Securities Purchase Agreement - Finisar Corp., Jerry S. Rawls, Frank Levinson, TA Associates Inc., Summit Partners LLC, WS Investment Co. 98-B, Stanford University, John Gallant, Robert Curin, Michael Maichen and stephen Dichiara
SECURITIES PURCHASE AGREEMENT
FINISAR CORPORATION
NOVEMBER 6, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Authorization, Issuance and Sale of the Preferred Shares. . . . . . 1
1.1 Authorization; Amended and Restated Articles of
Incorporation . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Sale of Preferred Shares by the Company. . . . . . . . . . . 1
2. Closing Date; Subsequent Closing and Delivery . . . . . . . . . . . 1
2.1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Subsequent Sale of Preferred Shares. . . . . . . . . . . . . 1
3. Representations and Warranties of the Company and the Founders. . . 2
3.1 Organization and Standing; Articles and By-Laws. . . . . . . 2
3.2 Corporate Power. . . . . . . . . . . . . . . . . . . . . . . 2
3.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 2
3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 3
3.5 Authorization. . . . . . . . . . . . . . . . . . . . . . . . 3
3.6 Compliance with Other Instruments, None Burdensome, etc. . . 4
3.7 Proprietary Agreements . . . . . . . . . . . . . . . . . . . 4
3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.9 Governmental Consents, etc . . . . . . . . . . . . . . . . . 5
3.10 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.12 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.14 Financial Statements . . . . . . . . . . . . . . . . . . . . 8
3.15 Absence of Changes . . . . . . . . . . . . . . . . . . . . . 9
3.16 Financial Plan and Projections . . . . . . . . . . . . . . .10
3.17 Registration Rights. . . . . . . . . . . . . . . . . . . . .10
3.18 Proprietary Rights . . . . . . . . . . . . . . . . . . . . .10
3.19 Certain Transactions . . . . . . . . . . . . . . . . . . . .12
3.20 Corporate Documents, Minute Books. . . . . . . . . . . . . .12
3.21 Compliance With Law. . . . . . . . . . . . . . . . . . . . .12
3.22 Brokers' and Finders' Fees/Contractual Limitations . . . . .13
3.23 Certain Payments . . . . . . . . . . . . . . . . . . . . . .13
3.24 Books and Records. . . . . . . . . . . . . . . . . . . . . .13
3.25 Foreign Corrupt Practices Act. . . . . . . . . . . . . . . .13
3.26 Environmental and Safety Matters . . . . . . . . . . . . . .14
3.27 Manufacturing and Marketing. . . . . . . . . . . . . . . . .15
3.28 Returns and Complaints . . . . . . . . . . . . . . . . . . .15
3.29 Labor Agreements and Actions . . . . . . . . . . . . . . . .15
3.30 Section 83(b) Elections. . . . . . . . . . . . . . . . . . .16
3.31 Employee Benefit Plans . . . . . . . . . . . . . . . . . . .16
3.32 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . .16
3.33 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . .16
3.34 Shareholder Agreements . . . . . . . . . . . . . . . . . . .16
3.35 Products . . . . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
4. Representations and Warranties of Purchasers and Restrictions on
Transfer Imposed by the Securities Act. . . . . . . . . . . . . . .18
4.1 Representations and Warranties by the Purchasers . . . . . .18
(a) Authority. . . . . . . . . . . . . . . . . . . . . . .18
(b) Authorization. . . . . . . . . . . . . . . . . . . . .18
(c) Investment Intent. . . . . . . . . . . . . . . . . . .18
(d) Shares Not Registered. . . . . . . . . . . . . . . . .18
(e) Knowledge and Experience . . . . . . . . . . . . . . .18
(f) Not Organized to Purchase. . . . . . . . . . . . . . .19
(g) Holding Requirements . . . . . . . . . . . . . . . . .19
(h) Hart-Scott-Rodino Antitrust Improvements Act of 1976
(as amended) . . . . . . . . . . . . . . . . . . . .19
4.2 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . .19
(a) Federal Legend . . . . . . . . . . . . . . . . . . . .19
(b) Other Legends. . . . . . . . . . . . . . . . . . . . .19
4.3 Removal of Legend and Transfer Restrictions. . . . . . . . .20
4.4 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . .20
4.5 No Transfer. . . . . . . . . . . . . . . . . . . . . . . . .20
4.6 Permitted Transfers. . . . . . . . . . . . . . . . . . . . .20
5. Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . .20
5.1 Conditions to Purchasers' Obligations. . . . . . . . . . . .20
(a) Representations and Warranties Correct; Performance
of Obligations . . . . . . . . . . . . . . . . . . .21
(b) Consents and Waivers . . . . . . . . . . . . . . . . .21
(c) Election of Directors. . . . . . . . . . . . . . . . .21
(d) Filing of the Articles . . . . . . . . . . . . . . . .21
(e) Ancillary Agreements . . . . . . . . . . . . . . . . .21
(f) Delivery of Financial Statements . . . . . . . . . . .21
(g) Compliance Certificate . . . . . . . . . . . . . . . .21
(h) Opinion of Counsel . . . . . . . . . . . . . . . . . .21
(i) Reservation of Common Stock. . . . . . . . . . . . . .21
(j) Indemnification Agreements . . . . . . . . . . . . . .21
(k) Financing. . . . . . . . . . . . . . . . . . . . . . .22
(l) Due Diligence Review . . . . . . . . . . . . . . . . .22
(m) Hart-Scott-Rodino. . . . . . . . . . . . . . . . . . .22
5.2 Conditions to Obligations of the Company . . . . . . . . . .22
6. Affirmative Covenants of the Company. . . . . . . . . . . . . . . .22
6.1 Financial Information. . . . . . . . . . . . . . . . . . . .22
6.2 Conflicts of Interest. . . . . . . . . . . . . . . . . . . .23
6.3 Key-Man Insurance. . . . . . . . . . . . . . . . . . . . . .23
6.4 Proprietary Agreements . . . . . . . . . . . . . . . . . . .23
6.5 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . .23
6.6 Actions. . . . . . . . . . . . . . . . . . . . . . . . . . .24
6.7 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . .24
6.8 Offer of Redemption. . . . . . . . . . . . . . . . . . . . .24
7. Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
7. Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
7.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . .24
7.2 Requested Registration . . . . . . . . . . . . . . . . . . .25
(a) Request for Registration . . . . . . . . . . . . . . .25
(c) Underwriting . . . . . . . . . . . . . . . . . . . . .25
7.3 Company Registration . . . . . . . . . . . . . . . . . . . .26
(a) Notice of Registration . . . . . . . . . . . . . . . .26
(b) Underwriting . . . . . . . . . . . . . . . . . . . . .26
7.4 Form S-3 . . . . . . . . . . . . . . . . . . . . . . . . . .27
7.5 Expenses of Registration . . . . . . . . . . . . . . . . . .27
7.6 Registration Procedures. . . . . . . . . . . . . . . . . . .27
7.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . .27
7.8 Information by Holder. . . . . . . . . . . . . . . . . . . .29
7.9 Sale Without Registration. . . . . . . . . . . . . . . . . .29
7.10 Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . .30
7.11 Transfer of Registration Rights. . . . . . . . . . . . . . .30
7.12 Limitations on Subsequent Registration Rights. . . . . . . .30
7.13 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . .31
7.14 Expiration of Rights . . . . . . . . . . . . . . . . . . . .31
8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . .31
8.1 Waivers and Amendments . . . . . . . . . . . . . . . . . . .31
8.2 Governing Law. . . . . . . . . . . . . . . . . . . . . . . .31
8.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . .32
8.4 Successors and Assigns . . . . . . . . . . . . . . . . . . .32
8.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . .32
8.6 Notices, etc . . . . . . . . . . . . . . . . . . . . . . . .32
8.7 Severabilily . . . . . . . . . . . . . . . . . . . . . . . .32
8.8 Finder's Fees and Other Fees . . . . . . . . . . . . . . . .32
8.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .32
8.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . .33
8.11 Delays or Omissions. . . . . . . . . . . . . . . . . . . . .33
8.12 Certain Representations and Warranties . . . . . . . . . . .33
</TABLE>
iii
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<S> <C> <C>
SCHEDULE 1 - Schedule of Purchasers
SCHEDULE 2 - Capitalization
EXHIBIT A - Amended and Restated Articles of Incorporation
EXHIBIT B - Schedule of Exceptions
EXHIBIT C - Form of Shareholders' Agreement
EXHIBIT D - Redemption Agreement
EXHIBIT E - Voting Agreement
EXHIBIT F - Holders of Outstanding Options, Warrants, Convertible
Securities and Other Purchase Rights of the Company
EXHIBIT G - Form of Proprietary Information and Inventions Agreement
EXHIBIT H - Material Contracts
EXHIBIT I - Form of Opinion of Counsel for the Company
</TABLE>
<PAGE>
FINISAR CORPORATION
SECURITIES PURCHASE AGREEMENT
THIS AGREEMENT is made as of November 6, 1998, by and among Finisar
Corporation, a California corporation (the "Company"), Jerry S. Rawls and Frank
Levinson (each, a "Founder" and collectively, the "Founders") and each of the
persons named in the Schedule of Purchasers attached hereto as SCHEDULE 1
(herein individually, a "Purchaser" and collectively, the "Purchasers"). The
parties hereby agree as follows:
1. AUTHORIZATION, ISSUANCE AND SALE OF THE PREFERRED SHARES.
1.1 AUTHORIZATION; AMENDED AND RESTATED ARTICLES OF
INCORPORATION. The Company has authorized the issuance and sale pursuant to the
terms and conditions contained herein at a purchase price of $2.1932 per share
of up to 12,100,000 shares of its Series A Convertible Preferred Stock (the
"Preferred Shares"). The Preferred Shares have the rights, preferences and
privileges as set forth in the Company's Amended and Restated Articles of
Incorporation (the "Articles") attached hereto as EXHIBIT A.
1.2 SALE OF PREFERRED SHARES BY THE COMPANY. Subject to the
terms and conditions hereof, at the Closing, the Company will issue and sell to
the Purchasers and the Purchasers will purchase from the Company the number of
Preferred Shares specified opposite each such Purchaser's name on SCHEDULE 1, at
a purchase price per Preferred Share as indicated in Section 1.1.
2. CLOSING DATE; SUBSEQUENT CLOSING AND DELIVERY.
2.1 CLOSING DATE.
(a) PURCHASE AND SALE. The closing of the purchase and
sale of up to 12,100,000 Preferred Shares shall be held at the offices of
special counsel to the Purchasers, Brobeck, Phleger & Harrison LLP, 2200 Geng
Road, Palo Alto, California, at 1:00 p.m. on November 6, 1998, or at such time
and place as the Company and the Purchasers may agree in writing.
(b) CLOSING. The closing referred to in subsection (a)
above is hereinafter referred to as the "Closing" and the date of the Closing is
hereinafter referred to as the "Closing Date".
2.2 DELIVERY. Subject to the terms of this Agreement, at the
Closing, the Company will deliver to the Purchasers the certificates
representing the Preferred Shares to be purchased by the Purchasers at such
Closing as indicated on SCHEDULE 1, against payment of the purchase price
therefor by, at the option of the Purchasers, a check or checks or wire transfer
payable to the order of the Company.
