<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1996.
REGISTRATION NO. 333-06911
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
STORM TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 7372 77-0432180
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CODE CLASSIFICATION NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
521 ALMANOR AVENUE
SUNNYVALE, CA 94086
(408) 522-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
L. WILLIAM KRAUSE
CHIEF EXECUTIVE OFFICER AND PRESIDENT
STORM TECHNOLOGY, INC.
521 ALMANOR AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 522-1200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
GREGORY M. GALLO, ESQ. LARRY W. SONSINI, ESQ.
JAMES M. KOSHLAND, ESQ. ANN YVONNE WALKER, ESQ.
JOHN M. FOGG, ESQ. JEFFREY A. HERBST, ESQ.
KELLY L. CANADY, ESQ. MATTHEW B. SWARTZ, ESQ.
GRAY CARY WARE & FREIDENRICH WILSON SONSINI GOODRICH & ROSATI
A PROFESSIONAL CORPORATION PROFESSIONAL CORPORATION
400 HAMILTON AVENUE 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94301 PALO ALTO, CALIFORNIA 94304
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.001 par
value)................ 3,162,500 shares $11.00 $34,787,500 $11,996(3)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 412,500 shares issuable upon exercise of an option granted by the
Company to the Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the registration fee.
(3) Previously paid.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
STORM TECHNOLOGY, INC.
----------------
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN
PROSPECTUS OF ITEMS REQUIRED IN FORM S-1
<TABLE>
<CAPTION>
FORM S-1 ITEM LOCATION IN PROSPECTUS
------------- ----------------------
<S> <C>
1. Forepart of the
Registration Statement and
Outside Front Cover Page
of Prospectus............. Outside Front Cover Page
2. Inside Front and Outside
Back Cover Pages of Inside Front and Outside Back Cover Pages;
Prospectus................ Additional Information
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed
Charges................... Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds........... Use of Proceeds
5. Determination of Offering
Price..................... Underwriting
6. Dilution.................. Dilution
7. Selling Security Holders.. Principal and Selling Stockholders
8. Plan of Distribution...... Outside Front Cover Page; Underwriting
9. Description of Securities
to Be Registered.......... Prospectus Summary; Capitalization; Description
of Capital Stock
10. Interests of Named Experts
and Counsel............... Legal Matters
11. Information with Respect
to the Registrant......... Outside Front Cover Page; Prospectus Summary;
Risk Factors; The Company; Dividend Policy;
Selected Financial Data; Management's Discussion
and Analysis of Financial Condition and Results
of Operations; Business; Management; Certain
Transactions; Principal and Selling
Stockholders; Description of Capital Stock;
Shares Eligible for Future Sale; Consolidated
Financial Statements
12. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1996
2,750,000 SHARES
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
-----------
Of the 2,750,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by the Company and 750,000 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of shares being sold by the Selling
Stockholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price per share will be between $9 and $11. For factors to be considered in
determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "EASY".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
Total(3)........... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $800,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 412,500 shares at the initial public offering price per
share, less the underwriting discount, solely to cover over-allotments. If
such option is exercised in full, the total initial public offering price,
underwriting discount and proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1996, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO. HAMBRECHT & QUIST
-----------
The date of this Prospectus is , 1996.
<PAGE>
[TEXT OVERLAY: "IMAGINE..."]
[film strip with pictures (from top to bottom): business man at meeting, couple
at beach, house, child holding fish, child golfing and child hugging dog]
[PICTURE OF MAN WITH PENSIVE LOOK AGAINST
BACKDROP OF MONTAGE OF PHOTOS INCLUDING BUSINESS MAN AT MEETING,
COUPLE AT BEACH, HOUSE, CHILD HOLDING FISH, CHILD GOLFING AND CHILD HUGGING DOG
APPEARS HERE]
[PICTURES]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
[picture of real estate brochure with photo from film strip integrated with
text]
[picture of web page with photo from film strip integrated with text]
[diagram with (from left to right): picture of page of text, (1) picture of
photo from film strip being scanned by EasyPhoto Reader, (2) picture of computer
screen with combined text and photo of boy hugging dog, (3) picture of hard copy
of combined text and photo]
Now its easy to add the impact of color photos to your communications. (1) One
touch photo input. (2) Drag & Drop photos into computer documents. (3) Print or
send on-line with sharp details and true color.
