Subordinated Loan and Security Agreement - Comdisco Inc. and Handspring Inc.
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of June 10, 1999, is entered
into by and between Handspring, Inc., a California corporation, with its chief
executive office and principal place of business located at 299 California
Avenue, Suite 300, Palo Alto, CA 94306 (the "Borrower") and Comdisco, Inc., a
Delaware corporation, with its principal place of business located at 6111 North
River Road, Rosemont, Illinois 60018 (the "Lender" or sometimes, "Comdisco"). In
consideration of the mutual agreements contained herein, the parties hereto
agree as follows:
RECITALS
WHEREAS, Borrower has requested Lender to make available to Borrower a
loan or loans up to an aggregate principal amount of SIX MILLION DOLLARS
($6,000,000) (as the same may from time to time be amended, modified,
supplemented or restated, individually or collectively referred to as the
"Loan(s)"), which would be evidenced by Subordinated Promissory Note(s) executed
by Borrower substantially in the form of EXHIBIT A hereto (as the same may from
time to time be amended, modified, supplemented or restated, the "Note(s)");
WHEREAS, Lender is willing to make the Loan(s) on the terms and
conditions set forth in this Agreement;
WHEREAS, Lender and Borrower agree any Loan(s) hereunder shall be
subordinate to Senior Debt (as defined herein) to the extent set forth in the
Subordination Agreement (as defined herein); and
WHEREAS, Borrower has also given Lender certain rights to purchase the
Borrower's Preferred Stock under terms and conditions set forth in this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall
have the following meanings (such meanings being equally applicable to both the
singular and plural form of the terms defined);
1.1 "ACCOUNT" means any "account" as such term is defined in Section
9-106 of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and, in any event, shall
include, without limitation, all accounts receivable, book debts and other forms
of obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from any other transaction, whether or not the same
involves the sale of goods or services by Borrower (including, without
limitation, any such obligation which may be characterized as an
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account or contract right under the UCC) and all of Borrower's rights in, to and
under all purchase orders or receipts now owned or hereafter acquired by it for
goods or services, and all of Borrower's rights to any goods represented by any
of the foregoing (including, without limitation, unpaid seller's rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), and all monies due or to become due
to Borrower under all purchase orders and contracts for the sale of goods or the
performance of services or both by Borrower (whether or not yet earned by
performance on the part of Borrower or in connection with any other
transaction), now in existence or hereafter occurring, including, without
limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
1.2 "ACCOUNT DEBTOR" means any "account debtor," as such term is defined
in Section 9-105(1)(a) of the UCC.
1.3 "ADVANCE" means each installment made by the Lender to Borrower
pursuant to the Loan to be evidenced by the Note(s) secured by the Collateral.
1.4 "ADVANCE DATE" means the funding date of any Advance of the Loan.
1.5. "ADVANCE REQUEST" means the request by Borrower for an Advance
under the Loan, each to be substantially in the form of EXHIBIT B attached
hereto, as submitted by Borrower to Lender from time to time.
1.6 "CHATTEL PAPER" means any "chattel paper," as such term is defined
in Section 9-105(1)(b) of the UCC, now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest.
1.7 "CLOSING DATE" means the date hereof.
1.8 "COLLATERAL" shall have the meaning assigned to such term in Section
3 of this Agreement.
1.9 "CONTRACTS" means all contracts, undertakings, franchise agreements
or other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
1.10 "COPYRIGHTS" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (i) all copyrights, whether registered or unregistered, held pursuant
to the laws of the United States, any State thereof or of any other country;
(ii) registrations, applications and recordings in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country; (iii) any continuations, renewals or extensions
thereof; and (iv) any registrations to be issued in any pending applications.
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1.11 "COPYRIGHT LICENSE" means any written agreement granting any right
to use any Copyright or Copyright registration now owned or hereafter acquired
by Borrower or in which Borrower now holds of hereafter acquires any interest.
1.12 "DOCUMENTS" means any "documents," as such term is defined in
Section 9-105(1)(f) of the UCC, now owned or hereafter acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest.
1.13 "EQUIPMENT" means any "equipment," as such term is defined in
Section 9-109(2) of the UCC, now or hereafter owned or acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.
1.14 "EXCLUDED AGREEMENTS" means the Master Lease Agreement dated as of
June 10, 1999 between Borrower, as lessee, and Lender, as lessor, including,
without limitation, any Equipment Schedules and Summary Equipment Schedules to
the Master Lease Agreement executed or delivered by Borrower pursuant thereto
and any other modifications or amendments thereof, whereby Borrower (as lessee)
leases equipment, software, or goods from Lender (as lessor) to Borrower (as
lessee).
1.15 "FACILITY FEE" means one percent (1.0%) of the Maximum Available
Loan. which shall be and due to Lender on the Closing Date, plus a transaction
fee of $7,500.
1.16 "FIXTURES" means any "fixtures," as such term is defined in Section
9-313(1)(a) of the UCC, now or hereafter owned or acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest and, now or
hereafter attached or affixed to or constituting a part of, or located in or
upon, real property wherever located, together with all right, title and
interest of Borrower in and to all extensions, improvements, betterments,
renewals, substitutes, and replacements of, and all additions and appurtenances
to any of the foregoing property, and all purchases of the security constituted
thereby, immediately upon any acquisition or release thereof or any such
purchase, as the case may be.
1.17 "GENERAL INTANGIBLES" means any "general intangibles," as such term
is defined in Section 9-106 of the UCC, now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest and,
in any event, shall include, without limitation, all right, title and interest
which Borrower may now or hereafter have in or under any contract, all customer
lists, Copyrights, Trademarks, Patents, rights to Intellectual Property,
interests in partnerships, joint ventures and other business associations,
Licenses, permits, trade secrets, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, data bases, data, skill,
expertise, recipes, experience, processes, models, drawings, materials and
records, goodwill (including, without limitation, the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License), claims in or under insurance policies, including unearned premiums,
uncertificated securities, cash and other forms of money or currency, deposit
accounts (including as defined in Section 9-105(e) of the UCC), rights to sue
for past, present and future infringement of Copyrights, Trademarks and Patents,
rights to receive tax refunds and other payments and rights of indemnification.
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1.18 "INITIAL PUBLIC OFFERING" means an initial public offering of
Borrower's securities.
1.19 "INSTRUMENTS" means any "instrument," as such term is defined in
Section 9-105(1)(i) of the UCC, now owned or hereafter acquired by Borrower or
in which Borrower now holds or hereafter acquires any interest.
1.20 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents,
trade secrets, source codes, customer lists, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
skill, expertise, experience, processes, models, drawings, materials and
records.
1.21 "INVENTORY" means any "inventory," as such term is defined in
Section 9-109(4) of the UCC, wherever located, now or hereafter owned or
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest, and, in any event, shall include, without limitation, all inventory,
goods and other personal property which are held by or on behalf of Borrower for
sale or lease or are furnished or are to be furnished under a contract of
service or which constitute raw materials, work in process or materials used or
consumed or to be used or consumed in Borrower's business, or the processing,
packaging, promotion, delivery or shipping of the same, and all furnished goods
whether or not such inventory is listed on any schedules, assignments or reports
furnished to Lender from time to time and whether or not the same is in transit
or in the constructive, actual or exclusive occupancy or possession of Borrower
or is held by Borrower or by others for Borrower's account, including, without
limitation, all goods covered by purchase orders and contracts with suppliers
and all goods billed and held by suppliers and all inventory which may be
located on premises of Borrower or of any carriers, forwarding agents, truckers,
warehousemen, vendors, selling agents or other persons.
1.22 "LICENSE" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest
and any renewals or extensions thereof.
1.23 "LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any property, any conditional sale or other title retention
agreement, any lease in the nature of a security interest, and the filing of any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
1.24 "LOAN DOCUMENTS" shall mean and include this Agreement, the
Note(s), and any other documents executed in connection with the Secured
Obligations or the transactions contemplated hereby, as the same may from time
to time be amended, modified, supplemented or restated, provided, that the Loan
Documents shall not include any of the Excluded Agreements.
1.25 "MATERIAL ADVERSE EFFECT" means a material adverse effect upon: (i)
the business, operations, properties, prospects, assets or conditions (financial
or otherwise) of Borrower; or (ii) the ability of Borrower to perform, the
Secured Obligations.
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1.26 "MATURITY DATE" means the date thirty-six (36) months from the
Advance Date of each installment of the Loan.
1.27 "MAXIMUM LOAN AMOUNT" means Six Million and No/100 Dollars
($6,000,000.00).
1.28 "MERGER EVENT" means a (i) capital reorganization of the shares of
the Borrower's stock (other than a stock split, reverse stock split,
combination, reclassification, exchange, subdivision of shares or change of
state of incorporation), or (ii) a merger or consolidation of the Borrower with
or into another corporation (whether or not the Borrower is the surviving
corporation) in which the shareholders of the Borrower immediately before such
merger or consolidation own less than a majority of the surviving or resulting
entity's outstanding voting stock immediately thereafter, or (iii) the sale of
all or substantially all of the Borrower's properties and assets to any other
person.
1.29 "NEXT EVENT" means (i) a private equity financing of at least Five
Million Dollars ($5,000,000.00), (ii) a Merger Event, or (iii) Borrower's
Initial Public Offering.
1.30 "PATENT LICENSE" means any written agreement granting any right
with respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
1.31 "PATENTS" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) letters patent of, or rights corresponding thereto in, the United
States or any other country, all registrations and recordings thereof, and all
applications for letters patent of, or rights corresponding thereto in the
United States or any other country, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country; (b) all reissues, continuations,
continuations-in-part or extensions thereof; (c) all petty patents, divisionals,
and patents of addition; and (d) all patents to issue in any such applications.
1.32 "PERMITTED LIENS" means any and all of the following:
(i) liens in favor of Lender;
(ii) liens related to, or arising in connection with, Senior
Debt;
(iii) liens for taxes, assessments or governmental charges or
claims, the payment of which are not, at the time,
delinquent or are being contested in good faith, if such
reserve or other appropriate provision, if any, as shall be
required by generally accepted accounting principles shall
have been made therefor;
(iv) statutory liens of landlords and liens of carriers,
warehousemen, mechanics and materialmen and other liens
imposed by law incurred in the ordinary course of business
for sums not yet delinquent or that are being contested in
good faith, if such reserve or other appropriate provision,
if any, as shall be required by generally accepted
accounting principles shall have been made therefor;
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(v) liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation,
unemployment insurance and other types of social security,
or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases,
government contracts, trade contracts, performance and
return-of-money bonds and similar obligations (exclusive of
obligations for the payment of borrowed money);
(vi) liens securing purchase money debt if the only collateral
for such purchase money debt is the assets acquired
therewith;
(vii) leases or subleases granted to others not interfering in any
material respect with the ordinary conduct of business;
(viii) any interest or title of a lessor or sublessor under any
lease;
(ix) liens arising from filing Uniform Commercial Code financing
statements relating solely to leases;
(x) liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in
connection with the importation of goods; and
(xi) liens existing on the date of this Agreement, as disclosed
to Lender.
1.33 "PREFERRED STOCK" means the Borrower's Series A Preferred Stock.
1.34 "PROCEEDS" means "proceeds," as such term is defined in Section
9-306(1) of the UCC and, in any event, shall include, without limitation, (a)
any and all Accounts, Chattel Paper, Instruments, cash or other forms of money
or currency or other proceeds payable to Borrower from time to time in respect
of the Collateral, (b) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to Borrower from time to time with respect to any
of the Collateral, (c) any and all payments (in any form whatsoever) made or due
and payable to Borrower from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority), (d) any claim of Borrower against third parties (i) for
past, present or future infringement of any Copyright, Patent or Patent License
or (ii) for past, present or future infringement or dilution of any Trademark or
Trademark License or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License and (e)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
1.35 "PURCHASE OPTION" shall have the meaning assigned to such term in
Section 8 of this Agreement.
1.36 "RECEIVABLES" shall mean and include all of the Borrower's
accounts, instruments, documents, chattel paper and general intangibles whether
secured or unsecured, whether now existing or hereafter created or arising, and
whether or not specifically sold or assigned to Lender hereunder.
1.37 "SECURED OBLIGATIONS" shall mean and include all principal,
interest, fees, costs, or other liabilities or obligations for monetary amounts
owed by Borrower to Lender, whether due or to become due, matured or unmatured,
liquidated or unliquidated, contingent or non-contingent,
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and all covenants and duties regarding such amounts, of any kind of nature,
present or future, arising under this Agreement, the Note(s), or any of the
other Loan Documents, whether or not evidenced by any Note(s), Agreement or
other instrument, as the same may from time to time be amended, modified,
supplemented or restated, provided, that the Secured Obligations shall not
include any indebtedness or obligations of Borrower arising under or in
connection with the Excluded Agreements.