2.3 SUBSEQUENT SALE OF PREFERRED SHARES. Provided that (i) the
representations and warranties of the Company and the Founders set forth in this
Agreement are then true and
<PAGE>
accurate, without additional exceptions, (ii) the Company has fulfilled each
of its covenants and agreements that it has undertaken to fulfill, without
additional exceptions and (iii) the Company has not breached any provision or
obligation or other agreement under this Agreement, the Company shall sell up
to the balance of the Preferred Shares not sold to the Purchasers pursuant to
Section 2.1(a) of this Agreement to additional Purchasers set forth on
SCHEDULE 1 as the same may be amended from time to time, with each such
Purchaser to become a "Purchaser" for purposes of this Agreement and a
"Holder" for purposes of the Shareholders' Agreement (as defined herein),
having the rights and obligations hereunder and thereunder. Such sale of
additional Preferred Shares, if any, shall occur at a subsequent closing to
take place at the offices of Brobeck, Phleger & Harrison LLP, 2200 Geng Road,
Palo Alto, California no later than 30 days following the Closing (the
"Second Closing"). At the Second Closing, the Purchasers shall be entitled
to an updated Schedule of Exceptions, a revised compliance certificate and an
updated opinion of Company counsel dated the date of the Second Closing each
in form satisfactory to the Purchasers in their sole discretion.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE FOUNDERS.
The Company represents and warrants to the Purchasers, and in addition, with
respect to the representations and warranties set forth in Sections 3.4, 3.6,
3.7, 3.8, 3.11, 3.14, 3.16, 3.18, 3.19, 3.20 and 3.32 and subject to
Section 8.12 hereof, the Founders represent and warrant to the Purchasers that,
except as set forth on a Schedule of Exceptions attached hereto as EXHIBIT B
(which exceptions shall be deemed to be representations and warranties as if
made hereunder):
3.1 ORGANIZATION AND STANDING; ARTICLES AND BY-LAWS. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California and has all requisite corporate power
and authority to carry on its business as now conducted and as proposed to be
conducted. The Company is qualified or licensed to do business as a foreign
corporation in all jurisdictions where such qualification or licensing is
required, except where the failure to so qualify would not have a material
adverse effect upon the Company's business, financial condition, results of
operations or prospects. Copies of all of the Company's Articles, Bylaws,
minutes and consents of shareholders and of the Board of Directors have been
previously provided to special counsel for the Purchasers.
3.2 CORPORATE POWER. The Company has now, or will have at the
Closing Date, the legal capacity and all requisite corporate power and authority
to enter into this Agreement, the Shareholders' Agreement (the "Shareholders'
Agreement") in the form attached hereto as EXHIBIT C, to enter into the
Redemption Agreements (as defined below) attached hereto as EXHIBIT D, to enter
into the Voting Agreement attached as EXHIBIT E (the "Voting Agreement"), to
adopt the Articles and to sell and issue the Preferred Shares and to issue the
Common Stock issuable upon conversion of the Preferred Shares and to carry out
its obligations and related activities hereunder and thereunder. This
Agreement, the Shareholders' Agreement, the Redemption Agreements and the
Articles are valid and binding obligations of the Company and all other parties
that approved them, enforceable in accordance with their respective terms,
except as the same may be limited by bankruptcy, insolvency, moratorium, and
other laws of general application affecting the enforcement of creditors'
rights.
3.3 SUBSIDIARIES. The Company does not own or control,
directly or indirectly, more than one percent of the stock, capital or equity
interests or profits in any other
2
<PAGE>
corporation, association, or other business entity. Each subsidiary of the
Company (each a "Subsidiary" and collectively the "Subsidiaries") is listed
on the Schedule of Exceptions. Neither the Company nor any of the
Subsidiaries is a participant in any joint venture, partnership, or similar
arrangement. The Company owns all of the shares of capital stock of each
Subsidiary (direct or indirect), free and clear of all liens, encumbrances or
claims at the Closing.
3.4 CAPITALIZATION. The authorized capital stock of the
Company is 75,000,000 shares of Common Stock, no par value, of which 45,752,660
shall be issued and outstanding immediately prior to the Closing, 12,100,000
shares of Series A Convertible Preferred Stock, no par value, of which no shares
shall be issued and outstanding immediately prior to the Closing and up to all
of which may be purchased and sold hereunder and 12,100,000 shares of Redeemable
Preferred Stock, of which no shares shall be issued and outstanding prior to the
Closing. The holders of record of the presently issued and outstanding shares
of capital stock immediately prior to the Closing are as set forth on
SCHEDULE 2. All such issued and outstanding shares have been duly authorized
and validly issued, fully paid and nonassessable, were issued for consideration
not less than their fair market value and were or will be issued in compliance
with all applicable state and federal laws concerning the issuance of
securities. The Company has reserved 6,075,611 shares of Common Stock for
issuance pursuant to its 1989 Stock Option Plan (including options currently
outstanding and exercised pursuant to such stock option plan). The holders of
any and all rights, warrants, convertible securities, or conversion or exercise
rights to purchase or acquire from the Company any of its shares of capital
stock, along with the maximum number of shares of capital stock issuable upon
exercise of such rights are set forth on EXHIBIT F hereto. Except for such
rights, there are no outstanding rights, warrants, convertible securities,
conversion rights or agreements for the purchase or acquisition from the Company
of any shares of its capital stock.
3.5 AUTHORIZATION.
(a) CORPORATE ACTION. All corporate action on the part
of the Company, its officers, directors and shareholders necessary for the sale
and issuance of the Preferred Shares and the issuance of the Common Stock upon
conversion of the Preferred Shares and the performance of the Company's
obligations and activities hereunder and under the Shareholders' Agreement, the
Redemption Agreements and the Articles has been taken. The Company has duly
reserved an aggregate of 12,100,000 shares of Common Stock for issuance upon
conversion of the Preferred Shares.
(b) VALID ISSUANCE. The Preferred Shares to be issued
and sold by the Company to the Purchasers, when issued in compliance with the
provisions of this Agreement, and the shares of Common Stock issuable upon
conversion of the Preferred Shares, when issued in accordance with the
provisions of the Articles and pursuant to the terms thereof, will be duly
authorized, validly issued, fully paid and nonassessable and will be free of any
liens or encumbrances. The rights, preferences, privileges and restrictions of
the Preferred Shares are as set forth in the Articles.
(c) NO PREEMPTIVE RIGHTS. Except as provided in this
Agreement or the Shareholders' Agreement, no person (individual or corporate or
partnership) has any right of first refusal or any preemptive rights in
connection with the issuance and sale of the Preferred
3
<PAGE>
Shares, the issuance of the Common Stock upon conversion of the Preferred
Shares or any future issuances of securities by the Company.
3.6 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC.
Neither the Company nor any of the Subsidiaries is in violation of any term of
its Articles or Bylaws, nor is the Company or any of the Subsidiaries in
violation of or in default in any respect under the terms of any mortgage,
indenture, contract, agreement, instrument, judgment or decree applicable to it
or its properties and neither the Company nor any Subsidiary is in violation of
any order, statute, law, rule or regulation applicable to it or its properties.
The execution, delivery and performance of and compliance with this Agreement,
the Shareholders' Agreement and the Articles, the issuance and sale of the
Preferred Shares and the consummation of the other transactions set forth in
this Agreement, including the redemption of Common Stock pursuant to the
Redemption Agreements, the Articles, the Voting Agreement, the Redemption
Agreements and the Shareholders' Agreement do not and will not (a) result in any
such violation, (b) be in conflict with or constitute a default under any such
term, statute, including Chapter 5 of the California Corporations Code, rule or
regulation, (c) result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term, statute, rule or regulation, or (d) result in any
liability to the Company, its officers and directors or the Purchasers. There
is no such term or other provision which will cause a material adverse effect in
the business condition, affairs or operations of the Company, any Subsidiary or
any of their respective properties or assets.
3.7 PROPRIETARY AGREEMENTS. All personnel, including
consultants, retained by the Company and any of its Subsidiaries have executed
agreements regarding confidentiality and proprietary information in the form
attached hereto as EXHIBIT G. Each employee-inventor has validly and properly
assigned his or her rights to the Company on all inventions, pending patent
applications and patents issued and other intellectual property rights used or
useful in the business and operations of the Company and any of its
Subsidiaries. To the extent that the Company or any of its Subsidiaries have
ever utilized the services of a person who provides technical services or
business advice and services without becoming an employee of the Company (herein
referred to as a "consultant" or "consultants") each such person has validly and
properly assigned to the Company or any of its Subsidiaries his or her rights in
and to all copyrights and works of authorship relating to the Company's Products
(as defined below) and business. To the Company's knowledge none of the
Company's employees or consultants is in violation thereof and the Company will
use its best efforts to prevent any such violation by any such employee or
consultant. To the Company's knowledge, none of the Company's employees or
consultants is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of it his or her best efforts to promote the interests of the Company or
any of its Subsidiaries or that would conflict with the Company's business as
conducted or as proposed to be conducted or that would prevent any such employee
or consultant from assigning inventions to the Company or any of its
Subsidiaries. The Company does not believe that it is or will be necessary for
the Company or any of its Subsidiaries to utilize any inventions of any of its
employees or consultants (or persons it currently intends to hire) made prior to
their employment by or relationship with the Company or any of its Subsidiaries.
4
<PAGE>
3.8 LITIGATION. There is no action, proceeding or
investigation pending against the Company, any Subsidiary or any of their
respective officers, directors or, to the Company's knowledge, against any other
employees or consultants of the Company or any of its Subsidiaries (or, to the
Company's knowledge, any basis therefor or threat thereof): (1) which might
result, either individually or in the aggregate, in (a) any material adverse
change in the business, conditions, affairs, operations or prospects of the
Company, any of its Subsidiaries or in any of their respective properties or
assets or of any shareholder, (b) any material adverse impairment of the right
or ability of the Company or any of its Subsidiaries to carry on its business as
now conducted or as proposed to be conducted, or (c) any material liability on
the part of the Company or any of its Subsidiaries or any shareholder; or (2)
which questions the validity of this Agreement the Shareholders' Agreement the
Redemption Agreements, the Voting Agreement or the Articles or any action taken
or to be taken in connection herewith. Neither the Company nor or any of its
Subsidiaries is a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its Subsidiaries currently pending or which the Company or any
Subsidiary currently intends to initiate.
3.9 GOVERNMENTAL CONSENTS, ETC. No consent approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with: (a) the
valid execution and delivery of this Agreement, the Shareholders' Agreement,
the Redemption Agreements, the Voting Agreement or the Articles; (b) the
offer, sale or issuance of the Preferred Shares or the issuance of the shares
of Common Stock issuable upon conversion of the Prefer-red Shares; or (c) the
obtaining of the consents, permits and waivers specified in subsection S. I
(b) hereof, except filings or qualifications under the California Corporate
Securities Law of 1968, as amended (the "Law"), or other applicable blue sky
laws, and for filings required to be made by each of Purchaser and the
Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and all rules and regulations promulgated thereunder (the "HSR Act")
which filings or qualifications, if required, shall be timely filed or
obtained prior to the sale of the Preferred Shares.
3.10 OFFERING. In reliance in part on the representations and
warranties of the Purchasers in Section 4 hereof, the offer, sale and issuance
of the Preferred Shares in conformity with the terms of this Agreement will not
result in a violation of the requirements of Section 5 of the Securities Act of
1933, as amended (the "Securities Act") or the qualification or registration
requirements of the Law or other applicable blue sky laws.