<PAGE>
[picture of letter with photo from film strip integrated with text]
[picture of E-mail with photo from film strip integrated with text]
[picture of greeting card with photo from film strip integrated with text]
[picture of newsletter with photos integrated with text]
[picture of slide of photos on a bar graph]
[picture of EasyPhoto reader scanning a photo]
[picture of EasyPhoto SmartPage scanning a document with photo integrated with
text]
[picture of EasyPhoto Drive scanning a photo]
[film strip with pictures (from top to bottom): business man at meeting, couple
at beach, house, child holding fish, child golfing and child hugging dog]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Prospectus. Except as otherwise noted, all
information in this Prospectus, including share and per share data, (i) assumes
an initial public offering price of $10 per share, (ii) gives effect to the
reincorporation of the Company in Delaware prior to the effectiveness of the
offering, the associated exchange of four shares of the California predecessor
corporation for every one share of the Delaware successor corporation, and a
change in the Company's name from Storm Primax, Inc. to Storm Technology, Inc.,
(iii) reflects the automatic conversion of all outstanding shares of Preferred
Stock into shares of Common Stock effective upon the closing of the offering,
(iv) assumes the exercise, prior to the effectiveness of the offering, of
warrants to purchase 3,413 shares of Common Stock, which warrants will
terminate upon the effectiveness of the offering, and (v) assumes no exercise
of the Underwriters' over-allotment option. See "Description of Capital Stock"
and "Underwriting."
THE COMPANY
Storm Technology, Inc. ("Storm" or the "Company") is a leading provider of
digital photo solutions that enable consumers and small businesses to input,
store, organize, enhance and use photos easily on their personal computers
("PCs"). The Company's vision is to empower consumers to use digital photos to
create more personal, memorable and effective communications. The Company
believes that the $16 billion worldwide chemical photography market is evolving
to a market that will increasingly include digital photos due in part to the
increasing availability of photo input devices and software that enable people
to use digital photos with their computers. This transition, coupled with the
recent proliferation of powerful multimedia home PCs, is leading to the
emergence of digital photos as a new and rapidly growing product category for
consumers. To capitalize on this emerging market opportunity, Storm develops
and markets software-differentiated, consumer-branded products that are easy to
use, result in high image quality and provide consumers and small businesses
with a comprehensive digital photo solution.
The Company's current photo scanner products, the EasyPhoto Reader, EasyPhoto
SmartPage and PhotoDrive, sell at affordable consumer-oriented price points and
are designed to function with typical home PC configurations (such as 486-based
computers with 8 MB of RAM). These photo scanners are tightly integrated with
the Company's EasyPhoto software environment, which combines an intuitive user
interface with advanced image compression technology, a photo-oriented virtual
memory system, powerful database functionality and a unique library of image
enhancement tools based on sophisticated imaging algorithms. In addition, the
EasyPhoto software environment is designed to capitalize fully on Microsoft's
Object Linking and Embedding (OLE) standard, enabling consumers to use their
photos in other applications directly through "drag and drop" of photographs
from their EasyPhoto database into virtually any document.
The Company's objective is to become the leading provider of digital photo
input and software solutions for consumers and small businesses. The Company's
strategy is focused on (i) making its EasyPhoto software environment the de
facto standard for organizing and storing digital photos on PCs, (ii)
developing and marketing high quality, easy to use, affordable photo input
solutions that are tightly integrated with its EasyPhoto software environment,
and (iii) distributing photo-centric applications that further enhance the
value of its photo input products. The Company plans to extend its competitive
advantage in these product categories through technology leadership, strategic
partnerships, brand marketing and worldwide retail and OEM distribution.
3
<PAGE>
The Company's distribution efforts focus on aftermarket sales to existing PC
users through leading computer retail channels and on establishing OEM
relationships with a variety of key companies within the computer industry to
broaden the distribution channel for its products. The Company's products are
presently sold by most of the leading retailers of computer products in the
United States, including Best Buy, Circuit City, CompUSA, Computer City,
Egghead Software, Fry's Electronics, The Good Guys, OfficeMax, Staples and
others. Sales are promoted through proactive consumer marketing designed to
increase end user awareness and demand for EasyPhoto products. Key OEM
relationships include Hewlett-Packard, which incorporates the Company's
PhotoDrive in certain models of its Pavilion product line, Acer, Polaroid and
Epson. In addition, the Company recently entered into a technology and
distribution agreement with Intel Corporation, which also made an equity
investment in the Company.