1.38 "SENIOR CREDITOR" means a creditor identified to Lender in
accordance with the Subordination Agreement, that provides Senior Debt financing
to Borrower; provided, that a Senior Creditor shall not include any officer,
director, shareholder, venture capital investor, or insider of Borrower, or any
affiliate of the foregoing persons, except upon the express written consent of
Lender.
1.39 "SENIOR DEBT" means any and all indebtedness and obligations for
borrowed money (including, without limitation, principal, premium (if any),
interest, fees, charges, expenses, costs, professional fees and expenses, and
reimbursement obligations) at any time owing by Borrower to a Senior Creditor
under Senior Loan Documents, including, but not limited to, such amounts as may
accrue or be incurred before or after default or workout or the commencement of
any liquidation, dissolution, bankruptcy, receivership or reorganization by or
against Borrower in an amount that shall not, without Lender's consent, exceed
One Million Dollars ($1,000,000.00) in aggregate principal amount outstanding at
any one time. Notwithstanding the foregoing, so long as Lender receives prior
written notice from Borrower, Lender agrees to allow the following additional
debt of Borrower to Imperial Bank or a similar bank or institutional lender (not
to exceed Borrower's line of credit with Imperial Bank or a similar bank or
institutional lender) constituting: (i) account receivable lines of financing
not to exceed 80% of eligible receivables, (ii) inventory financing not to
exceed 80% of inventory, and (iii) merchant card financing not to exceed 80% of
merchant card debt.
1.40 "SENIOR LOAN DOCUMENTS" means the loan or other agreement between
Borrower and a Senior Creditor and any other agreement, security agreement,
document, promissory note, UCC financing statement, or instrument executed by
Borrower in favor of a Senior Creditor pursuant to or in connection with the
Senior Debt or such loan or other agreement, as the same may from time to time
be amended, modified, supplemented, extended, renewed, restated or replaced.
1.41 "SUBORDINATION AGREEMENT" means the Subordination Agreement of even
date herewith, entered into between Borrower and Lender for the benefit of
Senior Creditor.
1.42 "TRADEMARK LICENSE" means any written agreement granting any right
to use any Trademark or Trademark registration now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest.
1.43 "TRADEMARKS" means any of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) any and all trademarks, tradenames, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United
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States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof and (b) any reissues, extensions or renewals thereof.
1.44 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois. Unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
SECTION 2. THE LOANS
2.1 Lender agrees to lend to Borrower a principal amount not to exceed
Six Million Dollars ($6,000,000) in the aggregate at any one time outstanding
for the purposes and upon the terms and subject to the conditions contained in
this Agreement.
2.2 The Loan(s) shall be available in minimum Advances of Five Hundred
Thousand Dollars ($500,000). Each Advance made by Lender to Borrower shall be
evidenced by a Note in the original principal amount of such Advance. The
principal balance of each Note shall bear interest thereon precomputed at the
rate of ten percent (10%) per annum, and each such Note shall be due and payable
in monthly installments of interest only, until the earlier of (i) the
completion of Borrower's Initial Public Offering, or (ii) eighteen (18) months
from the Advance Date, payable on the first day of each month, which shall be
followed by eighteen (18) equal monthly installments of principal and interest,
payable on the first day of each month, to and including the Maturity Date
(each, a "Payment Date"). If any payment under a Note shall be payable on a day
other than a business day, then such payment shall be due and payable on the
next succeeding business day.
2.3 In order to obtain an Advance under the Loans, Borrower shall
complete, sign and deliver an Advance Request to Lender. Each Advance Request
shall identify an Advance Date which is no less than five (5) business days from
the date of such notice. Upon receipt of an Advance Request, Lender shall verify
the information contained in the Advance Request and if Lender determines to
fund such Advance it shall deliver a Note dated the Advance Date evidencing such
Advance to Borrower for signature. Upon receipt of the signed Note, Lender will
fund the Advance in the manner requested by the Advance Request. Borrower agrees
that Lender may rely on any notice given by any Person it reasonably believes to
be an authorized officer of Borrower without the necessity of independent
investigation.
2.4 (a) Notwithstanding any provision in this Agreement, the Note(s), or
any other Loan Document, it is not the parties' intent to contract for, charge
or receive interest at a rate that is greater than the maximum rate permissible
by law which a court of competent jurisdiction shall deem applicable hereto
(which under the laws of the State of Illinois shall be deemed to be the laws
relating to permissible rates of interest on commercial loans) (the "Maximum
Rate"). If the Borrower actually pays Lender an amount of interest, chargeable
on the total aggregate principal Secured Obligations of Borrower under this
Agreement and the Note(s) (as said rate is calculated over a period of time from
the date of this Agreement through the end of time that any principal is
outstanding on the Note(s)), which amount of interest exceeds interest
calculated at the Maximum Rate on said principal chargeable over said period of
time, then such excess interest actually paid by Borrower shall be applied
first, to the payment of principal outstanding on the Note(s); second, after all
principal is repaid, to the payment of Lender's out of pocket costs, expenses,
and professional fees which are owed by
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Borrower to Lender under this Agreement or the Loan Documents; and third, after
all principal, costs, expenses, and professional fees owed by Borrower to Lender
are repaid, the excess (if any) shall be refunded to Borrower, and the effective
rate of interest will be automatically reduced to the Maximum Rate.
(b) In the event any interest is not paid when due hereunder,
delinquent interest shall be added to principal and shall bear interest on
interest, compounded at the rate set forth in Section 2.2.
(c) Upon and during the continuation of an Event of Default
hereunder, all Secured Obligations, including principal, interest, compounded
interest, and professional fees, shall bear interest at a rate per annum equal
to the rate set forth in Section 2.2 plus five percent (5%) per annum ("Default
Rate").
SECTION 3. SECURITY INTEREST
As security for the prompt, complete and indefeasible payment when due
(whether at stated payment dates or otherwise) of all the Secured Obligations
and in order to induce Lender to make the Loan(s) upon the terms and subject to
the conditions of the Note(s), Borrower hereby conveys, mortgages, pledges,
hypothecates and transfers to Lender for security purposes only, and hereby
grants to Lender a security interest in all of Borrower's right, title and
interest in, to and under each of the following (all of which being hereinafter
collectively called the "Collateral"):
(a) All Receivables;
(b) All Equipment;
(c) All Fixtures;
(d) All General Intangibles;
(e) All Inventory;
(f) All other goods and personal property of Borrower whether tangible
or intangible and whether now or hereafter owned or existing, leased, consigned
by or to, or acquired by, Borrower and wherever located; and
(g) To the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for, and rents,
profits and products of each of the foregoing;
provided, however, the Collateral shall not include that certain Software
License Agreement, dated as of September 24, 1998, among 3Com Corporation and JD
Technology, Inc. as Borrower's predecessor in interest therein, and any License,
Equipment lease, real property lease, Chattel Paper or Contract to which
Borrower is or becomes a party as licensee, lessee other otherwise, to the
extent that (a) such License, Equipment lease, real property lease, Chattel
Paper or Contract or property subject thereto is not assignable or capable of
being encumbered as a matter of law or under the terms of the License, lease or
other agreement
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applicable thereto (but solely to the extent that any such restriction shall be
enforceable under applicable law), without the consent of the licensor or lessor
thereof or other applicable party thereto and (b) such consent has not been
obtained; nevertheless, the foregoing grant of security interest shall extend
to, and the term "Collateral" shall include, (i) any and all proceeds of such
License, Equipment lease, real property lease, Chattel Paper or Contract and
property subject thereto to the extent that the assignment or encumbering of
such proceeds is not so restricted and (ii) upon the consent of any such
licensor, lessor or other applicable party with respect to any such otherwise
excluded License, Equipment lease, real property lease, Chattel Paper or
Contract being obtained (which consent shall be required only at Lender's
request following an Event of Default hereunder), thereafter such License,
Equipment lease, real property lease, Chattel Paper or contract and property
subject thereto as well as any and all proceeds thereof that might theretofore
have been excluded from such grant of a security interest shall be included
within the term "Collateral".
SECTION 4. CONDITIONS PRECEDENT TO LOAN
The obligations of the Lender to make Loans hereunder are subject to the
satisfaction by Borrower, or waiver by Lender, of the following conditions:
4.1 Borrower, on or prior to the Closing Date, shall have delivered to
Lender the following:
(a) executed originals of the Agreement, the Subordination
Agreement, and any other documents reasonably required by Lender to
effectuate the liens of Lender with respect to all Collateral;
(b) certified copy of resolutions of Borrower's board of directors
evidencing approval of the borrowing and other transactions evidenced by
the Loan Documents;
(c) certified copies of the Articles of Incorporation and the
Bylaws, as amended through the Closing Date, of Borrower;
(d) certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions in
which it does business and where the failure to be qualified would have
a Material Adverse Effect;
(e) payment of the Facility Fee; and
(f) such other documents as Lender may reasonably request in
writing prior to the Closing Date.
4.2 On each Advance Date:
(a) The Lender shall have received (i) an Advance Request for such
Advance as required by Section 2.3, (ii) an executed Note evidencing
such Advance and (iii) any other documents Lender may reasonably request
in writing prior to such Advance Date.
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(b) The representations and warranties set forth in Section 5
hereof shall be true and correct in all material respects on and as of
the Advance Date with the same effect as though made on and as of such
date, except to the extent such representations and warranties expressly
relate to an earlier date.
(c) The Borrower shall be in material compliance with all the terms
and provisions set forth herein and in each other Loan Document on its
part to be observed or performed, and at the time of and immediately
after such Advance no Event of Default shall have occurred and be
continuing.
Each Advance Request shall be deemed to constitute a representation and warranty
by the Borrower on the Advance Date as to the matters specified in paragraphs
(b) and (c) of this Section 4.2.
4.3 PERFECTION OF SECURITY INTERESTS. Borrower shall have taken or
caused to be taken such actions requested by Lender to grant Lender a first
priority perfected security interest in the Collateral, subject only to
Permitted Liens. Such actions shall include, without limitation, the delivery to
Lender of all appropriate financing statements, executed by Borrower, as to the
Collateral granted by Borrower for all jurisdictions as may be necessary or
desirable to perfect the security interest of Lender in such Collateral.
4.4 ABSENCE OF EVENTS OF DEFAULTS. As of the Closing Date or the Advance
Date, as applicable, no fact or condition exists that would (or would, with the
passage of time, the giving of notice, or both) constitute an Event of Default
under this Agreement or any of the Loan Documents and no fact or condition
exists that would (or would, with the passage of time, the giving of notice, or
both) constitute a material default under the Senior Loan Documents between
Borrower and Senior Creditor.
4.5 MATERIAL ADVERSE EFFECT. As of the Closing Date or the Advance Date,
as applicable, no event which has had or could reasonably be expected to have a
Material Adverse Effect has occurred and is continuing.
4.6 TERMINATION DATE. Notwithstanding anything in this Agreement to the
contrary, Lender's obligations to provide the Loan(s) shall terminate on the
earlier of (i) June 10, 2000 or (ii) the occurrence of an Event of Default
pursuant to Section 9, and no Advance Requests shall be accepted after such
date.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents, warrants and agrees that:
5.1 Borrower owns all right, title and interest in and to the
Collateral, free of all liens, security interests, encumbrances and claims
whatsoever, except for Permitted Liens.
5.2 Borrower has the full power and authority to, and does hereby grant
and convey to the Lender, (and when the appropriate UCC Financing Statements are
properly filed) a perfected security interest in the Collateral as security for
the Secured Obligations, free of all liens, security interests, encumbrances and
claims, other than Permitted Liens and shall execute such Uniform Commercial
Code financing statements in connection herewith as the
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Lender may reasonably request. Except for Permitted Liens, no other lien,
security interest, adverse claim or encumbrance has been created by Borrower or
is known by Borrower to exist with respect to any Collateral.
5.3 Borrower is a corporation duly organized, legally existing and in
good standing under the laws of the State of California, and is duly qualified
as a foreign corporation in all jurisdictions in which the nature of its
business or location of its properties require such qualifications and where the
failure to be qualified would have a Material Adverse Effect.
5.4 Borrower's execution, delivery and performance of the Note(s), this
Agreement, all financing statements, all other Loan Documents, required to be
delivered or executed in connection herewith, have been duly authorized by all
necessary corporate action of Borrower, the individual or individuals executing
the Loan Documents were duly authorized to do so; and the Loan Documents
constitute legal, valid and binding obligations of the Borrower, enforceable in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization or other similar laws generally affecting the
enforcement of the rights of creditors (and rules of law concerning equitable
remedies).
5.5 This Agreement and the other Loan Documents do not and will not
violate any provisions of Borrower's Articles of Incorporation, bylaws or any
material contract, material agreement, law, regulation, order, injunction,
judgment, decree or writ to which the Borrower is subject, or result in the
creation or imposition of any lien, security interest or other encumbrance upon
the Collateral, other than those created by this Agreement.
5.6 The execution, delivery and performance of this Agreement and the
other Loan Documents do not require the consent or approval of any other person
or entity including, without limitation, any regulatory authority or
governmental body of the United States or any state thereof or any political
subdivision of the United States or any state thereof.