3.11 TAXES.
(a) For purposes of this Agreement, the following terms
have the following meanings: "Tax" (and, with correlative meaning, 'Taxes" and
"Taxable") means any and all taxes or obligations with respect thereto,
including, without limitation, (i) any income, profits, alternative or add-on
minimum tax, gross receipts, sales, use, value-added, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, net worth, premium, property, environmental or
windfall profit tax, custom, duty or other tax, governmental fee or assessment
or charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental entity
responsible for the imposition of any such tax (domestic or foreign) (a "Taxing
Authority"), (ii)
5
<PAGE>
any liability for the payment of any amounts of the type described in clause
(i) above as a result of being a member of an affiliated, consolidated,
combined or unitary group for any Taxable period or as the result of being a
transferee or successor thereof and (iii) any liability for the payment of
any amounts of the type described in clause (i) or (ii) above as a result of
any express or implied obligation to indemnify any other person. For purpose
of this representation, the term "Company" shall refer to and include any of
the Subsidiaries.
(b) All Tax returns, statements, reports and forms
(including estimated Tax returns and reports and information returns and
reports) required to be filed with any Taxing Authority with respect to any
Taxable period ending on or before the time of Closing, by or on behalf of the
Company (collectively, the "Company's Returns"), have been or will be completed
and filed in correct form when due (including any extensions of such due date),
and all amounts shown to be due thereon on or before the time of Closing have
been or will be paid on or before such date. The Company's financial statements
fully accrue all actual and contingent liabilities required in accordance with
generally accepted accounting principles ("GAAP") for Taxes with respect to all
periods through the dates thereof in accordance with GAAP. The April 30, 1998
balance sheet fully and properly accrues all actual and contingent liabilities
as required in accordance with GAAP for Taxes with respect to all periods
through April 30, 1998 and the Company has not and will not incur any tax
liability in excess of the amount reflected on the April 30, 1998 balance sheet
with respect to such periods less any amount thereof that represents a reserve
for deferred Taxes established to reflect any differences between book and tax
income. Neither the Company nor any member of any affiliated or combined group
of which the Company has been a member have granted any extension or waiver of
the limitation period applicable to any of the Company's Returns except as a
result of obtaining an extension of time to file a Return.
(c) With respect to all amounts in respect of material
Taxes imposed upon the Company or for which the Company is or could be liable,
whether to taxing authorities (as, for example, under law) or to other persons
or entities (as, for example, under tax allocation agreements), with respect to
all taxable periods or portions of periods ending on or before the time of
Closing, all applicable tax laws and agreements have been fully complied with,
and all such amounts required to be paid by the Company to Taxing authorities or
others on or before the Closing have been or will be paid except as would not
have a material adverse effect on the Company, its business or assets. Except
for current periods with respect to which taxes are not yet due, the Company
does not owe any material Taxes on compensation paid to any of its employees.
(d) There is no claim, audit action, suit, proceeding,
or investigation now pending or threatened against or with respect to the
Company in respect of any Tax or assessment. There are no liabilities for Taxes
with respect to any notice of deficiency or similar document of any Tax
Authority received by the Company which has not been satisfied in full
(including liabilities for interest, additions to tax and penalties thereon and
related expenses) except as would not have a material adverse effect on the
Company, its business or assets. Neither the Company nor any person on behalf
of the Company has entered into or will enter into any agreement or consent
pursuant to Section 341(f) of the Code. There are no liens for Taxes upon the
assets of the Company except liens for current Taxes not yet due. The Company
has not been and will not be required to include any adjustment in Taxable
income for any Tax
6
<PAGE>
period (or portion thereof) pursuant to Section 481 or 263A of the Code or
any comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Closing.
(e) There is no contract, agreement, plan or arrangement
covering any current or former employee or consultant of the Company that,
individually 'or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Section 28OG or Section 162 of the Code (as
determined without regard to Section 28OG(b)(4)). Other than pursuant to this
Agreement, the Company is not a party to or bound by (and will not prior to the
time of Closing become a party to or bound by) any material tax indemnity, tax
sharing or tax allocation agreement (whether written, unwritten or arising under
operation of federal law as a result of being a member of a group filing
consolidated tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than the Company. None of
the assets of the Company (i) are property that the Company is required to treat
as owned by any other person pursuant to the so-called "safe harbor lease"
provisions of former Section 168(f)(8) of the Code, (ii) directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code, or (iii) are "tax exempt use property" within the meaning of Section
168(h) of the Code. The ' Company has not participated in (and prior to the
time of Closing the Company will not participate in) an international boycott
within the meaning of Section 999 of the Code. The Company has previously
provided or made available to the Purchaser true and correct copies of all of
the Company's Returns, and, as reasonably requested by the Purchaser prior to or
following the date hereof, will make available promptly presently existing
information statements, reports, work papers, Tax opinions and memoranda and
other Tax data and documents.
(f) The Company is not or has not been, a United States
real property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(g) No shareholders of the Company are other than a
United States person within the meaning of the Code.
(h) The Company does not have and has not had a
permanent establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States of America and such foreign
country and the Company has not engaged in a trade or business within any
foreign country.
(i) The Company is not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes.
(j) All material elections with respect to Taxes
affecting the Company as of the date of this Agreement and as of the Closing are
or will be set forth in the Schedule of Exceptions.
7
<PAGE>
(k) The Company is not currently and never have been
subject to the reporting requirements of Section 6038A of the Code.
3.12 TITLE. The Company and all of its Subsidiaries own their
respective properties and assets, including the properties and assets reflected
in the Financial Statements (as defined below), free and clear of all liens,
mortgages, loans or encumbrances except liens for current taxes, and such
encumbrances and liens which arise in the ordinary course of business and do not
materially impair the Company's or any of its Subsidiaries' ownership or use of
such property or assets. With respect to the property and assets leased by the
Company and each of its Subsidiaries, the Company and each of its Subsidiaries
are in compliance with such leases and hold valid leasehold interests free and
clear of any liens, claims or encumbrances.
3.13 MATERIAL CONTRACTS AND COMMITMENTS. All of the contracts,
mortgages, indentures, agreements, instruments and transactions to which the
Company or any Subsidiary is a party or by which they are bound (excluding
purchase orders made in the ordinary course of business to the Company or any of
its Subsidiaries or placed by the Company or any of its Subsidiaries) which
involve obligations of, or payments to, the Company or any of its Subsidiaries
in excess of Fifty Thousand Dollars ($50,000) and all agreements between the
Company or any of its Subsidiaries and any of their respective officers,
directors, employees and consultants are either (i) attached as exhibits to this
Agreement or (ii) set forth on the list attached hereto as EXHIBIT H (the
"Contracts"), copies of which have been provided to special counsel to the
Purchasers. All of the Contracts are valid, binding and in full force and
effect in all respects and enforceable by or against the Company or any of its
Subsidiaries in accordance with their respective terms in all respects, subject
to the effect of applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement of
creditors' rights and rules or laws concerning equitable remedies. The Company
is not in default under any of such Contracts. To the Company's knowledge no
other party to any of the Contracts is in material default thereunder.
3.14 FINANCIAL STATEMENTS.
(a) The Company has delivered to the Purchasers true,
correct and complete copies of (i) its audited consolidated balance sheets,
income statements, statements of shareholders' equity and statements of cash
flows, including notes thereto, at and for the year ended April 30, 1998; and
(ii) its unaudited consolidated balance sheets, income statements, statements of
shareholders' equity and statements of cash flows for the year ended April 30,
1997 (collectively, the "Financials").
(b) The Company has delivered to the Purchasers true,
correct and complete copies of its balance sheet, income statement, statement of
shareholders' equity and statement of cash flows at and for the five months
ended September 30, 1998 which have been prepared internally by the Company's
management (such financial statements, together with the Financials, are
referred to herein as the "Financial Statements").
(c) The Financial Statements fairly and accurately
present the Company's financial position as of those dates and the results of
operations and changes in its
8
<PAGE>
financial position for such periods ended, and have been prepared in
accordance with GAAP applied on a consistent basis, except for the absence of
footnotes.
(d) There are no debts, liabilities or claims against
the Company or any of its Subsidiaries that are not currently reflected in the
Financial Statements, contingent or otherwise, which are or would be of a nature
required to be reflected in a balance sheet prepared in accordance with GAAP.
Neither the Company nor any of its Subsidiaries have any material liabilities
other than those set forth in the Financial Statements. The Company maintains a
standard system of accounting, including with respect to revenue recognition, in
accordance with GAAP. The Company's financial reserves are adequate to cover
warranty and similar claims incurred and expected to be incurred and expected
tax liability.
(e) All of the accounts receivable and notes receivable
owing to the Company as of the date hereof constitute valid and enforceable
claims arising from bona fide transactions in the ordinary course of business,
and there are no known, contingent or asserted claims, refusals to pay, rights
of return or other rights of set-off against any thereof.
3.15 ABSENCE OF CHANGES. Except as contemplated by this
Agreement, since August 31, 1998, (a) neither the Company nor any of its
Subsidiaries has entered into any transaction which was not in the ordinary
course of business, (b) there has been no material adverse change in the
condition (financial or otherwise) of the business, property, assets,
liabilities or prospects of the Company or any of its Subsidiaries other than
changes in the ordinary course of business, none of which, individually or in
the aggregate, has been materially adverse, (c) there has been no damage to,
destruction of or loss of physical property (whether or not covered by
insurance) affecting in a materially adverse way the assets, financial
condition, operating results, business or operations of the Company or any of
its Subsidiaries, (d) neither the Company nor any of its Subsidiaries has
declared or paid any dividend or made any distribution on its stock, or
redeemed, purchased or otherwise acquired any of its stock, (e) neither the
Company nor any of its Subsidiaries has changed any compensation arrangement or
agreement with any of its key employees or officers, or changed the rate of pay
of its employees as a group, (f) neither the Company nor any of its Subsidiaries
has received notice that there has been a cancellation of an order for the
Company's or any of its Subsidiaries' products or a loss of a customer of the
Company or any of its Subsidiaries, the cancellation or loss of which would
affect in a materially adverse way the business of the Company or any of its
Subsidiaries, (g) neither the Company nor any of its Subsidiaries has changed or
amended any Contract by which the Company or any of its Subsidiaries or any of
their assets are bound or subject, (h) there has been no resignation or
termination of employment of any key officer or consultant of the Company or any
of its Subsidiaries and the Company does not know of any impending resignation
or termination of employment of any such officer or consultant that if
consummated would have a material adverse effect on the business of the Company
or any of its Subsidiaries, (i) there has been no labor dispute involving the
Company or any of its Subsidiaries or any of their employees and none is pending
or threatened, 0) there has been no change in the material contingent
obligations of the Company or any of its Subsidiaries (nor in any contingent
obligation of the Company or any of its Subsidiaries regarding any director,
shareholder or key employee or officer of the Company or any of its
Subsidiaries) by way of guaranty, endorsement, indemnity, warranty or otherwise,
(k) there have been no loans made by the Company or any of its Subsidiaries to
any of their consultants, officers or directors other than travel advances and
9
<PAGE>
other advances made in the ordinary course of business, (1) there has been no
waiver by the Company or any of its Subsidiaries of a material right or of a
material debt owing to it, (m)there has not been any satisfaction or discharge
of any lien, claims or encumbrance or any payment of any obligation by the
Company or any of its Subsidiaries, except in the ordinary course of business
and which is not material to the assets, properties, financial condition,
prospects, operating results or business of the Company or any of its
Subsidiaries, and (n) there has been no other event or condition of any
character pertainig to and materially adversely affecting the assets or business
prospects of the Company or any of its Subsidiaries.