RECENT ACQUISITION
In March 1996, the Company acquired from Primax Electronics, Ltd. ("Primax"),
a Republic of China corporation, all photo scanner technology, including
certain in-process technology, associated with the Company's EasyPhoto Reader,
PhotoDrive and certain other scanner products, as well as Primax's U.S.
subsidiary ("Primax USA"), which was primarily a sales distribution company for
Primax products in North America. The Company and Primax also entered into a
strategic manufacturing agreement, pursuant to which Primax has agreed to
manufacture a minimum of 85% of certain of the Company's photo scanners. As
part of this transaction, Primax was issued 4,214,329 shares of Storm Preferred
Stock. As a result of this transaction, a small prior investment in the Company
and the sale of certain shares to third parties in June 1996, Primax owned
approximately 48% of the Company's outstanding voting securities as of June 30,
1996. After completion of this offering, Primax will own approximately 31% of
the Company's outstanding voting securities.
RISK FACTORS
For a discussion of certain considerations relevant to an investment in the
Common Stock, see "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. 2,000,000 shares
Common Stock offered by the Selling
Stockholders................................... 750,000 shares
Common Stock to be outstanding after the
offering....................................... 10,021,556 shares(1)
Use of proceeds................................. For working capital, other general
corporate purposes and repayment of
accounts payable to a related party. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.......... EASY
</TABLE>
- --------
(1) Excludes (i) 333,917 shares of Common Stock issuable upon exercise of
options outstanding as of June 30, 1996 with a weighted average exercise
price of $3.25 per share, (ii) 257,791 shares of Common Stock reserved for
issuance upon exercise of options that may be granted in the future under
the Company's Amended and Restated Stock Option Plan (the "Option Plan"),
(iii) 33,750 shares of Common Stock issuable upon exercise of options
outstanding as of June 30, 1996 and 78,750 shares of Common Stock reserved
for issuance upon exercise of options that may be granted in the future
under the Company's 1996 Directors Stock Option Plan (the "Directors
Plan"), (iv) 75,000 shares of Common Stock reserved for issuance under the
Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan"), and (v)
44,799 shares of Common Stock issuable upon exercise of outstanding
warrants. See "Capitalization," "Management--Benefit Plans" and Note 6 of
Notes to the Company's Consolidated Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- ---------------------------------
1993 1994 1995 1995 1996
------- ------- --------------------- ------- ------------------------
ACTUAL PRO FORMA(1) ACTUAL ACTUAL PRO FORMA(1)
------- ------------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues................. $ 2,983 $ 3,200 $ 5,794 $13,895 $ 2,003 $ 8,021 $10,125
Loss from operations..... (1,367) (2,189) (3,452) (4,690) (1,550) (7,922)(2) (3,385)
Net loss................. (1,325) (2,093) (3,396) (4,746) (1,525) (7,889)(2) (3,368)
Pro forma:
Net loss per common and
common equivalent
share(3).............. $ (0.45) $ (0.63) $ (0.20) $ (0.98) $ (0.42)
Weighted average number
of common and common
equivalent shares
outstanding(3)........ 7,588 7,588 7,473 8,047 8,047
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...... $ 2,503 $20,303
Working capital (deficit).............................. (1,365) 16,435
Total assets........................................... 10,893 28,693
Total stockholders' equity (deficit)................... (197) 17,603
</TABLE>
- --------
(1) The unaudited pro forma statement of operations data for the year ended
December 31, 1995 and the six months ended June 30, 1996 reflects the
effect of the acquisition of the outstanding stock of Primax USA and
certain technologies from Primax, both on March 18, 1996, as if the
acquisition had occurred on January 1, 1995. The acquisition was accounted
for as a purchase. The Company has discontinued the Primax USA product line
acquired in the Primax transaction. As a result, the revenues of Primax USA
are not indicative of the future revenues of the Company derived from the
operations or products of Primax USA.