5.7 No event which has had a Material Adverse Effect has occurred and is
continuing.
5.8 No fact or condition exists that would (or would, with the passage
of time, the giving of notice, or both) constitute a material default under the
Senior Loan Documents.
5.9 (a) There are no actions, suits or proceedings at law or in equity
or by or before any governmental authority now pending or, to the knowledge of
the Borrower, threatened against or affecting the Borrower or any business,
property or rights of the Borrower (i) which involve any Loan Document or (ii)
as to which there is a reasonable possibility of an adverse determination and
which, if adversely determined, could, individually or in the aggregate, result
in a Material Adverse Effect.
(b) The Borrower is not in violation of any law, rule or
regulation, or in default with respect to any judgment, writ, injunction or
decree of any governmental authority, where such violation or default could
result in a Material Adverse Effect.
5.10 (a) The Borrower is not a party to any agreement or instrument or
subject to any corporate restriction that has resulted in a Material Adverse
Effect.
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(b) The Borrower is not in default in any manner under any
provision of any indenture or other agreement or instrument evidencing
indebtedness, or any other material agreement or instrument to which it is a
party or by which it or any of its properties or assets are or may be bound,
where such default could result in a Material Adverse Effect.
5.11 No information, report, financial statement, exhibit or schedule
furnished by or on behalf of the Borrower to the Lender in connection with the
negotiation of any Loan Document or included therein or delivered pursuant
thereto contained or contains any material misstatement of fact or omitted or
omits to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were or are made, not
misleading.
5.12 All issued and outstanding shares of Common Stock, Preferred Stock
or any other securities of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. All outstanding shares of Common
Stock, Preferred Stock and any other securities were issued in full compliance
with all Federal and state securities laws. In addition:
(i) As of the date of this Agreement, the authorized capital stock
of the Company consists of 35,000,000 shares of Common Stock, no par
value (the "Common Stock"), of which [15,350,385] shares shall be issued
and outstanding, and 8,200,000 shares of Preferred Stock, no par value,
all of which shares shall have been designated as Series A Preferred
Stock of which 8,076,924 shares of are issued and outstanding. All of
the issued and outstanding shares of Preferred Stock have been duly
authorized and validly issued and are fully paid and nonassessable. All
of the issued and outstanding shares of Preferred Stock have been duly
authorized and validly issued and are fully paid and nonassessable. All
of the issued and outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable. As
of the date of this Agreement there are 4,846,154 shares of Common Stock
reserved for issuance under the Company's 1998 Equity Incentive Plan, of
which 1,350,385 shares have been issued upon the exercise of options,
2,008,923 shares are subject to outstanding options and 1,486,846 shares
remain available for issuance. Except as set forth in this Agreement,
(i) no subscription, warrant, option, convertible security or other
right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, (ii) the
Company has no obligation (contingent or otherwise) to issue any
subscription, warrant, option, convertible security or other such right
or to issue or distribute to holders of a share of its capital stock any
evidences of indebtedness or assets of the Company, and (iii) the
Company has no obligation (contingent or otherwise) to purchase, redeem
or otherwise acquire any shares of its capital stock or any interest
therein or to pay any dividend to make any other distribution in respect
thereof. All of the issued and outstanding securities or the Company
have been offered, issued and sold by the Company is compliance with
applicable federal and state securities laws.
(ii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new
issuances of the Company's capital stock (with the exception of certain
shareholders who are signatories to that certain Investors' Rights
Agreement dated as of October 22, 1998).
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5.13 Borrower has filed and will file all tax returns, federal, state
and local, which it is required to file and has duly paid or fully reserved for
all taxes or installments thereof (including any interest or penalties) as and
when due, which have or may become due pursuant to such returns or pursuant to
any assessment received by Borrower for the three (3) years preceding the
Closing Date, if any (including any taxes being contested in good faith and by
appropriate proceedings).
SECTION 6. INSURANCE
6.1 So long as there are any Secured Obligations outstanding, Borrower
shall cause to be carried and maintained commercial general liability insurance
against risks customarily insured against in Borrower's line of business. Such
risks shall include, without limitation, the risks of death, bodily injury and
property damage. So long as there are any Secured Obligations outstanding,
Borrower shall also cause to be carried and maintained insurance upon the
Collateral and Borrower's business, covering casualty, hazard and such other
property risks in amounts equal to the full replacement cost of the Collateral.
Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU
438 or equivalent) naming Lender as loss payee and additional insured. Borrower
shall use commercially reasonable efforts to cause all policies evidencing such
insurance to provide for at least thirty (30) days prior written notice by the
underwriter or insurance company to Lender in the event of cancellation or
expiration. Such policies shall be issued by such insurers and in such amounts
as are reasonably acceptable to Lender.
6.2 Borrower shall and does hereby indemnify and hold Lender, its agents
and shareholders harmless from and against any and all claims, costs, expenses,
damages and liabilities (including, without limitation, such claims, costs,
expenses, damages and liabilities based on liability in tort, including without
limitation, strict liability in tort), including reasonable attorneys' fees,
arising out of the disposition or utilization of the Collateral by Borrower,
other than claims arising out of or caused by Lender's gross negligence or
willful misconduct.
SECTION 7. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Secured Obligations remain outstanding:
7.1 Borrower shall furnish to Lender the financial statements listed
hereinafter, each prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within forty-five (45)
days) after the end of each fiscal quarter (except the last quarter of
Borrower's fiscal year), unaudited interim financial statements
(prepared on a consolidated and consolidating basis, if applicable),
including balance sheet and related statements of income and cash flows
accompanied by a report detailing any material contingencies (including
the commencement of any material litigation by or against Borrower) or
any other occurrence that could reasonably be expected to have a
Material Adverse Effect, all certified by Borrower's Chief Executive
Officer or Chief Financial Officer to be true and correct;
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<PAGE> 15
(b) as soon as practicable (and in any event within ninety (90)
days) after the end of each fiscal year, unqualified audited financial
statements as of the end of such year (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and related
statements of income and cash flows, and setting forth in comparative
form the corresponding figures for the preceding fiscal year, certified
by a firm of independent certified public accountants selected by
Borrower and reasonably acceptable to Lender, accompanied by any
management report from such accountants;
(c) promptly after the sending or filing thereof, as the case may
be, copies of any proxy statements or financial statements which
Borrower has made available to its shareholders and copies of any
regular, periodic and special reports or registration statements which
Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any
national securities exchange; and
(d) promptly, any additional financial information, (including, but
not limited, to tax returns and names of principal creditors) as is
reasonably necessary for Lender to evaluate Borrower's continuing
ability to meet its financial obligations.
7.2 Borrower shall permit any authorized representative of Lender and
its attorneys and accountants on reasonable notice to inspect, examine and make
copies and abstracts of the books of account and records of Borrower reasonably
related to Lender's security interest in the Collateral at reasonable times
during normal business hours. In addition, such representative of Lender and its
attorneys and accountants shall have the right to meet with management and
officers of the Borrower at reasonable times during normal business hours to
discuss such books of account and records.
7.3 Borrower will from time to time execute, deliver and file, alone or
with Lender, any financing statements, security agreements or other documents
reasonably requested by Lender; procure any instruments or documents as may be
reasonably requested by Lender; and take all further action that may be
necessary or desirable that Lender may reasonably request, to confirm, perfect,
preserve and protect the security interests intended to be granted hereby, and
in addition, and for such purposes only, Borrower hereby authorizes Lender to
execute and deliver on behalf of Borrower and to file such financing statements,
security agreement and other documents without the signature of Borrower either
in Lender's name or in the name of Borrower as agent and attorney-in-fact for
Borrower. The parties agree that a carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof.
7.4 Borrower shall protect and defend Borrower's title as well as the
interest of the Lender against all persons claiming any interest adverse to
Borrower or Lender and shall at all times keep the Collateral free and clear
from any legal process, liens or encumbrances whatsoever (except any placed
thereon by Lender and Permitted Liens) and shall give Lender immediate written
notice thereof.
7.5 Without Lender's prior written consent, Borrower shall not (a) grant
any material extension of the time of payment of any of the Receivables
involving an amount owing to Borrower in excess of $100,000, (b) to any material
extent, compromise, compound or settle the same for less than the full amount
thereof, or (c) release, wholly or partly, any Person liable
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<PAGE> 16
for the payment thereof, or allow any credit or discount whatsoever thereon
other than trade discounts granted in the ordinary course of business of
Borrower.
7.6 Borrower shall maintain and protect its properties, assets and
facilities, including without limitation, its Equipment and Fixtures, in good
order and working repair and condition (taking into consideration ordinary wear
and tear) and from time to time make or cause to be made all necessary and
proper repairs, renewals and replacements thereto and shall competently manage
and care for its property in accordance with prudent industry practices.
7.7 Borrower shall notify Lender a minimum of thirty (30) days prior to
the closing date of a Merger Event and request Lender's consent to the
assignment of all of Borrower's Secured Obligations hereunder to the successor
entity in form and substance satisfactory to Lender. In the event Lender does
not consent to such assignment, which consent shall not be unreasonably
withheld, and a Merger Event as described in the preceding sentence is closed
and consummated, the parties agree Borrower shall prepay the Loan in accordance
with Section 2.2 hereof; provided that such consent by the Lender shall not be
required in any transaction in which the surviving entity or its parent
corporation has a Moody's Bond rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lender.
7.8 Borrower shall not, without the prior written consent of Lender,
such consent not to be unreasonably withheld, declare or pay any cash dividend
or make a distribution of cash or property on any class of stock, other than
pursuant to employee repurchase plans upon an employee's death or termination of
employment or transfer, sell, lease, lend or in any other manner convey any
equitable, beneficial or legal interest in any material portion of the assets of
Borrower (except inventory sold in the normal course of business).
7.9 Upon the request of Lender, Borrower shall, during business hours,
make the Inventory and Equipment available to Lender for inspection at the place
where it is normally located and shall make Borrower's log and maintenance
records pertaining to the Inventory and Equipment available to Lender for
inspection. Borrower shall take all action necessary to maintain such logs and
maintenance records in a correct and complete fashion.
7.10 Borrower covenants and agrees to pay when due, all taxes, fees or
similar charges of any nature whatsoever (together with any related interest or
penalties) now or hereafter imposed or assessed against Borrower or Lender with
respect to or the Collateral or upon Borrower's ownership, possession, use,
operation or disposition thereof or upon Borrower's rents, receipts or earnings
arising therefrom. Borrower shall file on or before the due date therefor all
personal property tax returns in respect of the Collateral. Notwithstanding the
foregoing, Borrower may contest, in good faith and by appropriate proceedings,
taxes for which Borrower maintains adequate reserves therefor.
7.11 Borrower shall not relocate any material item of the Collateral
(other than sale or movement of inventory, raw materials or component parts in
the ordinary course of business) except: (i) with the prior written consent of
the Lender not to be unreasonably withheld; and (ii) if such relocation shall be
within the continental United States. If permitted to relocate Collateral
pursuant to subparts (i) or (ii) of the foregoing sentence, unless otherwise
agreed in writing by Lender, Borrower shall first (a) cause to be filed and/or
delivered to the Lender all Uniform Commercial Code financing statements,
certificates or other documents or instruments
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<PAGE> 17
necessary to continue in effect the perfected security interest of the Lender in
the Collateral, and (b) have given the Lender no less than thirty (30) days
prior written notice of such relocation.
SECTION 8. PURCHASE OPTION
8.1 Subject to the provisions of Section 8.10, Lender shall have the
right to purchase shares of Borrower's Preferred Stock with an aggregate value
of up to twenty-five percent (25%) of the Maximum Loan Amount (subject to
increase as provided in Section 8.2) at any time, at Lender's sole and absolute
discretion (the "Purchase Option"). The Purchase Option shall be exercisable at
a purchase price as set forth below:
(a) If Borrower closes the Next Event on or before July 15,
1999, the purchase price will be equal to seventy percent
(70%) of the price per share of the Next Event, but at no
greater than a $300 million (fully diluted) pre money
valuation. For purposes of this Section 8.1(a), a "fully
diluted" valuation shall be based on a calculation including
(1) all outstanding Common Stock, (2) all outstanding
preferred stock as if converted to Common Stock and (3) the
total number of shares subject to outstanding options and
shares remaining available for grant.
(b) If Borrower closes the Next Event after July 15, 1999 but
before June 30, 2000, the purchase price will be equal to
the lesser of:
(i) $4.46 per share;
(ii) the price per share equal to seventy percent (70%) of
the Next Event; or
(iii) the price per share equal to seventy percent (70%) of
any future private equity financing round prior to an
IPO.
(c) If Borrower does not complete the Next Event on or before
June 30, 2000, the purchase price will be equal to $2.79 per
share.
The Purchase Option will terminate upon the date thirty (30) days from
receipt by Lender of notice from Borrower of an Initial Public Offering or a
Merger Event, subject to the terms set forth in Section 8.9 hereof.