3.16 FINANCIAL PLAN AND PROJECTIONS. The projections of the
Company previously delivered to the Purchasers were prepared in good faith by
the Company and were made based on assumptions that the Company and the Founders
believed were reasonable under the circumstances at the time made.
3.17 REGISTRATION RIGHTS. Other than as granted pursuant to
this Agreement, the Company has not granted or agreed to grant any rights to
register any security as that term is defined in this Agreement, including
piggyback registration rights, to any person or entity.
3.18 PROPRIETARY RIGHTS.
(a) The Company and each of its Subsidiaries has full,
complete and undisputed right, title and interest in and to all patents, patent
applications, trademarks, trademark applications, license rights, service marks,
trade names, copyrights, trade secrets, information, mask work registrations,
and other proprietary rights and processes (collectively, "Proprietary Rights")
necessary for or used in their businesses as now conducted and as proposed to be
conducted without any conflict with or infringement of the rights of others.
The Schedule of Exceptions contains a list of all patents and patent
applications owned or licensed by the Company and each of its Subsidiaries.
(b) The Schedule of Exceptions sets forth a true and
complete list of all contracts, licenses and other agreements to which the
Company and each of its Subsidiaries is a party, which affect any item of the
Proprietary Rights.
(c) Except as set forth in the Schedule of Exceptions:
(i) The Company and each of its Subsidiaries
either own or have the exclusive right to use, sell, license and dispose of, to
bring actions for the infringement of and otherwise exercise all Proprietary
Rights, including Proprietary Rights which comprise trade secret rights
(hereinafter, "Trade Secrets"), free and clear of all encumbrances.
(ii) The Company and each of its Subsidiaries has
taken all appropriate actions and made all applicable applications and filings
which are necessary and appropriate pursuant to applicable laws to perfect or
protect their interests in all Proprietary Rights.
(iii) The execution, delivery and performance of
this Agreement and the Shareholders' Agreement and the consummation of the
transactions contemplated hereby and thereby will not (A) cause the
forfeiture or termination or give rise to a right of forfeiture or
termination or give rise to a right of forfeiture or
10
<PAGE>
termination of any Proprietary Right, or (B) in any way impair the right of
the Company or any of its Subsidiaries to use, sell, license or dispose of or
to bring any action for the infringement of, any Proprietary Right or any
products or technology designed, developed, manufactured, sold or serviced by
the business of the Company or any of its Subsidiaries (collectively,
"Products").
(iv) The manufacture, marketing, license, sale or
use of any Products does not or would not (A) violate any license or agreement
with any third party, (B) infringe on any non-patent Proprietary Right of any
third party or (C) to the Company's knowledge, infringe any third party patent
rights. Neither the Company, any of its Subsidiaries nor, to the Company's
knowledge, any of their employees or consultants has misappropriated any third
party Trade Secrets. There is no claim or litigation pending or, to the best of
the Company's knowledge, threatened, contesting the validity, ownership or right
to use, sell, license or dispose of any Proprietary Right, nor is there any
basis for any such claim.
(v) To the best of the Company's knowledge, no
third party is infringing on any Proprietary Right where such infringement could
or would limit the protection afforded by the Proprietary Rights to the use,
sale, license, sublicense or disposition of the Products or prevent the future
enforcement of such Proprietary Right.
(vi) The Company and each of its Subsidiaries has
taken all steps reasonably necessary or appropriate (including, without
limitation, entering into appropriate confidentiality, nondisclosure and
noncompetition agreements, the forms of which have been delivered to the
Purchasers or its special counsel, with all employees and consultants of the
Company and each of its Subsidiaries) to safeguard and maintain the secrecy and
confidentiality of, and the Company's and each of its Subsidiaries' proprietary
rights in, all Proprietary Rights.
(vii) All Trade Secrets will have remained under
the exclusive control of the Company or each of its Subsidiaries, as the case
may be, at all times prior to the Closing Date and have not been used, divulged
or appropriated for the benefit of any person other than the Company or any of
its Subsidiaries or to the detriment of the Company or any of its Subsidiaries.
(d) Except as set forth in the Schedule of Exceptions:
(i) The Company and each of the Subsidiaries has
performed, or are now performing, their obligations, and the Company and each of
its Subsidiaries are not in default in any material respect (or would by the
lapse of time or the giving of notice or both be in default in any material
respect), under any license or agreement listed or required to be listed in the
Schedule of Exceptions. To the Company's knowledge no other party to such
licenses and agreements is in default in any material respect (or would by the
lapse of time or the giving of notice or both, be in default in any material
respect) thereunder or has breached in any material respect any terms or
provisions thereof.
(ii) No third party has raised any claim, dispute
or controversy with respect to any of the licenses or agreements which is listed
or required to be listed in the Schedule of Exceptions. Neither the Company nor
any of its Subsidiaries has received written
11
<PAGE>
notice or warning or oral notice or warning of alleged nonperformance, delay
in delivery or other noncompliance by the Company or any of its Subsidiaries
with respect to its obligations under any such licenses or agreements.
(e) Neither the Company nor any of its Subsidiaries nor,
to the Company's knowledge, any of their employees or consultants is making
unpermitted use of any confidential information of third parties or any
confidential information in which any of their present or past consultants has
claimed a proprietary interest; and the Company is not aware of any facts that
would give rise to such a claim. To the Company's knowledge no employee or
consultant to the Company or any of its Subsidiaries is in violation or would be
in violation of any agreement with any former employer.
(f) The Company and each its Subsidiaries have satisfied
all material obligations pursuant to any and all consulting agreements, and
neither the Company nor any of its Subsidiaries is using or has developed any
unpermitted derivatives or unpermitted modifications of technology relating to
such consulting agreements without the consent of the other party to such
consulting agreements.
(g) Neither the Company nor any of its Subsidiaries has
any reasonable basis to believe that any one of them has any present or future
liability under any agreement to (a) provide indemnification for infringement or
misappropriation of any third party rights or otherwise; or (b) provide updates,
enhancements, modifications, bug fixes, support, maintenance or the like of any
Products or their technology.
3.19 CERTAIN TRANSACTIONS. Neither the Company nor any of its
Subsidiaries is indebted, directly or indirectly, to any of their officers,
directors or shareholders or to their spouses or children, in any amount
whatsoever; and none of said officers, directors or shareholders, or any member
of their immediate families, are indebted to the Company or any of its
Subsidiaries or own, directly or indirectly, 1% of the outstanding equity of any
firm or corporation with which the Company or any of its Subsidiaries is
affiliated or with which the Company or any of its Subsidiaries has a material
business relationship. No such officer, director or shareholder, or any member
of their immediate families, is, directly or indirectly, interested in any
material contract with the Company or any of its Subsidiaries. Neither the
Company nor any of its Subsidiaries is guarantor or indemnitor of any
indebtedness of any other person, fu-m or corporation.
3.20 CORPORATE DOCUMENTS, MINUTE BOOKS. Except for amendments
necessary to satisfy representations and warranties or conditions contained
herein (the form of which amendments has been approved by the Purchasers), the
Articles of Incorporation and Bylaws of the Company and each of its Subsidiaries
are in the form previously provided to special counsel to the Purchasers. The
minute books of the Company previously provided to special counsel to the
Purchasers contain a complete summary of all meetings of directors and
shareholders since the time of incorporation of the Company.
3.21 COMPLIANCE WITH LAW. The Company and each of its
Subsidiaries has complied and is in compliance with all applicable foreign,
federal, state and, to the best of the Company's knowledge, local laws,
statutes, licensing requirements, rules, and regulations, and
12
<PAGE>
judicial or administrative or zoning decisions except as would not have a
material adverse effect on the Company's business, assets or properties. The
Company and each of its Subsidiaries has been granted all licenses, permits
(temporary and otherwise), authorizations, and approvals from foreign,
federal, state and local government regulatory or zoning bodies necessary to
carry on its business as now and as proposed to be conducted, all of which
are currently valid and in full force and effect. All such licenses,
permits, authorizations, and approvals shall be valid and in full force and
effect following the Closing. To the Company's knowledge there is no order
issued, investigation, or proceeding pending or threatened, or notice served
with respect to any violation of any law, ordinance, order, writ, decree,
rule, or regulation issued by any federal state, local or foreign court or
governmental agency or instrumentality applicable to the Company. The
Company has valid use permits for its business as now conducted.
3.22 BROKERS' AND FINDERS' FEES/CONTRACTUAL LIMITATIONS. The
Company is not obligated to pay any fees or expenses of any broker or finder in
connection with the origin, negotiation, or execution of this Agreement or in
connection with any transactions contemplated hereby. Neither the Company, any
Founder nor any officer, director, employee, shareholder, agent, or
representative of the Company (collectively 'Agent/Representatives") is or has
been subject to any agreement, letter of intent, or understanding of any kind
which prohibits, limits, or restricts the Company or its Agent/Representatives
from negotiating, entering into and consummating this Agreement and the
transactions contemplated hereby.
3.23 CERTAIN PAYMENTS. Neither the Company nor any person
directly or indirectly on behalf of the Company has, made or received any
payment that was not legal to make or receive which payments have or could be
expected to have a material adverse effect on the business of the Company.
3.24 BOOKS AND RECORDS. The books and records of the Company to
which the Purchasers and their accountants and attorneys have been given access
are the true books and records of the Company and truly and fairly reflect the
underlying facts and transactions in all material respects.
3.25 FOREIGN CORRUPT PRACTICES ACT. None of the activities or
types of conduct below have been or may have been engaged in by the Company,
either directly or indirectly:
(a) Any bribes or kickbacks to government officials or
their relatives, or any other payments to such persons, whether or 'not legal,
to obtain or retain business or to receive favorable treatment with regard to
business; or
(b) Any bribes or kickbacks to persons other than
government officials, or to relatives of such persons, or any other payments to
such persons or their relatives, whether or not legal, to obtain or retain
business or to receive favorable treatment with regard to business; or
(c) Any illegal contributions made to any political
party, political candidate or holder of governmental office; or
13
<PAGE>
(d) Any bank accounts, funds or pools of funds created
or maintained without being reflected on the corporate books of account, or as
to which the receipts and disbursements therefrom have not been reflected on
such books; or
(e) Any receipts or disbursements, the actual nature of
which has been "disguised" or intentionally misrecorded on the corporate books
of account; or
(f) Fees paid to consultants or commercial agents which
exceeded the reasonable value of the services purported to have been rendered;
or
(g) Any payments or reimbursements made to personnel of
the Company for the purposes of enabling them to expend time or to make
contributions or payments of the kind or for the purpose referred to in
subparagraphs (a)-(f) above. The Company has not violated the United States
Corrupt Foreign Practices Act or any other similar laws, statute, rule or
regulation of any country.
3.26 ENVIRONMENTAL AND SAFETY MATTERS.
(a) Except as disclosed in the Schedule of Exceptions:
(i) To the knowledge of the Company, there has
been no disposal, release or threatened release of any hazardous substance or
hazardous waste on, from or under the property owned or leased currently or in
the past by the Company or any of its Subsidiaries or any predecessor, except as
permitted under federal, state and local laws. For purposes of this Agreement,
the terms "disposal," "release," "hazardous substance" and "hazardous waste"
shall have the definitions assigned thereto under federal, state and local laws
applicable to the Company and each of its Subsidiaries, the assets of the
Company and each of its Subsidiaries and the property owned or leased by the
Company and each of its Subsidiaries, including without limitation the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. _9601 et seq., as amended, and any regulations promulgated thereto,
except that "hazardous substance' and "hazardous waste" shall also include all
varieties of petroleum hydrocarbons, refined or unrefined asbestos,
polychlorinated biphenyls and urea formaldehyde and other materials classified
as hazardous or toxic under any Environmental Laws (as defined below).