(2) Includes a $5 million write-off of acquired in-process research and
development.
(3) See Note 2 of Notes to the Company's Consolidated Financial Statements.
(4) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock by
the Company at the initial public offering price of $10.00 per share and
the application of the net proceeds therefrom, after deducting underwriting
discounts and commissions and estimated offering expenses. See "Use of
Proceeds."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby. This Prospectus contains forward-
looking statements, and actual results could differ materially from those
projected in the forward-looking statements as a result of numerous factors,
including the factors set forth below and elsewhere in this Prospectus.
LIMITED HISTORY OF PRODUCT REVENUES; OPERATING LOSSES
The Company, which was founded in January 1990, commenced shipment of its
initial EasyPhoto product in the first quarter of 1995. Accordingly, the
Company has a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company has incurred net losses in
every period since inception. There can be no assurance that it will attain
profitability, or, if profitability is attained, that the Company will sustain
profitability on a quarterly or an annual basis. As of June 30, 1996, the
Company had an accumulated deficit of $16.4 million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON DEVELOPING MARKET; PRODUCT CONCENTRATION
The market for digital photo products and, in particular, for the Company's
EasyPhoto line of scanners and software products, is new and rapidly evolving.
The Company currently derives substantially all of its revenues from its
EasyPhoto photo scanners and software products and expects that revenues from
these products will continue to account for substantially all of its revenues
for the foreseeable future. Broad market acceptance of these products is
critical to the Company's future success. This success will depend in part on
the ability of the Company and its distributors and OEM partners to convince
end users to adopt digital photo products for the PC, and to educate end users
about the benefits of the Company's products. There can be no assurance that
the market for digital photos will develop as anticipated by the Company, or
that the Company's products will be broadly accepted. The failure of any of
these events to occur would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ACCEPTANCE OF NEW PRODUCTS
The Company intends to begin volume shipments of two new products, EasyPhoto
SmartPage and EasyPhoto Drive, in the third quarter of 1996, and expects to
receive significant revenues from the sale of these products in the third and
fourth quarters of this year. There can be no assurance that these products
will achieve broad market acceptance or that they will be successfully
marketed or sold on a profitable basis. In addition, if the Company
experiences difficulties in acquiring sufficient quantities of these products
from its contract manufacturing sources, sales of these products could be
materially adversely affected. The failure of the Company to achieve
significant revenues from these products beginning in the third and fourth
quarter of this year would have a material adverse effect on the Company's
business, financial condition and results of operations.
POTENTIAL SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS
The Company has experienced and will continue to experience significant
fluctuations in revenues and operating results from quarter to quarter and
from year to year due to a combination of factors, many of which are outside
of the Company's direct control. These factors include development of consumer
demand for digital photos on PCs in general and for the Company's products in
particular, the Company's success in developing, introducing and shipping new
products and product enhancements in a timely manner, the purchasing patterns
and potential product returns from the Company's retail distribution, the
potential for reduced revenue due to price protection granted to
6
<PAGE>
distributors, the performance of the Company's contract manufacturers and
component suppliers, the Company's ability to respond to new product
introductions and price reductions by its competitors, the timing,
cancellation or rescheduling of significant orders from OEMs or distributors,
the availability of key components and changes in the cost of materials for
the Company's products, the level of demand for PCs, the Company's ability to
attract, retain and motivate qualified personnel, the timing and amount of
research and development, marketing and selling and general and administrative
expenditures, and general economic conditions. In addition, the Company has
experienced seasonality in its operating results, with the fourth quarter
typically having the highest total revenues of any quarter during the year.
The Company believes that the seasonality of its revenues results primarily
from the purchasing habits of consumers and the timing of the Company's fiscal
year end. The Company currently believes that these patterns will continue.
Revenues and operating results in any quarter depend on the volume, timing
and ability to fulfill customer orders, the receipt of which is difficult to
forecast. A significant portion of the Company's operating expenses is
relatively fixed in advance, based in large part on the Company's forecasts of
future sales. If sales are below expectations in any given period, the adverse
effect of a shortfall in sales on the Company's operating results may be
magnified by the Company's inability to adjust operating expenses in the short
term to compensate for such shortfall. Accordingly, any significant shortfall
in revenues relative to the Company's expectations would have an immediate
material adverse impact on the Company's operating results and financial
condition. The Company may also be required to reduce prices in response to
competition or increase spending to pursue new product or market
opportunities. In the event of significant price competition in the market for
the Company's products, the Company would be required to decrease costs at
least proportionately in order to maintain profit margins and would be at a
significant disadvantage compared to competitors with substantially greater
resources, which could more readily withstand an extended period of downward
pricing pressure.
