537)
<EPS-PRIMARY> (2.23)
<EPS-DILUTED> 0
</TABLE>