(ii) To the knowledge of the Company, the Company
and each of its Subsidiaries, the operation of their businesses, and any real
property that the Company and each of its Subsidiaries presently lease or
otherwise occupy or use (the "Premises") are in compliance with all applicable
Environmental Laws (as defined below) and orders or directives of any
governmental authorities with respect to and under such Environmental Laws
including, without limitation, any Environmental Laws or orders or directives
with respect to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the release, emission or discharge
of any hazardous substance or hazardous waste or any regulations, plans,
judgments, injunctions or notices promulgated or approved thereunder: (a) which
are applicable to the operations of the Company and each of its Subsidiaries or
the Premises, or the assets or the business or operations of the Company and
each of its Subsidiaries, or (b) which may give rise to any liability of the
Company and each of its Subsidiaries or
14
<PAGE>
otherwise form the basis of any ongoing or threatened claims, actions,
demands, suits, proceedings, hearings, studies or investigations against or
relating to the Company or any of its Subsidiaries.
(iii) Neither the Company nor any of its
Subsidiaries has received any citation, directive, letter or other
communication, written or oral, or any notice of any proceedings, claims or
lawsuits, from any person, entity or governmental authority arising out of any
alleged violations of Environmental Laws by the Company or its Subsidiaries, nor
is the Company aware of any basis therefor.
(iv) The Company and each of its Subsidiaries have
obtained and are maintaining in full force and effect all necessary material
permits, licenses and approvals required by any Environmental Laws applicable to
the Premises and the business operations conducted thereon and are in material
compliance with all such permits, licenses and approvals.
(v) To the knowledge of the Company, no disposal
or release of a hazardous substance or hazardous waste has come to be located on
or beneath the Premises or any of the real property owned or leased in the -past
by the Company or any of its Subsidiaries or any predecessor.
(vi) The Schedule of Exceptions sets forth (a) all
arrangements that the Company and each of its Subsidiaries currently have and
in the past have had in effect for the removal, disposal, release and/or
processing of waste and byproducts, including any hazardous substances or
hazardous waste, and (b) all reports, studies and evaluations conducted by
the Company or any of its Subsidiaries, or received by the Company or any of
its Subsidiaries, with respect to the removal, disposal, release and/or
processing of waste and by-products, including any hazardous substances or
hazardous waste.
(b) The term "Environmental Laws" shall mean any
federal, state or local law, ordinance or regulation pertaining to the
protection of human health or the environment including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Sections 9601, et _M., Emergency Planning and Community Right-To-Know Act, 42
U.S.C. Sections I 1001, et seq., and the Resource Conservation and Recovery Act
42 U.S.C. Sections 6901, et seq.
3.27 MANUFACTURING AND MARKETING. Neither the Company nor any
of its Subsidiaries has granted rights to manufacture, produce, assemble,
license, market, or sell their Products to any other person and is not bound by
any agreement that affects the Company's or any of its Subsidiaries exclusive
right to develop, manufacture, assemble, distribute, market or sell their
Products.
3.28 RETURNS AND COMPLAINTS. Neither the Company nor any of its
Subsidiaries has received any customer complaints concerning their Products
and/or services, nor have they had any of their Products returned by a purchaser
thereof due to the failure to meet specifications, other than minor,
nonrecurring warranty problems, and claims not in excess of $25,000,
individually or $100,000, in the aggregate, for any single customer.
15
<PAGE>
3.29 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor any
of its Subsidiaries is bound by or subject to (and none of their assets or
properties are bound by or subject to) any written or oral, express or implied,
contract, commitment or arrangement with any labor union, and no labor union has
requested or has sought to represent any of the employees or consultants of the
Company or any of its Subsidiaries. There is no strike or other labor dispute
involving the Company or any of its Subsidiaries pending, or threatened, that
could have an adverse effect on the assets, properties, financial condition,
operating results or business of the Company or any of its Subsidiaries (as such
business is presently conducted and as it is proposed to be conducted), nor is
the Company aware of any labor organization activity involving its employees or
consultants. The employment of each employee or consultant of the Company and
each of its Subsidiaries is terminable at the will of the Company or each of the
its Subsidiaries. The Company and each of its Subsidiaries have complied in all
material respects with all applicable state and federal equal employment
opportunity and other laws related to employment.
3.30 SECTION 83(b) ELECTIONS. To the Company's knowledge, all
individuals who have purchased shares of the Company's Common Stock that are
subject to a risk of forfeiture have timely filed elections under Section 83(b)
of the Code (as defined below) and any analogous provisions of applicable state
tax laws.
3.31 EMPLOYEE BENEFIT PLANS. Neither the Company nor any of its
Subsidiaries has any "employee benefit plan" as defined in the Employee
Retirement Income Security Act of 1974, as amended.
3.32 DISCLOSURE. The copies of all instruments, agreements and
other documents and information delivered by or provided to the Company and each
of its Subsidiaries to the Purchasers or their special counsel are and will be
complete and correct in all respects as of the date of delivery thereof. No
representations or warranties made by the Company or the Founders in this
Agreement, any exhibit or schedule hereto, or any written information furnished
or to be prepared and furnished by the Company or the Founders pursuant hereto
or in connection with the transactions contemplated hereby which is referenced
in or attached to the Schedule of Exceptions contains or will. contain any
untrue statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements or facts contained herein or therein, not
misleading in light of the circumstance under which they were made.
3.33 INSURANCE. The Company and each of its Subsidiaries
maintain insurance covering property damage, including environmental, and
liability reasonably prudent under commercially reasonable business practices.
The Company and each of its Subsidiaries have in full force and effect products
liability and errors and omissions insurance in amounts customary for companies
similarly situated.
3.34 SHAREHOLDER AGREEMENTS. Except as otherwise contemplated
by this Agreement, the Shareholders' Agreement, the Redemption Agreements and
the Voting Agreement, (a) there are no agreements or arrangements between the
Company or any of its Subsidiaries and any of the Company's or any of the
Subsidiaries' shareholders or to the Company's knowledge, between any of the
Company's or any of the Subsidiaries' shareholders which adversely affect any
shareholder's ability or right freely to alienate or vote such shares and
16
<PAGE>
(b) to the Company's knowledge, none of the Company's or any of the
Subsidiaries' shareholders is affiliated with Or has any agreements or
arrangements with any customer of, or supplier to, the Company or any of its
Subsidiaries.
3.35 PRODUCTS.
(a) There are no known defects in the design or
technology embodied in any product which the Company or any of its Subsidiaries
markets or has marketed in the past that impair or are likely to impair the
intended use of the product or injure any consumer of the product or third
party, except that warranty claims may arise in the normal course of business
for products shipped prior to the Closing Date in an aggregate amount of no more
than the warranty reserves established by the Company. The Company and each of
its Subsidiaries have delivered to the Purchasers copies of their warranty
policies and all outstanding warranties or guarantees relating to any of the
Company's or each of the Subsidiaries' products other than warranties or
guarantees implied by law. The Company is not aware of any claim asserting (a)
any damage, loss or injury caused by any product, or (b) any breach of any
express or implied product warranty or any other similar claim with respect to
any product of the Company or any of its Subsidiaries other than standard
warranty obligations (to replace, repair or refund) made by the Company or any
of its Subsidiaries in the ordinary course of business, except for those claims
that, if adversely determined against the Company or any of its Subsidiaries,
would not have a material and adverse effect on the Company's or any of its
Subsidiaries' business.
(b) None of the products and services sold, licensed,
rendered, or otherwise provided by the Company (or by any of its Subsidiaries)
in the conduct of their respective businesses (excluding products and services
sold, licensed, rendered, or otherwise provided by the Company which have been
combined with products of other companies) will malfunction, will cease to
function, will generate materially incorrect data or will produce materially
incorrect results and will not cause any of the above with respect to the
property or business of third parties using such products or services when
processing, providing or receiving (i) date-related data from, into and between
the Twentieth (20th) and Twenty-First (21st) centuries, or (ii) date-related
data in connection with any valid date in the Twentieth (20th) and Twenty-First
(21st) centuries, causing a material adverse effect on the Company, its business
or the property or business of any third parties using such products or
services.
(c) Neither the Company nor any subsidiary has made any
other representations or warranties specifically relating to the ability of any
product or service sold, licensed, rendered, or otherwise provided by the
Company (or by any of its subsidiaries) in the conduct of their respective
businesses to operate without malfunction, to operate without ceasing to
function, to generate correct data or to product correct results when
processing, providing or receiving (i) date-related data from, into and between
the Twentieth (20th) and Twenty-First (21st) centuries, and (ii) date-related
data in connection with any valid date in the Twentieth (20th) and Twenty-First
(21st) centuries.
17
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF PURCHASERS AND RESTRICTIONS ON
TRANSFER IMPOSED BY THE SECURITIES ACT.
4.1 REPRESENTATIONS AND WARRANTIES BY THE PURCHASERS. Each
Purchaser represents and warrants to the Company (as to itself only) as follows:
(a) AUTHORITY. It is a corporation or partnership (as
indicated by its signature to this Agreement) and is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. Each Purchaser has now, and will have at the Closing Date, all
requisite legal and (if applicable) corporate or partnership power to enter into
this Agreement, to purchase the Preferred Shares hereunder and to perform its
obligations under the terms of this Agreement.
(b) AUTHORIZATION. All corporate or partnership action
(if applicable) on the part of such Purchaser necessary for the purchase of the
Preferred Shares and the performance of such Purchaser's obligations hereunder
and thereunder has taken or will be taken prior to the Closing Date. This
Agreement, when executed and delivered by such Purchaser will constitute a valid
and legally binding obligation of such Purchaser, enforceable in accordance with
its terms, except as enforcement may be limited by applicable bankruptcy laws or
other similar laws affecting creditors' rights generally, and except that the
availability of equitable remedies may be limited.
(c) INVESTMENT INTENT. Purchaser is acquiring the
Preferred Shares and the Common Stock issuable upon conversion of the Preferred
Shares (collectively the "Securities") for investment for such Purchaser's own
account, not as nominee or agent, and not with a view to, or for resale in
connection with any distribution or public offering thereof within the meaning
of the Securities Act and the Law. Purchaser has the full right, power and
authority to enter into and perform this Agreement and the Shareholders'
Agreement. Purchaser understands and acknowledges that the Company will rely on
this representation in entering this Agreement.
(d) SHARES NOT REGISTERED. Purchaser understands and
acknowledges that the offering of the Preferred Shares pursuant to this
Agreement will not be registered under the Securities Act or qualified under the
Law on the grounds that the offering and sale of securities contemplated by this
Agreement are exempt from registration under the Securities Act pursuant to
Section 4(2) thereof and exempt from registration pursuant to Section 25102(f)
of the Law, and other applicable state securities or blue sky laws, and that the
Company's reliance upon such exemptions is predicated upon such Purchaser's
representations set forth in this Agreement. Purchaser acknowledges and
understands that the Securities must be held indefinitely unless the Securities
are subsequently registered under the Securities Act and qualified under the Law
or an exemption from such registration and such qualification is available.