The number and purchase price of such shares are subject to adjustment
as provided in this Section 8.
8.2 If the Borrower has not repaid the outstanding principal amount
under a Note in its entirety by the Maturity Date (as defined in the applicable
Note(s)), then for each additional month, or portion thereof, thereafter that
the outstanding principal is not paid, Lender shall have the right to purchase
from the Borrower, at the Purchase Price (adjusted, as set forth and defined in
Section 8.3 herein), an additional amount of Preferred Stock with a value equal
to the product of (x) the outstanding principal amount which is due but unpaid
and (y) one percent (1%).
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8.3 The Purchase Price per share and the number of shares of Preferred
Stock purchasable hereunder are subject to adjustment, as follows:
(a) If the Borrower at any time shall, by stock split, reverse
stock split, combination, reclassification, exchange or subdivision of
the securities as to which purchase rights under this Purchase Option
exist into the same or a different number of securities of any other
class or classes, this Purchase Option shall thereafter represent the
right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities
which were subject to the purchase rights under this Purchase Option
immediately prior to such classification, exchange, subdivision or other
change.
(b) If the Borrower at any time shall combine or subdivide its
Preferred Stock, the Purchase Price shall be proportionately decreased
in the case of a subdivision, or proportionately increased in the case
of a combination.
(c) If the Borrower at any time shall pay a dividend payable in, or
make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Borrower's
stock, then the Purchase Price shall be adjusted, from and after the
record date of such dividend or distribution, to that price determined
by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction (i) the numerator of which shall be the total
number of all shares of the Borrower's stock outstanding immediately
prior to such dividend or distribution, and (ii) the denominator of
which shall be the total number of all shares of the Borrower's stock
outstanding immediately after such dividend or distribution. The Lender
shall thereafter be entitled to purchase, at the Purchase Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the
Purchase Price in effect immediately prior to such adjustment by the
number of shares of Preferred Stock issuable upon the exercise hereof
immediately prior to such adjustment and dividing the product thereof by
the Purchase Price resulting from such adjustment.
(d) Additional antidilution rights applicable to the Preferred
Stock purchasable hereunder are as set forth in the Borrowers Articles
of Incorporation, as may be amended from time to time through the date
of this Agreement, a true and complete copy of the current Articles of
Incorporation which is attached hereto AS EXHIBIT C (the "Charter"). The
Borrower shall promptly provide the Lender with any restatement,
amendment, modification or waiver of the Charter. The Borrower shall
provide Lender with prior written notice of any issuance of its stock or
other equity security to occur after the Effective Date of this Purchase
Option, which notice shall 'include (i) the price at which such stock or
security is to be sold, (ii) the number of shares to be issued, and
(iii) such other information as necessary for Lender to determine if a
dilutive event has occurred.
(e) If: (i) the Borrower shall declare any dividend or distribution
upon its stock, whether in cash, property, stock or other securities;
(ii) the Borrower shall offer for subscription prorata to the holders of
any class of its preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any
Merger Event; (iv) there shall be an Initial Public Offering; or (v)
there shall be any voluntary
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<PAGE> 19
dissolution, liquidation or winding up of the Borrower; then, in
connection with each such event, the Borrower shall send to the Lender:
(A) at least twenty (20) days' prior written notice of the date on which
the books of the Borrower shall close or a record shall be taken for
such dividend, distribution, subscription rights (specifying the date on
which the holders of Preferred Stock shall be entitled thereto) or for
determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; (B) in the case of any such dissolution,
liquidation or winding up, at least thirty (30) days' prior written
notice of the date when the same shall take place (and specifying the
date on which the holders of Preferred Stock shall be entitled to
exchange their Preferred Stock for securities or other property
deliverable upon dissolution, liquidation or winding up); and (C) in the
case of a Initial Public Offering or Merger Event, the Borrower shall
give the Lender at least thirty (30) days written notice prior to the
effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Purchase Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Lender, at the address as shown on the books of the Lender.
(f) Failure to timely provide such notice required by subsection
(e) above shall entitle Lender to retain the benefit of the applicable
notice period notwithstanding anything to the contrary contained in any
insufficient notice received by Lender. The notice period shall begin on
the date Lender actually receives a written notice containing all the
information specified above.
8.5 The Purchase Option is exercisable by the Lender, in whole or in
part, at any time, or from time to time, prior to the earlier of thirty (30)
days after receipt of notice from Borrower of (i) an Initial Public Offering, or
(ii) a Merger Event. Lender may exercise its Purchase Option by tendering to the
Borrower at its principal office a notice of exercise in the form attached
hereto as EXHIBIT D (the "Notice of Purchase"), duly completed and executed
together with payment in an amount equal to the Purchase Price for that portion
of the Purchase Option so exercised, in cash or by bank cashier's or certified
check; provided that Lender may satisfy all or a portion of the Purchase Price
by tender of one or more Note(s), the outstanding principal and interest of
which shall be credited against the Purchase Price, with the balance, if any, of
the Purchase Price payable in cash or by check as provided above. In such event,
the Note(s) so tendered will be deemed satisfied in full and will be cancelled
by the Borrower and the Borrower will have no further obligation to the Lender
under such Note(s).
Promptly upon receipt of the Notice of Purchase and the payment of the
Purchase Price in accordance with the terms set forth below, Borrower shall
execute the acknowledgment of exercise in the form attached hereto as EXHIBIT E
(the "Acknowledgment of Purchase") indicating the number of shares which remain
subject to future purchases, if any. Subject to Lender's right of rescission of
its election pursuant to Section 8.9, no later than twenty-one (21) days
thereafter, the Borrower shall issue to the Lender a certificate for the number
of shares of Preferred Stock purchased.
8.6 (a) During the term of this Purchase Option, the Borrower will at
all times have authorized and reserved a sufficient number of shares of its
Preferred Stock to provide for the exercise of the rights to purchase Preferred
Stock as provided for herein.
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<PAGE> 20
(b) If any shares of Preferred Stock required to be reserved
hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration
under the Securities Act of 1933, as amended ("1933 Act"), as then in
effect, or any similar Federal statute then enforced, or any state
securities law, required by reason of any transfer involved in such
purchase), or listing on any domestic securities exchange, before such
shares may be issued upon purchase, the Borrower will, at its expense
and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered, listed or approved for listing on such
domestic securities exchange, as the case may be.
8.7 No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of the Purchase Option, but in lieu of such
fractional shares the Borrower shall make a cash payment therefor upon the basis
of the Purchase Price then in effect.
8.8 This Purchase Option does not entitle the Lender to any voting
rights or other rights as a shareholder of the Borrower prior to the exercise of
the Purchase Option.
8.9 In the event Lender has exercised the Purchase Option based upon
receipt of notice from Borrower of an Initial Public Offering or Merger Event
and if such transaction is not consummated, the Borrower shall promptly notify
the Lender that such proposed transaction has been terminated, and the Lender
may rescind any exercise of its Purchase Option promptly after such notice of
termination of the proposed transaction.
8.10 (a) If Lender for any reason has refused to make an Advance (a
"Refused Advance") to Borrower pursuant to a proper Advance Request, then
Lender's Purchase Option under this Section 8 shall be reduced by a value equal
to the amount of such Refused Advance.
(b) In order to effectuate the reduction of the Purchase Option set
forth in subclause (a) above, if Lender exercises the Purchase Option prior to
the termination date set forth in Section 4.6, the shares issuable upon such
exercise shall be subject to a repurchase right in favor of the Borrower at a
price per share equal to the price paid by Lender in such exercise and shall be
held in escrow by the Borrower.
8.11 Lender hereby agrees that it shall not, to the extent requested by
Borrower or an underwriter of securities of Borrower, sell or otherwise transfer
or dispose of any shares of Preferred Stock issued upon exercise of the Purchase
Option for such period of time not to exceed one hundred eighty (180) days
following the effective date of a registration statement of the Borrower filed
under the 1933 Act for the Borrower's underwritten initial public offering
provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold
on its behalf to the public in an underwritten offering but not to
Registrable Securities sold pursuant to such registration statement; and
(b) all officers, directors and one percent (1%) shareholders of the
Company enter into similar agreements.
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<PAGE> 21
In order to enforce the foregoing covenant, Borrower shall have the
right to place restrictive legends on the certificates representing the shares
subject to this Section 8.11 and to impose stop transfer instructions with
respect to such shares.
SECTION 9. DEFAULT
The occurrence of any one or more of the following events (herein called
"Events of Default") shall constitute a default hereunder and under the Note(s)
and other Loan Documents:
9.1 Borrower defaults in the payment of any principal, interest or other
Secured Obligation involving the payment of money under this Agreement, the
Note(s) or any of the other Loan Documents, and such default continues for more
than five (5) days after the due date thereof; or
9.2 Borrower defaults in the performance of any other covenant or
Secured Obligation of Borrower hereunder or under the Note(s) or any of the
other Loan Documents, and such default continues for more than thirty (30) days
after Lender has given notice of such default to Borrower.
9.3 Any representation or warranty made herein by Borrower shall prove
to have been false or misleading in any material respect; or
9.4 Borrower shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation pertinent to such circumstances, or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Borrower or of all or any substantial part (33-1/3% or more) of
the properties of Borrower; or Borrower or its directors or majority
shareholders shall take any action initiating the dissolution or liquidation of
Borrower; or
9.5 Sixty (60) days shall have expired after the commencement of an
action by or against Borrower seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, without such action being dismissed or all
orders or proceedings thereunder affecting the operations or the business of
Borrower being stayed; or a stay of any such order or proceedings shall
thereafter be set aside and the action setting it aside shall not be timely
appealed; or Borrower shall file any answer admitting or not contesting the
material allegations of a petition filed against Borrower in any such
proceedings; or the court in which such proceedings are pending shall enter a
decree or order granting the relief sought in any such proceedings; or
9.6 Sixty (60) days shall have expired after the appointment, without
the consent or acquiescence of Borrower, of any trustee, receiver or liquidator
of Borrower or of all or any substantial part of the properties of Borrower
without such appointment being vacated; or
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9.7 The material default by Borrower under any Excluded Agreement(s),
any other promissory note or agreement for borrowed money, or any other
agreement between Borrower and Lender; or
9.8 The occurrence of any material default under any lease or other
agreement or obligation of Borrower having an outstanding obligation to Borrower
in excess of $100,000.00 or having a Material Adverse Effect; or the entry of
any judgment against Borrower involving an award in excess of $100,000.00 that
would have a Material Adverse Effect, that has not been bonded or stayed on
appeal within thirty (30) days; or
9.9 The occurrence of any material default under the Senior Loan
Documents.
SECTION 10. REMEDIES
Upon the occurrence of any one or more Events of Default, Lender, at its
option, may declare the Note and all of the other Secured Obligations to be
accelerated and immediately due and payable (provided, that upon the occurrence
of an Event of Default of the type described in Sections 9.4 or 9.5, the Note(s)
and all of the other Secured Obligations shall automatically be accelerated and
made due and payable without any further act), whereupon the unpaid principal of
and accrued interest on such Note(s) and all other outstanding Secured
Obligations shall become immediately due and payable, and shall thereafter bear
interest at the Default Rate set forth in, and calculated according to, Section
2.4 (c) of this Agreement. Lender may pursue all rights and remedies with
respect to the Collateral under the Loan Documents or otherwise available to it
under applicable law, including the right to release, hold or otherwise dispose
of all or any part of the Collateral and the right to occupy, utilize, process
and commingle the Collateral.
Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all of
the Collateral, in its then condition or following any commercially reasonable
preparation or processing, in such order as Lender may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere. Borrower agrees that any such public or private sale may occur upon
ten (10) calendar days' prior written notice to Borrower. Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
designated by Lender which is reasonably convenient to Lender and Borrower. The
proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall be distributed by Lender in the following order of
priorities:
First, to Lender in an amount sufficient to pay in full Lender's costs
and professionals' and advisors' fees and expenses;
Second, to Lender in an amount equal to the then unpaid amount of the
Secured Obligations in such order and priority as Lender may choose in
its sole discretion; and
Finally, upon payment in full of all of the Secured Obligations, to
Borrower or its representatives or as a court of competent jurisdiction
may direct.
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<PAGE> 23
Lender shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies
with the obligations of a secured party under Section 9-207 of the UCC.
Lender's rights and remedies hereunder are subject to the terms of the
Subordination Agreement.
SECTION 11. MISCELLANEOUS
11.1 CONTINUATION AND TERMINATION OF SECURITY INTEREST. This is a
continuing Agreement and the grant of a security interest hereunder shall remain
in full force and effect and all the rights, powers and remedies of Lender
hereunder shall continue to exist until the Secured Obligations are paid in full
as the same become due and payable and until Lender has executed a written
termination statement (which Lender shall execute within thirty (30) days after
full payment of the Secured Obligations hereunder or within 10 days upon request
of Borrower), reassigning to Borrower, without recourse, the Collateral and all
rights conveyed hereby and returning possession of the Collateral to Borrower.