(e) KNOWLEDGE AND EXPERIENCE. Purchaser (i) has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of such Purchaser's prospective investment in
the Securities; (ii) has the ability to bear the economic risks of such
Purchaser's prospective investment; (iii) has been furnished with and has had
access to such information as such Purchaser has considered necessary to make a
18
<PAGE>
determination as to the purchase of the Securities together with such additional
information as is necessary to verify the accuracy of the information supplied;
(iv) has had all questions which have been asked by such Purchaser answered by
the Company; and (v) has not been offered the Securities by any form of
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any such media.
(f) NOT ORGANIZED TO PURCHASE. Purchaser has not been
organized for the purpose of purchasing the Securities.
(g) HOLDING REQUIREMENTS. Purchaser understands that if
the Company does not (i) register its Common Stock with the Securities and
Exchange Commission ("SEC") pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), (ii) become subject to Section
15(d) of the Exchange Act, (iii) supply information pursuant to Rule 15c2-11
thereunder, or (iv) have a registration statement covering the Securities (or a
filing pursuant to the exemption from registration under Regulation A of the
Securities Act covering the Securities) under the Securities Act in effect when
it desires to sell the Securities, such Purchaser may be required to hold the
Securities for an indeterminate period. Purchaser also understands that any
sale of the Securities that might be made by such Purchaser in reliance upon
Rule 144 under the Securities Act may be made only in limited amounts in
accordance with the terms and conditions of that rule.
(h) HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976
(AS AMENDED). As a result of this transaction, no Purchaser will hold voting
securities of the Company that either (i) are valued at $15 million or more, or
(ii) based on the representation set forth in Section 3.4, represent 15% or more
of the outstanding voting securities of the Company. As defined in 16 CFR
Section 801.1(a)(3) and (b), each Purchaser (i) is not controlled by any other,
and (ii) does not control any other entity that holds voting securities of the
Company each of which is listed on Schedule 2.
4.2 LEGENDS. Each certificate representing the Securities may
be endorsed with the following legends:
(a) FEDERAL LEGEND. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE
OR OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH
RULE 144, OR (iii) PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE
CORPORATION, THAT SUCH REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID
SALE, OFFER OR DISTRIBUTION.
(b) OTHER LEGENDS. Any other legends required by the Law
or other applicable state blue sky laws. The Company need not register a
transfer of legended Securities,
19
<PAGE>
and may also instruct its transfer agent not to register the transfer of the
Securities, unless the conditions specified in each of the foregoing legends
are satisfied.
4.3 REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS. Any legend
endorsed on a certificate pursuant to subsection 4.2(a) and the stop transfer
instructions with respect to such legended Securities shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
Securities if such Securities are registered and sold under the Securities Act
and a prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder satisfies the requirements of Rule 144(k) and, where
reasonably deemed necessary by the Company, provides the Company with an opinion
of counsel for such holder of the Securities, reasonably satisfactory to the
Company, to the effect that (i) such holder meets the requirements of Rule
144(k) or (ii) a public sale, transfer or assignment of such Securities may be
made without registration.
4.4 RULE 144. Purchaser is aware of the adoption of the Rule
144 by the SEC promulgated under the Securities Act, which permits limited
public resales of securities acquired in a nonpublic offering, subject to the
satisfaction of certain conditions. The Purchaser understands that under Rule
144, the conditions include, among other things the availability of certain
current public information about the issuer and the resale occurring not fewer
than two years after the party has purchased and paid for the securities to be
sold.
4.5 NO TRANSFER. Purchaser covenants that in no event will
such Purchaser dispose of any of the Securities (other than in conjunction with
an effective registration statement for the Securities under the Securities Act
or in compliance with Rule 144 promulgated under the Securities Act) unless and
until (i) such Purchaser shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Purchaser shall have furnished the Company with
an opinion of counsel reasonably satisfactory in form and substance to the
Company to the effect that (x) such disposition will not require registration
under the Securities Act and (y) appropriate action necessary for compliance
with the Securities Act, the Law and any other applicable state, local or
foreign law has been taken. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144.
4.6 PERMITTED TRANSFERS. Notwithstanding the provisions of
this Agreement, no registration statement or opinion of counsel shall be
necessary for a transfer by a Purchaser which is a partnership to a partner of
such partnership or a former partner of such partnership who leaves such
partnership after the date hereof, or to the estate of any such partner or
former partner of the transfer by gift, will or intestate succession of any
partner to his spouse or lineal descendants or ancestors, if the transferee
agrees in writing to be bound by the terms of this Agreement, and the
Shareholders' Agreement to the same extent as if he were an original Purchaser
hereunder.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS. The obligation of
the Purchasers to purchase the Preferred Shares at the Closing is subject to the
fulfillment to its satisfaction, on
20
<PAGE>
or prior to the Closing Date (unless otherwise specified), of the following
conditions, any, of which may be waived in accordance with the provisions of
this Agreement:
(a) REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE
OF OBLIGATIONS. The representations and warranties made by the Company and the
Founders in Section 3 hereof shall be true and correct when made, and shall be
true and correct on the Closing with the same force and effect as if they had
been made on and as of said date. The Company's business, results of
operations, properties and assets shall not be adversely affected in any way
prior to the Closing Date from April 30, 1998. -The Company and the Founders
shall have performed all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing Date.
(b) CONSENTS AND WAIVERS. The Company shall have
obtained in a timely fashion any and all consents, permits and waivers necessary
or appropriate for consummation of the transactions contemplated by this
Agreement.
(c) ELECTION OF DIRECTORS. Effective upon the Closing,
Michael Child shall have been appointed to the Company's Board of Directors,
which shall consist of not more than seven (7) other members.
(d) FILING OF THE ARTICLES. The Articles shall have
been accepted for filing with the Secretary of State of California.
(e) ANCILLARY AGREEMENTS. The Company, the Founders and
the Purchasers shall have executed and delivered the Shareholders' Agreement in
the form attached as EXHIBIT C hereto and the Voting Agreement attached as
EXHIBIT E hereto.
(f) DELIVERY OF FINANCIAL STATEMENTS. The Company shall
have provided to the Purchasers copies of the Financial Statements in form and
substance reasonably satisfactory to the Purchasers.
(g) COMPLIANCE CERTIFICATE. The Company shall have
delivered a Certificate, executed by the Chief Executive Officer of the Company
and each Founder, dated the Closing Date, certifying to the fulfillment of the
conditions specified in subsections a., b. and c. of this Section 5. 1.
(h) OPINION OF COUNSEL. The Purchasers shall have
received an opinion from the Company's and the Founders' counsel, in
substantially the form attached hereto as EXHIBIT I.
(i) RESERVATION OF COMMON STOCK. The shares of Common
Stock issuable upon conversion of the Preferred Shares shall have been duly
authorized and reserved for issuance upon such conversion and exercise.
(j) INDEMNIFICATION AGREEMENTS. The Company shall have
entered, into indemnification agreements effective at the Closing with its
directors and the persons who will become directors at the Closing, in form
satisfactory to the Purchasers.
21
<PAGE>
(k) FINANCING. The Company shall have entered into definitive
documentation of commitments for a senior credit facility in the amount of
not less than $10 million, in form satisfactory to the Purchasers in their
sole discretion, effective on the date hereof.
(l) DUE DILIGENCE REVIEW. The Purchasers shall be satisfied,
in their sole discretion, with the due diligence review of the business,
legal, accounting and other investigations undertaken by the Purchasers and
their advisors and agents with respect to the Company and its Subsidiary.
(m) HART-SCOTT-RODINO. Any inquiry required by the Federal
Trade Commission (the "FTC') under the HSR Act shall have been early
terminated or the applicable waiting period under the HSR Act any applicable
law shall have expired.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to sell the Preferred Shares at the Closing is subject to the
condition that (i) the representations and warranties made by the Purchasers in
Section 4.1 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date with the same force and effect as if they had been
made on and as of said date; (ii) any inquiry of the FTC required under the HSR
Act shall have been subject to early termination or shall have expired; (iii)
the Articles shall have been accepted for filing with the Secretary of State of
California; (iv) the Company, the Founders and the Purchasers shall have
executed and delivered the Shareholders' Agreement in the form attached as
EXHIBIT C hereto; (v) the Company, the Founders and the Purchasers shall have
executed and delivered the Voting Agreement in the form attached as EXHIBIT E
hereto; and (vi) the Company shall have entered into definitive documentation
for a senior credit facility in the amount of not less than $10 million, in form
satisfactory to the Purchasers in their sole discretion.
6. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby covenants
and agrees as follows:
6.1 FINANCIAL INFORMATION. The Company agrees to provide the
Purchasers with audited consolidated balance sheets and audited consolidated
statements of income and changes in financial position within 60 days of the
Closing, for the fiscal years ending April 30, 1997 and April 30, 1998. In
addition, until the first to occur of (a) the date on which the Company is
required to file a report with the SEC pursuant to the Exchange Act by reason
of the Company having registered any of its securities pursuant to Section
12(g) of the Exchange Act or (b) quotations for the Common Stock of the
Company are reported by the automated quotations systems operated by the
National Association of Securities Dealers, Inc. or by an equivalent
quotations system or (c) shares of the Common Stock of the Company are listed
-on a national securities exchange registered under Section 6 of the Exchange
Act, the Company will furnish to each Purchaser:
(i) as soon as practicable after the end of each fiscal
year, and in any event within 90 days thereafter, audited consolidated
balance sheets of the Company and its subsidiaries, as at the end of such
fiscal year, and audited consolidated statements of income and audited
consolidated statements of changes in financial position (or equivalent cash
flow
22
<PAGE>
statements if required by the Financial Accounting Standards Board) of the
Company and its subsidiaries, for such year, prepared in accordance with
GAAP, all in reasonable detail and, certified by independent public
accountants of recognized national standing selected by the Company, and
(ii) as soon as practicable after the end of each month
(except the last month of the fiscal year), and in any event within 30 days
thereafter, consolidated balance sheets of the Company and its subsidiaries,
as of the end of such month; and consolidated statements of income and
consolidated statements of changes in financial position (or equivalent cash
flow statements if required by the Financial Standards Board), for such month
and for the current fiscal year to date, prepared in accordance with GAAP
(expect for the required footnotes), all in reasonable detail and signed,
subject to changes resulting from year-end audit adjustments, by the
principal financial officer or chief executive officer of the Company, and
(iii) as soon as practicable after its adoption or
approval by the Company's Board of Directors, but not later than the
commencement of such fiscal year, an annual plan for each fiscal year which
shall include quarterly capital and operating expense budgets, cash flow
statements, projected balance sheets and profit and loss projections for each
such quarter and for the end of the year, itemized in such detail as the
Board of Directors may reasonably determine.
6.2 CONFLICTS OF INTEREST. The Company shall use its best efforts
to ensure that the Company's employees, during the term of their employment
with the Company, do not engage in activities which would result in a
conflict of interest with the Company. The Company's obligations hereunder
include, but are not limited to, requiring that the Company's employees
devote their primary productive time, ability and attention to the business
of the Company (provided, however, the Company's employees may engage in
other business activity if such activity does not materially interfere with
their obligations to the Company), requiring that all of the Company's
employees enter into agreements regarding proprietary information and
confidentiality.
6.3 KEY-MAN INSURANCE. The Company shall obtain at commercially
reasonable rates .within thirty (30) days of the Closing and maintain in
force, until canceled or modified with the written consent of Purchasers
holding more than fifty percent (50"/*) of the Securities, an insurance
policy -or., the lives of each of Jerry S. Rawls and Frank Levinson, each in
the amount of $1,000,000 naming the Company as holder and beneficiary. The
obligations of the Company pursuant to this Section 6.3 shall terminate upon
the consummation of an initial public offering.