The rights, powers and remedies of Lender hereunder shall be in addition to all
rights, powers and remedies given by statute or rule of law and are cumulative.
The pursuit of any one or more of the rights, powers and remedies provided
herein shall not be construed as a waiver of or election of remedies with
respect to any other rights, powers and remedies of Lender. When all Secured
Obligations have been paid in full and discharged, all security interests and
other Liens granted to Lender under this Agreement will terminate. Upon the full
and final discharge of all of the Secured Obligations, Lender will execute and
deliver such documents as may be reasonably necessary and requested by Borrower
to release the Collateral from the security interest and Lien granted to Lender
in this Agreement, and return (or cause to be returned) to Borrower any
Collateral in the possession of Lender or its agents.
11.2 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
11.3 NOTICE. Except as otherwise provided herein, all notices and
service of process required, contemplated, or permitted hereunder or with
respect to the subject matter hereof shall be in writing, and shall be deemed to
have been validly served, given or delivered upon the earlier of: (i) the first
business day after transmission by facsimile or hand delivery or deposit with an
overnight express service or overnight mail delivery service; or (ii) the third
calendar day after deposit in the United States mails, with proper first class
postage prepaid, and shall be addressed to the party to be notified as follows:
(a) IF TO LENDER:
COMDISCO, INC.
Legal Department
Attention: General Counsel
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5088
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<PAGE> 24
WITH A COPY TO:
COMDISCO, INC./COMDISCO VENTURES
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5465
(b) IF TO BORROWER:
HANDSPRING, INC.
Attention: Donna Dubinsky
299 California Avenue, Suite 300
Palo Alto, CA 94306
Facsimile: (650) 566-8100
Phone: (650) 566-2222
or to such other address as each party may designate for itself by like notice.
11.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Note(s), and the
other Loan Documents constitute the entire agreement and understanding of the
parties hereto in respect of the subject matter hereof and thereof, and
supersede and replace in their entirety any prior proposals, term sheets,
letters, negotiations or other documents or agreements, whether written or oral,
with respect to the subject matter hereof or thereof (including, without
limitation, Lender's proposal letter dated April 22, 1999), all of which are
merged herein and therein. None of the terms of this Agreement, the Note(s) or
any of the other Loan Documents may be amended except by an instrument executed
by each of the parties hereto.
11.5 HEADINGS. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
11.6 NO WAIVER. The powers conferred upon Lender by this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. No omission, or delay, by Lender at any
time to enforce any right or remedy reserved to it, or to require performance of
any of the terms, covenants or provisions hereof by Borrower at any time
designated, shall be a waiver of any such right or remedy to which Lender is
entitled, nor shall it in any way affect the right of Lender to enforce such
provisions thereafter.
11.7 SURVIVAL. All agreements, representations and warranties contained
in this Agreement, the Note(s) and the other Loan Documents or in any document
delivered pursuant hereto or thereto shall be for the benefit of Lender and
shall survive the execution and delivery of this Agreement and the expiration or
other termination of this Agreement.
11.8 SUCCESSOR AND ASSIGNS. The provisions of this Agreement and the
other Loan Documents shall inure to the benefit of and be binding on Borrower
and its permitted assigns (if any). Borrower shall not assign its obligations
under this Agreement, the Note(s) or any of the
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<PAGE> 25
other Loan Documents without Lender's express written consent, and any such
attempted assignment shall be void and of no effect. Subject to the
Subordination Agreement, Lender may assign, transfer, or endorse its rights
hereunder and under the other Loan Documents without prior notice to Borrower,
and all of such rights shall inure to the benefit of Lender's successors and
assigns; provided, however, that any such successors or assigns shall be bound
by and expressly assume all obligations under the Subordination Agreement.
11.9 FURTHER INDEMNIFICATION. Borrower agrees to pay, and to save Lender
harmless from any and all liabilities with respect to, or resulting from any
delay in paying, any and all excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement.
11.10 GOVERNING LAW. This Agreement, the Note(s) and the other Loan
Documents have been negotiated and delivered to Lender in the State of Illinois,
and shall not become effective until accepted by Lender in the State of
Illinois. Payment to Lender by Borrower of the Secured Obligations is due in the
State of Illinois. This Agreement, the Note(s) and the other Loan Documents
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Illinois, excluding conflict of laws principles that would cause
the application of laws of any other jurisdiction.
11.11 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings
arising in or under or related to this Agreement, the Note(s) or any of the
other Loan Documents may be brought in any state or federal court of competent
jurisdiction located in the State of Illinois. By execution and delivery of this
Agreement, each party hereto generally and unconditionally: (a) consents to
personal jurisdiction in Cook County, State of Illinois; (b) waives any
objection as to jurisdiction or venue in Cook County, State of Illinois; (c)
agrees not to assert any defense based on lack of jurisdiction or venue in the
aforesaid courts; and (d) irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement, the Note(s) or the other
Loan Documents. Service of process on any party hereto in any action arising out
of or relating to this agreement shall be effective if given in accordance with
the requirements for notice set forth in Section 11.3, above and shall be deemed
effective and received as set forth in Section 11.3, above. Nothing herein shall
affect the right to serve process in any other manner permitted by law or shall
limit the right of either party to bring proceedings in the courts of any other
jurisdiction.
11.12 MUTUAL WAIVER OF JURY TRIAL. Because disputes arising in
connection with complex financial transactions are most quickly and economically
resolved by an experienced and expert person and the parties wish applicable
state and federal laws to apply (rather than arbitration rules), the parties
desire that their disputes be resolved by a judge applying such applicable laws.
EACH OF BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL
BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY
CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST
LENDER OR ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This
waiver extends to all such Claims, including any other Claims which involve
Borrower and Lender and additional persons or entities ; Claims which arise out
of or are in any way related to the relationship between Borrower and Lender and
other persons or creditors under the Loan Documents; and any Claims for damages,
breach of contract arising out of this Agreement, any other Loan
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<PAGE> 26
Document or any of the Excluded Agreements, specific performance, or any
equitable or legal relief of any kind.
11.13 CONFIDENTIALITY. Lender acknowledges that certain items of
Collateral, including, but not limited to trade secrets, source codes, customer
lists and certain other items of Intellectual Property, and any Financial
Statements provided pursuant to Section 7 hereof, constitute proprietary and
confidential information of the Borrower (the "Confidential Information").
Accordingly, Lender agrees that any Confidential Information it may obtain in
the course of acquiring, perfecting or foreclosing on the Collateral or
otherwise provided under this Agreement, provided such Confidential Information
is marked as confidential by Borrower at the time of disclosure, shall be
received in the strictest confidence and will not be disclosed to any other
person or entity in any manner whatsoever, in whole or in part, without the
prior written consent of the Borrower, unless and until Lender has acquired
indefeasible title thereto.
11.14 COUNTERPARTS. This Agreement and any amendments, waivers, consents
or supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
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<PAGE> 27
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and
delivered this Agreement as of the day and year first above written.
BORROWER: HANDSPRING, INC.
Signature: /s/ Donna L. Dubinsky
--------------------------
Print Name: Donna L. Dubinsky
-------------------------
Title: CEO
------------------------------
ACCEPTED IN ROSEMONT, ILLINOIS:
LENDER: COMDISCO, INC.
Signature: /s/ James Labe
--------------------------
Print Name: James Labe, President
Comdisco Ventures
Division
-------------------------
Title: June 14, 1999
------------------------------
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<PAGE> 28
EXHIBIT A
SUBORDINATED PROMISSORY NOTE
$_______ DATE: _________
DUE: _________
FOR VALUE RECEIVED, Handspring, Inc., a California corporation (the "Borrower")
hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation
(the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of
payment as the holder of this Secured Promissory Note (this "Note") may specify
from time to time in writing, in lawful money of the United States of America,
the principal amount of __________ and 00/100 Dollars ($ _______) together with
interest at ten percent (10%) per annum from the date of this Note to maturity
of each installment on the principal hereof remaining from time to time unpaid,
such principal and interest to be paid in monthly installments of interest only
until the earlier of (i) completion of Borrower's Initial Public Offering, or
(ii) eighteen (18) months from the Advance Date in the amount of $_________
each, commencing ____________and on the same day of each month thereafter to and
including, _____________________ which shall be followed by 18 equal monthly
installments of principal and interest in the amount of $_________ each,
commencing ______________ and on the same day of each month thereafter to and
including ________________, such installments to be applied first to accrued and
unpaid interest and the balance to unpaid principal. Interest shall be computed
on the basis of a year consisting of twelve months of thirty days each. This
Note is the Note referred to in, and is executed and delivered in connection
with, that certain Subordinated Loan and Security Agreement dated June 10, 1999
by and between Borrower and Lender (as the same may from time to time be
amended, modified, supplemented or restated in accordance with its terms, the
"Loan Agreement"), and is entitled to the benefit and security of the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement), to
which reference is made for a statement of all of the terms and conditions
thereof. All terms defined in the Loan Agreement shall have the same definitions
when used herein, unless otherwise defined herein.
THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION
AGREEMENT BY AND BETWEEN LENDER AND BORROWER FOR THE BENEFIT OF SENIOR CREDITOR.
IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE
SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL.
The Borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest and any other notice as permitted under the UCC or
any applicable law.
-1-
<PAGE> 29
This Note has been negotiated and delivered to Lender and is payable in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. This Note shall be governed by and construed and enforced
in accordance with, the laws of the State of Illinois, excluding any conflicts
of law rules or principles that would cause the application of the laws of any
other jurisdiction.
BORROWER: HANDSPRING, INC.
299 California Avenue, Suite 300
Palo Alto, CA 94306
Signature: __________________________
Print Name: __________________________
Title: __________________________
-2-
<PAGE> 30
EXHIBIT B
ADVANCE REQUEST
Date:___________________
To: Lender:
Comdisco, Inc.
% Comdisco Ventures
3000 Sand Hill Road
Menlo Park, CA 94025
Attention: Vika Tonga
Facsimile (650) 854-4026
Borrower hereby requests from Comdisco, Inc. ("Lender") an Advance in
the amount of $________________________ on__________________________(the
"Advance Date") under that Subordinated Loan and Security Agreement between
Borrower and Lender dated June 10, 1999 (the "Agreement").
Please:
(a) Issue a check payable to Borrower ______________
or
(b) Wire Funds to Borrower's account ______________
Bank:
Address:______________________________
______________________________
ABA Number:___________________________
Account Number:_______________________
Account Name:_________________________
Borrower hereby represents that the Conditions Precedent to Loan set
forth in Section 4 of the Agreement are satisfied and will be satisfied upon the
making of such Loans, except and to the extent described on Schedule 1 to this
Advance Request. Borrower understands and acknowledges that Lender has the right
to review such Schedule and based upon such review in its reasonable discretion
Lender may decline to fund the requested Advance if a condition precedent
thereto as set forth in Section 4 of the Agreement has not been satisfied.
Executed this _____ day of___________, 199__ by:
BORROWER: HANDSPRING, INC.
BY: _________________________________
TITLE: _________________________________
PRINT: _________________________________
28
<PAGE> 31
EXHIBIT C
(INSERT CHARTER)
29
<PAGE> 32
ENDORSED - FILED
IN THE OFFICE OF THE
SECRETARY OF STATE
OF THE STATE OF CALIFORNIA
OCTOBER 16, 1998
BILL JONES, SECRETARY OF STATE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF JD TECHNOLOGY, INC.
Donna L. Dubinsky and Jeffrey C. Hawkins certify that:
1. They are the President and Secretary, respectively, of JD Technology,
Inc., a California corporation.
2. The Articles of Incorporation of the corporation, as amended to the
date of the filing of this certificate, including amendments set forth herein
but not separately filed (and with the omissions required by Section 910 of the
California Corporations Code), are restated in their entirety as set forth in
Exhibit "1" attached hereto and made a part hereof by this reference.
3. The Restated Articles of Incorporation set forth herein have been
duly approved by the Board of Directors of the corporation.
4. The amendments to the Articles of Incorporation included in the
Restated Articles of Incorporation set forth herein (other than omissions
required by Section 910 of the Corporations Code) have been duly approved by the
required vote of the shareholders of the corporation in accordance with Sections
902 and 903 of the California Corporations Code. The corporation has one class
of stock, and the number of outstanding shares is 14,000,000 shares of Common
Stock. The number of shares voting in favor of the Restated Articles of
Incorporation set forth herein equaled or exceeded the vote required. The
percentage vote required was more than 50% of the outstanding shares of Common
Stock.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Dated: October 16, 1998 /s/ Donna L. Dubinsky
----------------------------------------------
Donna L. Dubinsky, President
/s/ Jeffrey C. Hawkins
----------------------------------------------
Jeffrey C. Hawkins, Secretary
<PAGE> 33
EXHIBIT "1"
---------------------
AMENDED AND RESTATED ARTICLES OF INCORPORATION
-----------------------------
ARTICLE I
The name of the corporation is JD Technology, Inc.
ARTICLE II
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
Unless applicable law otherwise provides, any amendment, repeal or modification
of this Article III shall not adversely affect any right or protection of a
director under this Article III that existed at or prior to the time of such
amendment, repeal or modification.
ARTICLE IV
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, by agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits on such excess indemnification set forth in Section 204 of the California
Corporations Code. Unless applicable law otherwise provides, any amendment,
repeal or modification of any provision of this Article IV shall not adversely
affect any contract or other right to indemnification of an agent of the
corporation that existed at or prior to the time of such amendment, repeal or
modification.
ARTICLE V
This corporation is authorized to issue two classes of shares,
designated "Common Stock" and "Preferred Stock," respectively, both of which
shall have no par value. The number of shares of Common Stock authorized to be
issued is 35,000,000 shares. The number of shares of Preferred Stock authorized
to be issued is 8,200,000 shares, all of which are designated as "Series A
Preferred Stock."
<PAGE> 34
ARTICLE VI
The rights, preferences, privileges and restrictions granted to and
imposed on the Series A Preferred Stock and the Common Stock are as follows:
1. DEFINITIONS. For purposes of this Article VI, the following
definitions apply:
1.1 "BOARD" shall mean the Board of Directors of the Company.
1.2 "COMPANY" shall mean this corporation.
1.3 "COMMON STOCK" shall mean the Common Stock, no par value, of
the Company.
1.4 "COMMON STOCK DIVIDEND" shall mean a stock dividend declared
and paid on the Common Stock that is payable in shares of Common Stock.
1.5 "DIVIDEND RATE" shall mean $0.0892 per share per annum for the
Series A Preferred Stock (as adjusted for any stock splits, stock
dividends, recapitalizations or the like, with respect to the Series A
Preferred Stock).
1.6 "ORIGINAL ISSUE DATE" shall mean the date on which the first
share of Series A Preferred Stock is issued by the Company.
1.7 "ORIGINAL ISSUE PRICE" shall mean $2.23 per share for the
Series A Preferred Stock (as adjusted for any stock splits, stock
dividends, recapitalizations or the like, with respect to the Series A
Preferred Stock).
1.8 "PERMITTED REPURCHASES" shall mean the repurchase by the
Company of shares of Common Stock held by employees, officers,
directors, consultants, independent contractors, advisors, or other
persons performing services for the Company or a subsidiary (if in
transactions that are primarily for non-financing purposes) that are
subject to restricted stock purchase agreements or stock option exercise
agreements under which the Company has the option to repurchase such
shares: (i) at cost, upon the occurrence of certain events, such as the
termination of employment or services; or (ii) at any price pursuant to
the Company's exercise of a right of first refusal to repurchase such
shares.
1.9 "PREFERRED STOCK" shall mean the Series A Preferred Stock.
1.10 "SERIES A PREFERRED STOCK" shall mean the Series A Preferred
Stock, no par value, of the Company.
1.11 "SUBSIDIARY" shall mean any corporation of which at least
fifty percent (50%) of the outstanding voting stock is at the time owned
directly or indirectly by the Company or by one or more of such
subsidiary corporations.
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<PAGE> 35
2. DIVIDEND RIGHTS.
2.1 Series A Preferred Stock. In each calendar year, the holders of
the then outstanding Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board, out of any funds and assets of the
Company legally available therefor, noncumulative dividends at the annual
Dividend Rate for the Series A Preferred Stock, prior and in preference to the
payment of any dividends on the Common Stock in such calendar year (other than a
Common Stock Dividend). No dividends (other than a Common Stock Dividend) shall
be paid with respect to the Common Stock during any calendar year unless
dividends in the total amount of the annual Dividend Rate for the Series A
Preferred Stock shall have first been paid or declared and set apart for payment
to the holders of the Series A Preferred Stock during that calendar year;
provided, however, that this restriction shall not apply to Permitted
Repurchases. Dividends on the Series A Preferred Stock shall not be mandatory or
cumulative, and no rights or interest shall accrue to the holders of the Series
A Preferred Stock by reason of the fact that the Company shall fail to declare
or pay dividends on the Series A Preferred Stock in the amount of the annual
Dividend Rate for the Series A Preferred Stock or in any other amount in any
calendar year or any fiscal year of the Company, whether or not the earnings of
the Company in any calendar year or fiscal year were sufficient to pay such
dividends in whole or in part.
2.2 Participation Rights. If, after dividends in the full
preferential amount specified in this Section 2 for the Series A Preferred Stock
have been paid or declared and set apart in any calendar year of the Company,
the Board shall declare additional dividends out of funds legally available
therefor in that calendar year, then such additional dividends shall be declared
pro rata on the Common Stock and the Series A Preferred Stock on a pari passu
basis according to the number of shares of Common Stock held by such holders,
where each holder of shares of Series A Preferred Stock is to be treated for
this purpose as holding the greatest whole number of shares of Common Stock then
issuable upon conversion of all shares of Series A Preferred Stock held by such
holder pursuant to Section 5.
2.3 Non-Cash Dividends. Whenever a dividend provided for in this
Section 2 shall be payable in property other than cash, the value of such
dividend shall be deemed to be the fair market value of such property as
determined in good faith by the Board.
3. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the funds and
assets that may be legally distributed to the Company's shareholders (the
"AVAILABLE FUNDS AND ASSETS") shall be distributed to shareholders in the
following manner:
3.1 Series A Preferred Stock. The holders of each share of Series A
Preferred Stock then outstanding shall be entitled to be paid, out of the
Available Funds and Assets, and prior and in preference to any payment or
distribution (or any setting apart of any payment or distribution) of any
Available Funds and Assets on any shares of Common Stock, an amount per share
equal to the Original Issue Price of the Series A Preferred Stock plus all
declared but unpaid dividends on the Series A Preferred Stock. If upon any
liquidation, dissolution or winding up of the Company, the Available Funds and
Assets shall be insufficient to permit the
3
<PAGE> 36
payment to holders of the Series A Preferred Stock of their full preferential
amount described in this subsection, then the entire Available Funds and Assets
shall be distributed among the holders of the then outstanding Series A
Preferred Stock pro rata, according to the number of outstanding shares of
Series A Preferred Stock held by each holder thereof.
3.2 Remaining Assets. If there are any Available Funds and Assets
remaining after the payment or distribution (or the setting aside for payment or
distribution) to the holders of the Series A Preferred Stock of their full
preferential amounts described above in this Section 3, then all such remaining
Available Funds and Assets shall be distributed among the holders of the then
outstanding Common Stock pro rata according to the number of shares of Common
Stock held by each holder thereof.
3.3 Merger or Sale of Assets. A (i) reorganization, consolidation
or merger (or similar transaction or series of transactions) of the Company with
or into any other corporation or corporations in which the holders of the
Company's outstanding shares immediately before such transaction or series of
transactions do not, immediately after such transaction or series of
transactions, retain stock representing a majority of the voting power of the
surviving corporation (or its parent corporation if the surviving corporation is
wholly owned by the parent corporation) of such transaction or series of
transactions; or (ii) a sale of all or substantially all of the assets of the
Company, shall each be deemed to be a liquidation, dissolution or winding up of
the Company as those terms are used in this Section 3.
3.4 Non-Cash Consideration. If any assets of the Company
distributed to shareholders in connection with any liquidation, dissolution, or
winding up of the Company are other than cash, then the value of such assets
shall be their fair market value as determined by the Board, except that any
securities to be distributed to shareholders in a liquidation, dissolution, or
winding up of the Company shall be valued as follows:
(a) The method of valuation of securities not subject to
investment letter or other similar restrictions on free marketability shall be
as follows:
(i) if the securities are then traded on a national
securities exchange or the Nasdaq National Market (or a similar
national quotation system), then the value shall be deemed to be
the average of the closing prices of the securities on such
exchange or system over the 30-day period ending three (3) days
prior to the distribution; and
(ii) if actively traded over-the-counter, then the value
shall be deemed to be the average of the closing bid prices over
the 30-day period ending three (3) days prior to the
distribution; and
(iii) if there is no active public market, then the value
shall be the fair market value thereof, as determined in good
faith by the Board of Directors of the Company.
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(b) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to make
an appropriate discount from the market value determined as above in
subparagraphs (a)(i), (ii) or (iii) of this subsection to reflect the
approximate fair market value thereof, as determined in good faith by the Board.
3.5 Notice and Waiver. The Company shall give each holder of record
of Series A Preferred Stock written notice of an impending liquidation,
dissolution or winding up of the Company not later than ten (10) days prior to
the shareholders' meeting, if any, called to approve such transaction, or twenty
(20) days prior to the closing of such transaction, whichever is earlier. The
notice shall describe the nature of the impending transaction. The transaction
shall in no event take place sooner than twenty (20) days after the Company has
given the notice provided for herein. Notwithstanding the foregoing provisions
of this subsection 3.5, the periods and provisions specified herein may be
shortened or waived upon the written consent of the holders of Series A
Preferred Stock that are entitled to such notice rights and that represent at
least a majority of the voting power of all then outstanding shares of such
Series A Preferred Stock.
4. VOTING RIGHTS.
4.1 Common Stock. Each holder of shares of Common Stock shall be
entitled to one (1) vote for each share thereof held.
4.2 Preferred Stock. Each holder of shares of Series A Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which such shares of Series A Preferred Stock could
be converted pursuant to the provisions of Section 5 below at the record date
for the determination of the shareholders entitled to vote on such matters or,
if no such record date is established, the date such vote is taken or any
written consent of shareholders is solicited.
4.3 General. Subject to the foregoing provisions of this Section 4,
each holder of Series A Preferred Stock shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled to notice of any shareholders' meeting in accordance with the bylaws
of the Company (as in effect at the time in question) and applicable law, and
shall be entitled to vote, together with the holders of Common Stock, with
respect to any question upon which holders of Common Stock have the right to
vote, except as may be otherwise provided by applicable law. Except as otherwise
expressly provided herein or as required by law, the holders of Series A
Preferred Stock and the holders of Common Stock shall vote together and not as
separate classes.
4.4 Board Size. The authorized number of directors of the Company's
Board shall be five (5). The Company shall not alter the authorized number of
directors in its Articles of Incorporation, Bylaws or otherwise, without first
obtaining the written consent, or affirmative vote at a meeting, of the holders
of at least a majority of the then outstanding shares of Series A Preferred
Stock, consenting or voting (as the case may be) separately as a class.
4.5 Board of Directors Election and Removal.
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(a) Election. So long as at 2,000,000 shares of Series A
Preferred Stock are outstanding (such number of shares being subject to
proportional adjustment to reflect combinations or subdivisions of such Series A
Preferred Stock or dividends declared in shares of such stock), (i) the holders
of the Series A Preferred Stock, voting as a separate series (with cumulative
voting rights as among themselves in accordance with Section 708 of the
California Corporations Code), shall be entitled to elect two (2) directors of
the Company; (ii) the holders of the Common Stock, voting as a separate class
(with cumulative voting rights as among themselves in accordance with Section
708 of the California Corporations Code), shall be entitled to elect two (2)
directors of the Company; and (iii) the holders of the Series A Preferred Stock
and the Common Stock, voting together as a single class (with cumulative voting
rights as among themselves in accordance with Section 708 of the California
Corporations Code) shall be entitled to elect the remaining directors of the
Company.
(b) Quorum; Required Vote.
(i) Quorum. At any meeting held for the purpose of
electing directors, the presence in person or by proxy (A) of the holders of a
majority of the shares of the Series A Preferred Stock or Common Stock then
outstanding, respectively, shall constitute a quorum of the Series A Preferred
Stock or Common Stock, as the case may be, for the election of directors to be
elected solely by the holders of the Series A Preferred Stock or Common Stock,
respectively, and (B) of holders of Series A Preferred Stock and Common Stock
representing a majority of each of the voting power of all the then-outstanding
shares (1) of Series A Preferred Stock and (2) of Common Stock shall constitute
a quorum for the election of the directors to be elected jointly by the holders
of the Preferred Stock and the Common Stock.
(ii) Required Vote. With respect to the election of any
director or directors by the holders of the outstanding shares of a specified
series, class or classes of stock given the right to elect such director or
directors pursuant to subsection 4.5(a) above ("SPECIFIED STOCK"), that
candidate or those candidates (as applicable) shall be elected who either: (i)
in the case of any such vote conducted at a meeting of the holders of such
Specified Stock, receive the highest number of affirmative votes of the
outstanding shares of such Specified Stock, up to the number of directors to be
elected by such Specified Stock; or (ii) in the case of any such vote taken by
written consent without a meeting, are elected by the unanimous written consent
of the holders of shares of such Specified Stock, except that, if such vote is
to fill a vacancy on the Board other than a vacancy created by removal of a
director pursuant to Section 305(b) of the California Corporations Code, such
vacancy may be filled by election by the written consent of the holders of a
majority of the outstanding shares of such Specified Stock entitled to vote.