6.4 PROPRIETARY AGREEMENTS. The Company and each of its
Subsidiaries will use their best efforts to prevent any employee or
consultant from violating the confidentiality and proprietary information
agreement entered into between the Company and each of its employees and
consultants.
6.5 RULE 144. The Company covenants that (i) at all times after
the Company first becomes subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act,
23
<PAGE>
the Company will use its best efforts to comply with the current public
information requirements of Rule 144(c)(1) under the Securities Act; and (ii)
at all such times as Rule 144 is available for use by the Purchaser, the
Company will furnish the Purchasers upon request with all information within
the possession of the Company required for the preparation and filing of Form
144.
6.6 ACTIONS. The Company covenants and agrees to perform its
obligations and agreements set forth in the Articles.
6.7 USE OF PROCEEDS. Within thirty (30) days of the date of the
Closing, the Company will use a portion of the proceeds of the sale of the
Series A Preferred Stock to repurchase up to 14,237,295 shares of Common
Stock owned beneficially by the Founders and not more than 372,500 shares of
Common Stock owned beneficially (or issuable upon exercise of stock options
held by) employees of the Company other than the Founders at a price of no
greater than $2.1932 per share pursuant to the Redemption Agreements attached
in the form of EXHIBIT D hereto (the "Redemption Agreement").
6.8 OFFER OF REDEMPTION. The Company will offer each eligible
holder of the Company's securities the right to have a pro rata portion of
such securities repurchased by the Company at substantially the same time and
upon the same terms as set forth in the Redemption Agreements pursuant to a
stock repurchase plan to commence on or about the Closing Date.
7. REGISTRATION.
7.1 DEFINITIONS. As used in this Section 7:
(a) 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;
(b) The term "Registrable Securities" means: (i) any Common
Stock issued or to be issued pursuant to conversion of the Preferred Shares
issued hereunder or at any subsequent closing; and (ii) any other Common
Stock issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Preferred Shares or the shares of
Common Stock issued pursuant to conversion of the Preferred Shares;
(c) The term "Holder" means any Purchaser or other holder of
outstanding Registrable Securities who acquired such securities in accordance
with Section 7.11 hereof,
(d) The term "Initiating Holders" means any Holder or Holders
making a request for registration pursuant to the provisions of Section 7.2;
and
(e) The term "Substantial Amount of Registrable Securities"
means at least twenty percent (20%) of the Registrable Securities which have
not been resold to the public in a registered public offering.
24
<PAGE>
7.2 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If at any time after the date
that is the earlier of two years after the Closing Date or 180 days after the
effective date of the first registration statement for an initial public
offering of securities of the Company, the Company shall receive from the
Holders of a Substantial Amount of Registrable Securities a written request
that the Company effect any registration, qualification or compliance with
respect to all or part of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to
effect all such registrations, qualifications and compliances (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under the applicable state securities
laws and appropriate compliance with exemptive regulations issued under the
Securities Act and any other governmental requirements or regulations) as may
be so requested and as would permit the sale and distribution of such portion
of such Holders' Registrable Securities as are specified in such request
together with such portion of the Registrable Securities of any other Holder
or Holders joining in such request as are specified in a written notice given
within thirty (30) days after receipt of such written notice from the Company.
(b) The Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
Section 7.2 after the Company has effected two registrations under this
Section 7.2.
(c) UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as part of their request made
pursuant to Section 7.2(a) and the Company shall include such information in
the written notice referred to 'm Section 7.2(a)(i). The right of any Holder
to registration pursuant to Section 7.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting. The Company shall
(together with all Holders proposing to distribute their securities) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding
any other provision of this Section 7.2, if the underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of
the number of shares to be underwritten, then the Initiating Holders shall so
advise all Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders thereof in proportion, as
nearly as practicable, to the respective aggregate amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. In no event, however, shall any Registrable Securities be
eliminated from the registration until any and all shares being sold for the
account of the Company or shareholders who are not Holders are first
eliminated. If any Holder disapproves of the terms of the underwriting, he
may elect to withdraw therefrom by written notice to the Company, the
underwriters and the Initiating Holders. The Registrable Securities so
withdrawn shall also be withdrawn from registration.
25
<PAGE>
7.3 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to
time, the Company shall determine to register any of its securities, either
for its own account or the account of a security holder or holders, in
connection with an offering of its securities to the general public for cash
(other than a registration relating solely to employee stock option or
purchase plans or relating solely to an SEC Rule 145 transaction or to debt
securities), the Company will:
(i) promptly give to each Holder written notice
thereof, and
(ii) include in such registration (and any related
qualification under state securities laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder or Holders and received by
the Company within twenty (20) days after the written notice from the Company
described in clause 7.3(a)(i) above is mailed or personally delivered by the
Company, except as set forth in Section 7.3(b) below.
(b) 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 as a part of the written notice given
pursuant to Section 7.2(a)(i). In such event the right of any Holder to
registration pursuant to Section 7.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable
Securities in the underwriting. All Holders proposing to distribute their
Registrable Securities through such underwriting (the "Participating
Holders") shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by the Company. Notwithstanding any other provision of
this Section 7.3, if the managing underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
total number of shares of Registrable Securities to be included in the
registration and underwriting (the "Total Included Shares") may be limited
(i) in the case of the Company's initial public offering of the sale of the
Company's securities to the general public, to zero and (ii) in the case of
any other registration, to any amount no less than 50% of all shares to be
distributed through such underwriting, provided other holders of registration
rights are similarly cut back or excluded. In case of any such limitation
under this Section 7.3(b), the Company shall so advise all Participating
Holders and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
the Participating Holders and other holders of incidental or "piggyback"
registration rights in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities entitled to inclusion in such
registration held by such Participating Holders at the time of filing the
registration statement, provided, however, that securities of persons other
than Holders shall be reduced before any Registrable Securities are reduced
from such underwriting unless the number of Registrable Securities to be
included in such underwriting has an aggregate value measured by the offering
price to the public of not less than the aggregate purchase price paid by the
Holders under this Agreement. If any Holder disapproves of the terms of any
such underwriting, he or it may elect to withdraw therefrom by written notice
to the Company and the underwriter. Any securities excluded or withdrawn
from such underwriting shall not be transferred prior to 90 days
26
<PAGE>
after the effective date of the registration statement for such underwriting,
or such shorter period as the underwriter may require.
7.4 FORM S-3. The Company shall uses its best efforts to qualify
for registration of Form S-3 or its successor form. After the Company has
qualified for the use of Form S-3, Holders of a Substantial Amount of
Registrable Securities then outstanding shall have the right to request
registrations on Form S-3 (which request shall be in writing and shall state
the number of shares of Registrable Securities to be disposed of and the
intended method of disposition of Shares by such Holders); provided, however,
the Company shall not be required to effect a registration pursuant to this
Section 7.4 if it has, within any nine month period preceding the date of any
request under this Section 7.4 already effected two registrations pursuant to
this Section 7.4.
The Company shall give written notice to all Holders of Registrable
Securities of the receipt of a request for registration pursuant to this
Section 7.4 and shall provide a reasonable opportunity for other Holders to
participate in &e registration, provided that if the registration is for an
underwritten offering, the terms of subsection 7.2(b) shall apply to all
participants in such offering. Subject to the foregoing, the Company will
use its best efforts to effect promptly the registration of all shares of
Registrable Securities on Form S-3 to the extent requested by the Holder or
Holders thereof for purposes of disposition.
7.5 EXPENSES OF REGISTRATION. All expenses incurred in
connection with any registration, qualification or compliance pursuant to
this Section 7 (exclusive of discounts, commissions and stock transfer fees),
including without limitation, all registration, filing and qualification
fees, printing expenses, fees and disbursements of counsel for the Company,
accounting fees incidental to or required by such registration and the fees
and disbursements of counsel retained by the Holders with respect to such
registration, shall be home by the Company.
7.6 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to Section 7,
the Company will keep each Holder participating therein 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
pursuant to Section 7.2, 7.3 or 7.4 effective (i) until the Holder or Holders
have completed the distribution described in the registration statement
relating thereto for shelf offerings; or until the Holder(s) shall have
completed the distribution for all other offerings; and
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
7.7 INDEMNIFICATION.
(a) The Company will indemnify, defend and hold harmless
each Holder of Registrable Securities, each of its officers, directors and
partners, and each person controlling or deemed controlling such Holder, with
respect to which registration, qualification or compliance has been effected
pursuant to this Section 7 and, each underwriter, if any, and
27
<PAGE>
each person who controls any underwriter of the Registrable Securities held
by or issuable to such Holder, against ail claims, losses, damages, costs,
expenses and liabilities whatsoever (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 registration statement, prospectus, offering
circular or other documents (including any related registration, statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of the
Securities Act or any state securities law or of any rule or regulation
promulgated under the Securities Act or any state securities law applicable
to the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers and directors, and each
person controlling or deemed controlling such Holder, each such underwriter
and each person who controls any such underwriter, for any legal and any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, cost, expense, liability or action,
provided that the Company will not be liable in any such case to the extent
that any such claim, loss, damage, cost, expense or liability arises out of
or is based on any untrue statement or omission based upon written
information furnished to the Company by an instrument duly executed by any
Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable-to such person are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify,
defend and hold harmless the Company, each of its directors and officers who
sign such registration statement, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company within the meaning of the Securities Act, and each other Holder,
each of such other Holder's officers and directors and each person
controlling such other Holder, against all claims, losses, damages, costs,
expenses and liabilities whatsoever (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 documents (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Company,
such other Holders, such directors, officers, persons or underwriters for any
legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, cost, expense,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder and stated to be specifically for use therein; provided, however, that
the foregoing indemnity agreement is subject to the condition that, insofar
as it relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement becomes effective or the amended prospectus
filed with the SEC pursuant to Rule 424(b) (the "Final Prospectus"), such
indemnity agreement shall not inure to the benefit of any underwriter or any
Holder, if there is no underwriter, if a copy of the Final Prospectus was
furnished to the
28
<PAGE>
person or entity asserting the loss, liability, claim or damage at or prior
to the time such action is required by the Securities Act; and provided
further, the total amount for which any Holder shall be liable under this
Section 7.7 shall not in any event exceed the lesser of (A) aggregate
proceeds received by such Holder from the sale of Registrable Securities held
by such Holder in such registration and (B) that portion of aggregate losses,
claims, damages, liabilities or expenses indemnified against as is equal to
the proportion of the total number of Registrable Securities being sold by
such Holder to the total number of shares of Common Stock being sold by the
Company and all persons for which shares are registered in such offering; and
provided further, however, that no Holder shall be required to enter into an
Underwriting Agreement that provides for any greater potential liability to
it than as set forth herein.
(c) Each party entitled to indemnification under this Section
7.7 (the "Indemnified Party") shall give notice to the party required to
provide the indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim 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 Indemnifying party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 7.7. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. If any such Indemnified Party shall have been advised by counsel
chosen by it that there may be one or more legal defenses available to such
Indemnifying Party which are different from or additional to those available
to the Indemnifying Party, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of such Indemnified Party and
will reimburse such Indemnified Party and any person controlling such
Indemnified Party for the reasonable fees and expenses of any counsel
retained by the Indemnified Party, it being understood that the Indemnifying
Party shall not in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses
of more than one separate firm of attorneys for such Indemnified Party or
controlling person, which firm shall be designated in writing by the
Indemnified Party to the Indemnifying Party.