(c) Vacancy. If there shall be any vacancy in the office of a
director elected by the holders of any Specified Stock pursuant to subsection
4.5(a), then a successor to hold office for the unexpired term of such director
may be elected by either: (i) the remaining director or directors (if any) in
office that were so elected by the holders of such Specified Stock, by the
affirmative vote of a majority of such directors (or by the sole remaining
director elected by the holders of such Specified Stock if there be but one), or
if such vacancy is not filled by such
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directors (ii) the required vote of holders of the shares of such Specified
Stock specified in subsection 4.5(b)(ii) above that are entitled to elect such
director under subsection 4.5(a).
(d) Removal. Subject to Section 303 of the California
Corporations Code, any director who shall have been elected to the Board by the
holders of any Specified Stock pursuant to subsection 4.5(a) or by any director
or directors elected by holders of any Specified Stock as provided in subsection
4.5(c), may be removed during his or her term of office, either with or without
cause, by, and only by, the affirmative vote of shares representing a majority
of the voting power of all the outstanding shares of such Specified Stock
entitled to vote, given either at a meeting of such shareholders duly called for
that purpose or pursuant to a written consent of shareholders without a meeting,
and any vacancy created by such removal may be filled only in the manner
provided in subsection 4.5(c).
(e) Procedures. Any meeting of the holders of any Specified
Stock, and any action taken by the holders of any Specified Stock by written
consent without a meeting, in order to elect or remove a director under this
subsection 4.5, shall be held in accordance with the procedures and provisions
of the Company's Bylaws, the California Corporations Code and applicable law
regarding shareholder meetings and shareholder actions by written consent, as
such are then in effect (including but not limited to procedures and provisions
for determining the record date for shares entitled to vote).
(f) Termination. Notwithstanding anything in this subsection
4.5 to the contrary, the provisions of this subsection 4.5 shall cease to be of
any further force or effect upon the earlier to occur of: (i) the first date on
which the total number of outstanding shares of Series A Preferred Stock is less
than 2,000,000 shares (such number of shares being subject to proportional
adjustment to reflect combination or subdivisions of such Series A Preferred
Stock or dividends declared in shares of such stock); or (ii) upon the merger or
consolidation of the Company with or into any other corporation or corporations
if such consolidation or merger is approved by the shareholders of the Company
in compliance with applicable law and the Articles of Incorporation and Bylaws
of the Company in which the holders of the Company's outstanding shares
immediately before such consolidation or merger do not, immediately after such
consolidation or merger, retain stock representing a majority of the voting
power of the surviving corporation (or its parent corporation if the surviving
corporation is wholly owned by the parent corporation); or (iii) a sale of all
or substantially all of the Company's assets.
5. CONVERSION RIGHTS. The outstanding shares of Series A Preferred Stock
shall be convertible into Common Stock as follows:
5.1 Optional Conversion.
(a) At the option of the holder thereof, each share of Series
A Preferred Stock shall be convertible, at any time or from time to time prior
to the close of business on the business day before any date fixed for
redemption of such share, into fully paid and nonassessable shares of Common
Stock as provided herein.
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(b) Each holder of Series A Preferred Stock who elects to
convert the same into shares of Common Stock shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or any
transfer agent for the Series A Preferred Stock or Common Stock, and shall give
written notice to the Company at such office that such holder elects to convert
the same and shall state therein the number of shares of Series A Preferred
Stock being converted. Thereupon the Company shall promptly issue and deliver at
such office to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled upon such conversion.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the certificate or certificates
representing the shares of Series A Preferred Stock to be converted, and the
person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date. If a conversion election under this subsection 5.1
is made in connection with an underwritten offering of the Company's securities
pursuant to the Securities Act of 1933, as amended, (which underwritten offering
does not cause an automatic conversion pursuant to subsection 5.2 to take place)
the conversion may, at the option of the holder tendering shares of Series A
Preferred Stock for conversion, be conditioned upon the closing with the
underwriters of the sale of the Company's securities pursuant to such offering,
in which event the holders making such elections who are entitled to receive
Common Stock upon conversion of their Series A Preferred Stock shall not be
deemed to have converted such shares of Series A Preferred Stock until
immediately prior to the closing of such sale of the Company's securities in the
offering.
5.2 Automatic Conversion.
(a) Each share of Series A Preferred Stock shall automatically
be converted into fully paid and nonassessable shares of Common Stock, as
provided herein: (i) immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended, covering the offer and sale
of Common Stock for the account of the Company in which the aggregate public
offering price (before deduction of underwriters' discounts and commissions)
equals or exceeds $20,000,000 and the public offering price per share of which
equals or exceeds $6.69 per share before deduction of underwriters' discounts
and commissions (such price per share of Common Stock to be appropriately
adjusted to reflect Common Stock Events (as defined in Section 5.4)); or (ii)
upon the Company's receipt of the written consent of the holders of not less
than a majority of the then outstanding shares of Series A Preferred Stock to
the conversion of all then outstanding Series A Preferred Stock under this
Section 5.
(b) Upon the occurrence of any event specified in subparagraph
5.2(a) (i) or (ii) above, the outstanding shares of Series A Preferred Stock
shall be converted into Common Stock automatically without the need for any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series A Preferred Stock are either
delivered to the Company or its transfer agent as provided below, or the holder
notifies the Company or its
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transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates. Upon the
occurrence of such automatic conversion of the Series A Preferred Stock, the
holders of Series A Preferred Stock shall surrender the certificates
representing such shares at the office of the Company or any transfer agent for
the Series A Preferred Stock or Common Stock. Thereupon, there shall be issued
and delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series A Preferred
Stock surrendered were convertible on the date on which such automatic
conversion occurred.
5.3 Conversion Price. Each share of Series A Preferred Stock shall
be convertible in accordance with subsection 5.1 or subsection 5.2 above into
the number of shares of Common Stock which results from dividing the Original
Issue Price for such Series A Preferred Stock by the conversion price for such
Series A Preferred Stock that is in effect at the time of conversion (the
"CONVERSION PRICE"). The initial Conversion Price for the Series A Preferred
Stock shall be the Original Issue Price for the Series A Preferred Stock. The
Conversion Price of the Series A Preferred Stock shall be subject to adjustment
from time to time as provided below.
5.4 Adjustment Upon Common Stock Event. Upon the happening of a
Common Stock Event (as hereinafter defined), the Conversion Price of the Series
A Preferred Stock shall, simultaneously with the happening of such Common Stock
Event, be adjusted by multiplying the Conversion Price of such Series A
Preferred Stock in effect immediately prior to such Common Stock Event by a
fraction, (i) the numerator of which shall be the number of shares of Common
Stock issued and outstanding immediately prior to such Common Stock Event, and
(ii) the denominator of which shall be the number of shares of Common Stock
issued and outstanding immediately after such Common Stock Event, and the
product so obtained shall thereafter be the Conversion Price for such Series A
Preferred Stock. The Conversion Price for the Series A Preferred Stock shall be
readjusted in the same manner upon the happening of each subsequent Common Stock
Event. As used herein, the term "COMMON STOCK EVENT" shall mean, at any time or
from time to time after the Original Issue Date, (i) the issue by the Company of
additional shares of Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) a subdivision of the outstanding shares of Common
Stock into a greater number of shares of Common Stock, or (iii) a combination of
the outstanding shares of Common Stock into a smaller number of shares of Common
Stock.
5.5 Adjustments for Other Dividends and Distributions. If at any
time or from time to time after the Original Issue Date the Company pays a
dividend or makes another distribution to the holders of the Common Stock
payable in securities of the Company other than shares of Common Stock, then in
each such event provision shall be made so that the holders of the Series A
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable upon conversion thereof, the amount of
securities of the Company which they would have received had their Series A
Preferred Stock been converted into Common Stock on the date of such event (or
such record date, as applicable) and had they
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thereafter, during the period from the date of such event (or such record date,
as applicable) to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 5 with respect to
the rights of the holders of the Series A Preferred Stock or with respect to
such other securities by their terms.
5.6 Adjustment for Reclassification, Exchange and Substitution. If
at any time or from time to time after the Original Issue Date the Common Stock
issuable upon the conversion of the Series A Preferred Stock is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than by a Common Stock
Event or a stock dividend, reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 5), then in any such event each
holder of Series A Preferred Stock shall have the right thereafter to convert
such stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the number of shares of Common Stock into which such shares of Series
A Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof.
5.7 Reorganizations, Mergers and Consolidations. If at any time or
from time to time after the Original Issue Date there is a capital
reorganization of the Company (other than a recapitalization, subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section 5) or a merger or consolidation of the Company with or into another
corporation (except an event which is governed under subsection 3.3), then, as a
part of such reorganization, merger or consolidation, provision shall be made so
that the holders of the Series A Preferred Stock thereafter shall be entitled to
receive, upon conversion of the Series A Preferred Stock, the number of shares
of stock or other securities or property of the Company, or of such successor
corporation resulting from such reorganization, merger or consolidation, to
which a holder of Common Stock deliverable upon conversion would have been
entitled on such reorganization, merger or consolidation. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of the Series A
Preferred Stock after the reorganization, merger or consolidation to the end
that the provisions of this Section 5 (including adjustment of the Conversion
Price then in effect and number of shares issuable upon conversion of the Series
A Preferred Stock) shall be applicable after that event and be as nearly
equivalent to the provisions hereof as may be practicable. This subsection 5.7
shall similarly apply to successive reorganizations, mergers and consolidations.
5.8 Sale of Shares Below Conversion Price.
(a) Adjustment Formula. If at any time or from time to time
after the Original Issue Date the Company issues or sells, or is deemed by the
provisions of this subsection 5.8 to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), otherwise than in connection with a
Common Stock Event as provided in subsection 5.4, a dividend or distribution as
provided in subsection 5.5 or a recapitalization, reclassification or other
change as provided in subsection 5.6, or a reorganization, merger or
consolidation as
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provided in subsection 5.7, for an Effective Price (as hereinafter defined) that
is less than the Conversion Price for the Series A Preferred Stock in effect
immediately prior to such issue or sale (or deemed issue or sale), then, and in
each such case, the Conversion Price for such Series A Preferred Stock shall be
reduced, as of the close of business on the date of such issue or sale, to the
price obtained by multiplying such Conversion Price by a fraction:
(i) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter defined)
immediately prior to such issue or sale of Additional Shares of Common Stock
plus (B) the quotient obtained by dividing the Aggregate Consideration Received
(as hereinafter defined) by the Company for the total number of Additional
Shares of Common Stock so issued or sold (or deemed so issued and sold) by the
Conversion Price for such Series A Preferred Stock in effect immediately prior
to such issue or sale; and
(ii) The denominator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding immediately prior to such issue
or sale plus (B) the number of Additional Shares of Common Stock so issued or
sold (or deemed so issued and sold).
(b) Certain Definitions. For the purpose of making any
adjustment required under this subsection 5.8:
(i) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued by the Company, whether or not subsequently
reacquired or retired by the Company, other than: (A) shares of Common Stock
issued or issuable upon conversion of Series A Preferred Stock; and (B) shares
of Common Stock (or options, warrants or rights therefor) issued to employees,
officers, or directors of, or contractors, consultants or advisers to, the
Company or any Subsidiary (if in transactions with primarily non-financing
purposes) pursuant to stock purchase or stock option plans, stock bonuses or
awards, warrants, contracts or other arrangements that are approved by the
Board;
(ii) The "AGGREGATE CONSIDERATION RECEIVED" by the
Company for any issue or sale (or deemed issue or sale) of securities shall (A)
to the extent it consists of cash, be computed at the gross amount of cash
received by the Company before deduction of any underwriting or similar
commissions, compensation or concessions paid or allowed by the Company in
connection with such issue or sale and without deduction of any expenses payable
by the Company; (B) to the extent it consists of property other than cash, be
computed at the fair value of that property as determined in good faith by the
Board; and (C) if Additional Shares of Common Stock, Convertible Securities or
Rights or Options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers both,
be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board to be allocable to such
Additional Shares of Common Stock, Convertible Securities or Rights or Options.
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(iii) "COMMON STOCK EQUIVALENTS OUTSTANDING" shall mean
the number of shares of Common Stock that is equal to the sum of (A) all shares
of Common Stock of the Company that are outstanding at the time in question,
plus (B) all shares of Common Stock of the Company issuable upon conversion of
all shares of Series A Preferred Stock or other Convertible Securities that are
outstanding at the time in question, plus (C) all shares of Common Stock of the
Company that are issuable upon the exercise of Rights or Options (excluding any
shares of Common Stock excluded from the definition of "Additional Shares of
Common Stock" pursuant to subsection 5.8(b)(i)(B), after the Original Issue
Date) that are outstanding at the time in question assuming the full conversion
or exchange into Common Stock of all such Rights or Options that are Rights or
Options to purchase or acquire Convertible Securities into or for Common Stock.