7.8 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such persons and the distribution proposed by such
persons as the Company may request in writing and as such shall be required
in connection with any registration, qualification or compliance referred to
in this Section 7.
7.9 SALE WITHOUT REGISTRATION. If at the time of any transfer
(other than a transfer not involving a change in beneficial ownership) of any
Shares or Registrable Securities, such Shares or Registrable Securities shall
not be registered under the Securities Act, the Company may require, as a
condition of allowing such transfer, that the holder or transferee
29
<PAGE>
thereof furnish to the Company (a) such information as is necessary in order
to establish that such transfer may be made without registration under the
Securities Act; and (b) at the expense of such holder or transferee, an
opinion by legal counsel designated by such holder or transferee and
satisfactory to the Company, satisfactory in form and substance to the
Company, to the effect that such transfer may be made without registration
under such Act; provided that nothing contained in this Section 7.9 shall
relieve the Company from complying with any request for registration,
qualification or compliance made pursuant to the other provisions of this
Section 7.
7.10 RULE 144 REPORTING. With a view to making available to
Purchaser the benefits of certain rules and regulations of the SEC which may
permit the sale of the Shares or Registrable Securities to the public without
registration, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety days
after the effective date of the first registration flied by the Company which
involves a sale of securities of the Company to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to Purchaser so long as Purchaser owns any
Preferred Shares or Registrable Securities forthwith upon request a written
statement by the Company that it has complied with the reporting requirements
of said Rule 144 (at any time after ninety days after the effective date of
said fast registration statement filed by the Company) and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), a copy of the most recent annual or quarterly report
of the Company, and such other reports and documents so filed by the Company
as may be reasonably requested in availing Purchaser of any rule or
regulation of the SEC permitting the selling of any such securities without
registration.
7.11 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted by the Company under Sections 7.2, 7.3
and 7.4 may be assigned or transferred by any Purchaser to a transferee or
assignee who acquires any Preferred Shares or Registrable Securities,
provided that such transfers or assignments may otherwise be effected in
accordance with applicable securities laws and provided further that the
Company is given notice of any such assignment or transfer.
7.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the Closing Date, the Company shall not, without the prior written consent of
the Holders of securities having more than 50% of the voting power of such
securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under
Sections 7.2, hereof, unless under the terms of such agreement, such holder
or prospective holder may include such securities in any registration only to
the extent that the inclusion of his securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (b) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
Section 7.2.
30
<PAGE>
7.13 "MARKET STAND-OFF" AGREEMENT. Each Holder and each Founder
hereby agree that during the period of duration specified by the Company and
an underwriter of Common Stock or other securities of the Company, following
the effective date of a registration statement of the Company filed under the
Securities Act, which period shall not exceed 180 days, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell or offer to sell or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of the Company held by
it at any time during such period except common stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten
offering; and
(b) such agreement shall not be required unless all officers
and directors and one percent (I%) or greater shareholders of the Company and
all other persons with registration rights (whether or not pursuant to this
Agreement) or persons purchasing Common Stock from the Company at any time
after the date of this Agreement become bound by similar agreements.
In order to enforce the foregoing covenant the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares of securities of every other person subject to the
foregoing restriction) until the end of such period.
7.14 EXPIRATION OF RIGHTS. All registration rights shall expire and
not apply to any Holder upon the date seven years from the closing date of
the Company's first registered sale of securities to the general public.
8. MISCELLANEOUS.
8.1 WAIVERS AND AMENDMENTS. With the written consent of the record
holders of at least a majority of the Preferred Shares, the obligations of
the Company and the rights of the holders of the Preferred Shares under this
Agreement may be waived or amended (either generally or in a particular
instance); provided, however, that no such waiver or amendment shall reduce
the aforesaid proportion of Preferred Shares, the holders of which are
required to consent to any waiver or supplemental agreement, without the
consent of the record holders of all of the Preferred Shares. Upon the
effectuation of each such waiver or amendment the Company shall promptly give
written notice thereof to the record holders of the Preferred Shares who have
not previously consented thereto in writing. Except to the extent provided
in this Section 8. 1, this Agreement or any provision hereof may be amended,
waived, discharged or terminated only by a statement in writing signed by the
party against which enforcement of the amendment, waiver, discharge or
termination is sought. No amendment or waiver of Section 7.13 of this
Agreement shall be binding on any Holder unless each such Holder has
consented in writing to be bound by such amendment or waiver.
8.2 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.
31
<PAGE>
8.3 SURVIVAL. Liabilities for and the representations, warranties,
covenants and agreements made herein shall survive the Closing of the
transactions contemplated hereby, notwithstanding any investigation made by
the Purchasers.
8.4 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.
8.5 ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof
and they supersede, merge and render void every other prior written and/or
oral understanding or agreement among or between the parties hereto.
8.6 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally,
mailed by first class mail, postage prepaid, or delivered by courier or
overnight delivery, addressed (a) if to a Purchaser, at such Purchaser's
address set forth in the Schedule of Purchasers, or at such other address as
such Purchaser shall have furnished to the Company in writing with a copy to
Warren T. Lazarow, Esq. and David A. Makarechian, Esq., Brobeck, Phleger &
Harrison LLP, 2200 Geng Road, Palo Alto, California 94303 or (b) if to the
Company, at its address set forth at the beginning of this Agreement or at
such other address as the Company shall have furnished to the Purchasers in
writing with a copy to Blair Stewart, Esq., Wilson Sonsini Goodrich & Rosati,
650 Page Mill Road, Palo Alto, CA 94394. Notices that are mailed shall be
deemed received five (5) days after deposit in the United States mail.
Notices sent by courier or overnight delivery shall be deemed received two
(2) days after they have been so sent.
8.7 SEVERABILILY. In case any provision of this Agreement shall be
found by a court of law to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be effected or impaired thereby.
8.8 FINDER'S FEES AND OTHER FEES.
(a) The Company (i) represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated
by this Agreement, and (ii) hereby agrees to indemnify and to hold Purchasers
harmless from and against any liability for commission or compensation in the
nature of a finder's fee to any broker or other person or firm (and the costs
and expenses of defending against such liability or asserted liability) for
which the Company, or any of its employees or representatives, is responsible.
(b) Each Purchaser represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated
by this Agreement.
8.9 EXPENSES. The Company and the Purchasers shall each bear their
own expenses and legal fees in connection with the consummation of this
transaction; provided, however, that the Company will pay the fees and
expenses of special counsel for the Purchasers up to $45,000, together with
disbursements and expenses incurred by special counsel in connection with all
transactions leading up to and including the Closing.
32
<PAGE>
8.10 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.11 DELAYS OR OMISSIONS. No delay or omission to exercise any
right power or remedy accruing to any holder of any securities issued or to be
issued hereunder shall impair any such right, power or remedy of such holder,
nor shall it be construed to be a waiver of any breach or default under this
Agreement, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any delay or omission to exercise any right,
power or remedy or any waiver of any single breach or default be deemed a waiver
of any other right, power or remedy or breach or default theretofore or
thereafter occurring. All remedies, either under this Agreement, or by law
otherwise afforded to the Purchasers or their affiliates, shall be cumulative
and not alternative.
8.12 CERTAIN REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Founders in Section 3 hereof, shall
be deemed made to the knowledge of the Founders. Notwithstanding anything to
the contrary contained in this Agreement, absent fraud or willful
misrepresentation, the amount of damages recoverable from each Founder for
breaches of representations and warranties hereunder shall be as follows:
(a) the amount of damages recoverable from each Founder
shall be limited to the amount of the aggregate proceeds received by that
Founder upon the redemption of shares under the Redemption Agreement that are
owned or beneficially owned by such Founder (including shares held by any trust
for the benefit of such Founder), net of any income tax liability thereon; and
(b) to the extent that each of Jerry S. Rawls and Frank
Levinson owes damages for a breach of a representation or warranty made under
Section 3 hereunder, then the aggregate damages owed by Jerry S. Rawls, Frank
Levinson, and the Company shall be recoverable one-@d apiece from each of Jerry
S. Rawls, Frank Levinson, and the Company; provided, however, that if any of
Jerry S. Rawls, Frank Levinson, or the Company for any reason is unable to
satisfy its obligations under this subparagraph b., the Purchasers may recover
the amount owed from Jerry S. Rawls and Frank Levinson, up to the maximum amount
that is consistent with subparagraph a. above.
Nothing in the foregoing sentence shall be deemed to increase the liability of
any Founder, or to limit the liability of the Company, or to limit the amount of
damages recoverable from the Company.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
FINISAR CORPORATION
By: /s/ Jerry S. Rawls
------------------------------
Jerry S. Rawls
President
FOUNDERS:
/s/ Jerry S. Rawls
---------------------------------
Jerry S. Rawls
/s/ Frank Levinson
---------------------------------
Frank Levinson
34
<PAGE>
PURCHASERS:
TA INVESTORS LLC
By: TA Associates Inc.
its Manager
---------------------------------------
Michael Child
Managing Director
ADVENT ATLANTIC AND PACIFIC III L.P.
By: TA Associates AAP III Partners, its General Partner
By: TA Associates, Inc., its General Partner
---------------------------------------
Michael C. Child
Managing Director
TA/ADVENT III L.P.
By: TA Associates VIII LLC, its General Partner
By: TA Associates, Inc., its General Partner
---------------------------------------
Michael C. Child
Managing Director
TA EXECUTIVE FUND LLC
By: TA Associates Inc., its General Partner
---------------------------------------
Michael C. Child
Managing Director
SUMMIT VENTURES V, L.P.
By: Summit Partners V, L.P., its General Partner
By: Summit Partners, LLC, its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
---------------------------------
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 6, 1998
35
<PAGE>
SUMMIT V COMPANION FUND, L.P.
By: Summit Partners V, L.P., its General Partner
By: Summit Partners LLC, its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
---------------------------------
SUMMIT V ADVISORS FUND, LLP
By: Summit Partners LLC
its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
---------------------------------
SUMMIT V ADVISORS FUND (Q.P), L.P.
By: Summit Partners, LLC
its General Partner
/s/ Walter G. Kortschak
---------------------------------------
Member
Name: Walter G. Kortschak
---------------------------------
SUMMIT INVESTORS III, L.P.
/s/ Walter G. Kortschak
---------------------------------------
General Partner
Name: Walter G. Kortschak
---------------------------------
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 6, 1998
36
<PAGE>
WS INVESTMENT CO. 98-B
/s/ Blair W. Stewart, Jr.
---------------------------------------
Blair W. Stewart, Jr.
PICKARD FAMILY TRUST
/s/ W. Jeffers Pickard
---------------------------------------
W. Jeffers Pickard
Trustee
STANFORD UNIVERSITY
/s/ Carol Gilmer
---------------------------------------
Carol Gilmer
Gift Administrator, Stanford Management Co.
On behalf of the Board of Trustees
Of the Leland Stanford Junior University
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 6, 1998
37
<PAGE>
JOHN GALLANT
/s/ John Gallant
---------------------------------------
John Gallant
ROBERT CURTIN
/s/ Robert Curtin
---------------------------------------
Robert Curtin
MICHAEL MAICHEN
/s/ Michael Maichen
---------------------------------------
Michael Maichen
STEPHEN DICHIARA
/s/ Stephen Dichiara
---------------------------------------
Stephen Dichiara
SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT
DATED AS OF NOVEMBER 6, 1998
38