(iv) "CONVERTIBLE SECURITIES" shall mean stock or other
securities convertible into or exchangeable for shares of Common Stock.
(v) The "EFFECTIVE PRICE" of Additional Shares of Common
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold, by the Company under this subsection 5.8, into the Aggregate
Consideration Received, or deemed to have been received, by the Company under
this subsection 5.8, for the issue of such Additional Shares of Common Stock;
and
(vi) "RIGHTS OR OPTIONS" shall mean warrants, options or
other rights to purchase or acquire shares of Common Stock or Convertible
Securities.
(c) Deemed Issuances. For the purpose of making any adjustment
to the Conversion Price of the Series A Preferred Stock required under this
subsection 5.8, if the Company issues or sells any Rights or Options or
Convertible Securities and if the Effective Price of the shares of Common Stock
issuable upon exercise of such Rights or Options and/or the conversion or
exchange of Convertible Securities (computed without reference to any additional
or similar protective or antidilution clauses) is less than the Conversion Price
then in effect for the Series A Preferred Stock, then the Company shall be
deemed to have issued, at the time of the issuance of such Rights, Options or
Convertible Securities, that number of Additional Shares of Common Stock that is
equal to the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their issuance
and to have received, as the Aggregate Consideration Received for the issuance
of such shares, an amount equal to the total amount of the consideration, if
any, received by the Company for the issuance of such Rights or Options or
Convertible Securities, plus, in the case of such Rights or Options, the minimum
amounts of consideration, if any, payable to the Company upon the exercise in
full of such Rights or Options, plus, in the case of Convertible Securities, the
minimum amounts of consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided that:
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(i) if the minimum amounts of such consideration cannot
be ascertained, but are a function of antidilution or similar protective
clauses, then the Company shall be deemed to have received the minimum amounts
of consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable to
the Company upon the exercise of Rights or Options or the conversion or exchange
of Convertible Securities is reduced over time or upon the occurrence or
non-occurrence of specified events other than by reason of antidilution or
similar protective adjustments, then the Effective Price shall be recalculated
using the figure to which such minimum amount of consideration is reduced; and
(iii) if the minimum amount of consideration payable to
the Company upon the exercise of such Rights or Options or the conversion or
exchange of Convertible Securities is subsequently increased, then the Effective
Price shall again be recalculated using the increased minimum amount of
consideration payable to the Company upon the exercise of such Rights or Options
or the conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the issuance of
such Rights or Options or Convertible Securities, shall be made as a result of
the actual issuance of shares of Common Stock on the exercise of any such Rights
or Options or the conversion or exchange of any such Convertible Securities. If
any such Rights or Options or the conversion rights represented by any such
Convertible Securities shall expire without having been fully exercised, then
the Conversion Price as adjusted upon the issuance of such Rights or Options or
Convertible Securities shall be readjusted to the Conversion Price which would
have been in effect had an adjustment been made on the basis that the only
shares of Common Stock so issued were the shares of Common Stock, if any, that
were actually issued or sold on the exercise of such Rights or Options or rights
of conversion or exchange of such Convertible Securities, and such shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise, plus the consideration, if any,
actually received by the Company for the granting of all such Rights or Options,
whether or not exercised, plus the consideration received for issuing or selling
all such Convertible Securities actually converted or exchanged, plus the
consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion or exchange of such Convertible Securities,
provided that such readjustment shall not apply to prior conversions of Series A
Preferred Stock.
5.9 Certificate of Adjustment. In each case of an adjustment or
readjustment of the Conversion Price for the Series A Preferred Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Series A Preferred Stock at the holder's address as shown in the Company's
books.
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5.10 Fractional Shares. No fractional shares of Common Stock shall
be issued upon any conversion of Series A Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the Company
shall pay the holder cash equal to the product of such fraction multiplied by
the Common Stock's fair market value as determined in good faith by the Board as
of the date of conversion.
5.11 Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
5.12 Notices. Any notice required by the provisions of this Section
5 to be given to the holders of shares of the Series A Preferred Stock shall be
deemed given upon the earlier of actual receipt or deposit in the United States
mail, by certified or registered mail, return receipt requested, postage
prepaid, addressed to each holder of record at the address of such holder
appearing on the books of the Company.
5.13 No Impairment. The Company shall not avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Preferred Stock
against impairment.
6. RESTRICTIONS AND LIMITATIONS.
6.1 Class Protective Provisions. So long as any shares of Series A
Preferred Stock remain outstanding, the Company shall not, without the approval,
by vote or written consent, of the holders of a majority of the Series A
Preferred Stock then outstanding, voting as a single class:
(1) amend its Articles of Incorporation or Bylaws in any
manner that would alter, change or affect any of the rights, preferences,
privileges or restrictions of the Series A Preferred Stock;
(2) reclassify any outstanding shares of securities of the
Company into shares having rights, preferences or privileges senior to or on a
parity with the Series A Preferred Stock;
(3) authorize any other equity security, including any other
security convertible into or exercisable for any equity security having rights
or preferences senior to or on
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a parity with the Series A Preferred Stock as to dividend rights, liquidation
preferences, redemption or voting;
(4) merge or consolidate with or into any corporation or
effect any transaction or series of related transactions if such merger,
consolidation or transaction or series of transactions would result in the
shareholders of the Company immediately prior to such merger, consolidation or
transaction or series of transactions holding less than a majority of the voting
power of the stock of the surviving corporation (or its parent corporation if
the surviving corporation is wholly owned by the parent corporation) immediately
after such merger, consolidation or transaction or series of transactions;
(5) sell all or substantially all the Company's assets in a
single transaction or series of related transactions;
(6) liquidate or dissolve; or
(7) Declare or pay any dividends (other than dividends payable
solely in shares of its own Common Stock) on or declare or make any other
distribution, purchase, redemption or acquisition (other than Permitted
Repurchases), directly or indirectly, on account of any shares of Preferred
Stock or Common Stock now or hereafter outstanding.
7. MISCELLANEOUS
7.1 No Reissuance of Preferred Stock. No share or shares of Series
A Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares which the Company shall be
authorized to issue.
7.2 Consent to Certain Transactions. Each holder of shares of
Series A Preferred Stock shall, by virtue of its acceptance of a stock
certificate evidencing Series A Preferred Stock, be deemed to have consented,
for purposes of Sections 502, 503 and 506 of the California Corporations Code,
to all Permitted Repurchases.
-----------------------------------
[STATE SEAL]
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EXHIBIT D
NOTICE OF EXERCISE OF PURCHASE OPTION
TO: ________________ ("Borrower")
(1) The undersigned Lender hereby elects to exercise its Purchase Option
with respect to _______________ shares of the Series __ Preferred Stock
of Borrower, pursuant to the terms of the Subordinated Loan and Security
Agreement dated the 10th day of June, 1999 (the "Loan Agreement")
between Borrower and the Lender, and tenders herewith payment of the
purchase price for such shares in full, together with all applicable
transfer taxes, if any.
(2) In exercising its rights with respect to the Purchase Option, the
undersigned hereby represents and warrants to Borrower as follows:
(a) The right to acquire Preferred Stock or the Preferred Stock
issuable upon exercise of the Lender's rights contained herein will be
acquired for investment and not with a view to the sale or distribution
of any part thereof, and the Lender has no present intention of selling
or engaging in any public distribution of the same except pursuant to a
registration or exemption.
(b) The Lender understands (i) that the Preferred Stock issuable
upon exercise of its Purchase Option is not registered under the 1933
Act nor qualified under applicable state securities laws on the ground
that the issuance contemplated by its Purchase Option will be exempt
from the registration and qualifications requirements thereof, and (ii)
that the Borrower's reliance on such exemption is predicated on the
representations set forth in this notice.
(c) The Lender has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of
its investment, and has the ability to bear the economic risks of its
investment.
(d) The Lender understands that if the Borrower does not register
with the Securities and Exchange Commission pursuant to Section 12 of
the 1934 Act (the "1934 Act"), or file reports pursuant to Section
15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell
(i) the rights to purchase Preferred Stock pursuant to this its Purchase
Option, or (ii) the Preferred Stock issuable upon exercise of the right
to purchase, if may be required to hold such securities for an
indefinite period. The Lender also understands that any sale of its
rights of the Lender to purchase Preferred Stock or Preferred Stock
which might be made by it in reliance upon Rule 144 under the 1933 Act
may be made only in accordance with the terms and conditions of that
Rule.
(e) Lender is an "accredited investor" within the meaning of the
Rule 501 of Regulation D of the Securities Act of 1933, as presently in
effect.
(3) Subject to our review and acceptance of your Acknowledgement Certificate
with respect to this Notice, please issue a certificate or certificates
representing said shares of Series A
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<PAGE> 49
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
---------------------------------
(Name)
---------------------------------
(Address)
LENDER: COMDISCO, INC.
By: ___________________________
Title: ___________________________
Date: ___________________________
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EXHIBIT E
ACKNOWLEDGMENT OF RECEIPT OF NOTICE
OF EXERCISE OF PURCHASE OPTION
The undersigned _________________ ("Borrower") hereby acknowledges
receipt of the "Notice of Purchase" from Comdisco, Inc. ("Lender") to exercise
its Purchase Option with respect to shares of the Series Preferred Stock of
_________________________, pursuant to the terms of the Subordinated Loan and
Security Agreement dated June 10, 1999 (the "Agreement'). Borrower further
acknowledges that ______ shares remain subject to purchase under the terms of
the Agreement.
In connection with such Purchase Option the undersigned hereby
represents, warrants and agrees as follows:
(a) All representations and warranties of the Borrower made
pursuant to the Agreement are true and correct in all material respects
on and as of the date of this Acknowledgment with the same effect as
though made on and as of this date (except as set forth in Schedule 1 to
this Acknowledgment).
(b) The Preferred Stock issuable upon exercise of the Lender's
rights has been duly and validly reserved and, when issued in accordance
with the provisions of the Purchase Option, will be validly issued,
fully paid and non-assessable, and will be free of any taxes, liens,
charges or encumbrances of any nature whatsoever; provided, however,
that the Preferred Stock issuable pursuant to the Purchase Option may be
subject to restrictions on transfer under state and/or Federal
securities laws. The Borrower has made available to the Lender true,
correct and complete copies of its Charter and Bylaws, as amended. The
issuance of certificates for shares of Preferred Stock upon Purchase of
the Purchase Option shall be made without charge to the Lender for any
issuance tax in respect thereof, or other cost incurred by the Borrower
in connection with such Purchase and the related issuance of shares of
Preferred Stock. The Borrower shall not be required to pay any tax which
may be payable in respect of any transfer involved and the issuance and
delivery of any certificate in a name other than that of the Lender.
(c) The issuance to Lender of the right to acquire the shares of
Preferred Stock, has been duly authorized by all necessary corporate
action on the part of the Borrower, and the Purchase Option is not
inconsistent with the Borrower's Charter or Bylaws, does not contravene
any law or governmental rule, regulation or order applicable to it, does
not and will not contravene any provision of, or constitute a default
under, any indenture, mortgage, contract or other instrument to which it
is a party or by which it is bound, and the Purchase Option constitutes
a legal, valid and binding agreement of the Borrower, enforceable in
accordance with its terms.
(d) No consent or approval of, giving of notice to, registration
with, or taking of any other action in respect of any state, Federal or
other governmental authority or agency is required with respect to the
execution, delivery and performance by the Borrower of its obligations
under the Purchase Option, except for the filing of notices
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<PAGE> 51
pursuant to Regulation D under the 1933 Act and any filing required by
applicable state securities law, which filings will be effective by the
time required thereby.
(e) Except as set forth in that certain Investors' Rights Agreement
dated as of October 22, 1998 by and among Borrower and certain Preferred
Stock shareholders of Borrower, the Borrower is not, pursuant to the
terms of any other agreement currently in existence, under any
obligation to register under the 1933 Act any of its presently
outstanding securities or any of its securities which may hereafter be
issued.
(f) Subject to the accuracy of the Lender's representations in its
Notice, the issuance of the Preferred Stock upon exercise of the
Purchase Option will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon
Section 4(2) thereof, and (ii) the qualification requirements of the
applicable state securities laws.
(g) If Lender proposes to sell Preferred Stock issuable upon the
exercise of the Purchase Option in compliance with Rule 144 promulgated
by the Securities and Exchange Commission, the Borrower shall furnish to
the Lender, within fifteen (15) days after receipt of a written request,
a written statement confirming the Borrower's compliance with the filing
requirements of the Securities and Exchange Commission as set forth in
such Rule, as such Rule may be amended from time to time.
Borrower acknowledges that Lender has the right to review Schedule 1 to
this Certificate and that Lender may in its sole discretion withdraw its notice
of exercise of Purchase Option within the ten business days after Lender's
receipt of this Acknowledgment.
BORROWER: HANDSPRING, INC.
By: ________________________________
Title: ________________________________
Date: ________________________________
33