Due to the foregoing and other factors, it is likely that in some future
period the Company's operating results will be below results for the prior or
comparable period or below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected. Accordingly, the Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by early-stage companies participating in new and rapidly evolving
markets. There can be no assurance that the Company will be successful in
addressing such risks. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Information."
RECENT ACQUISITION; RELATIONSHIP WITH PRIMAX
In March 1996, the Company acquired from Primax, a Republic of China
corporation, all photo scanner technology, including certain in-process
technology, associated with the Company's EasyPhoto Reader, PhotoDrive and
certain other scanner products, as well as Primax USA, which was primarily a
sales distribution company for products in North America. As part of this
transaction, Primax was issued 4,214,329 shares of Storm Preferred Stock. As a
result of this transaction, a small prior investment in the Company and the
sale of certain shares to third parties in June 1996, Primax owned
approximately 48% of the voting securities of the Company as of June 30, 1996
(approximately 31% after completion of this offering). Achieving the
anticipated benefits of this acquisition will depend in part upon the
Company's ability to integrate the businesses and technology acquired from
Primax in an efficient and effective manner, and there can be no assurance
that such integration will occur smoothly or successfully. The integration of
certain operations following this acquisition will require the dedication of
management resources, which may temporarily distract attention from the day-
to-day business of the combined company. The inability of management to
successfully integrate the acquired business and technology could have a
material adverse effect on the business, financial condition and results of
operations of the Company.
7
<PAGE>
The Primax transaction, which was accounted for as a purchase, resulted in
the write-off by the Company of $5.0 million of acquired in-process research
and development during the first quarter of 1996. In addition, the Company
recorded $0.8 million of goodwill to be amortized over a four-year period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company also has discontinued the Primax USA product line
acquired in the Primax transaction. As a result, the revenues of Primax USA
contained in the Company's unaudited pro forma combined statements of
operations are not indicative of the future revenues of the Company derived
from the operations or products of Primax USA.
SOLE MANUFACTURING SOURCE; RELIANCE ON SOLE SUPPLIERS
Primax is currently the sole manufacturing source for most of the Company's
photo scanners and the Company expects that it will continue to rely in the
foreseeable future on Primax for a majority of its materials procurement,
assembly, system integration, testing and quality assurance. There can be no
assurance that Primax will be able to meet the Company's requirements for
quality manufactured products at competitive prices. Any inability to obtain
hardware components at competitive prices from Primax or to increase
manufacturing capacity from Primax as required could have a material adverse
effect on the Company's business, results of operations and financial
condition. The Company has the right to obtain an alternative manufacturing
source for up to 15% of its requirements, and may increase this percentage if
Primax is unable to provide competitive pricing, quality or availability.
However, there can be no assurance that the Company will be able to obtain
such alternative manufacturing source on favorable terms, if at all. Moreover,
commencement of production of products at new facilities involves certain
start-up risks and delays, such as those associated with the procurement of
materials and training of production personnel.
The Company is dependent on sole or limited source suppliers for certain key
components used in its products. These key components include an application
specific integrated circuit (ASIC) within the EasyPhoto Reader product, which
is currently available only from Epson and the hardware for its EasyPhoto
SmartPage product which is currently available only from Mustek. The Company
has no long term agreements with any of these suppliers for the purchase of
these components. In addition, Epson and Mustek could become competitors of
the Company. There can be no assurance that such limited source suppliers will
be willing or able to meet the Company's requirements for certain key
components. If the Company or Primax were unable to obtain sufficient supplies
from their current suppliers or develop alternative sources of these
components in a timely manner, the resultant shortage or delay could have a
material adverse impact on the Company's business, financial condition and
results of operations. See "Business--Manufacturing."
DISTRIBUTION RISKS
Since February 1995, most of the Company's sales have been made to
distributors, computer superstores, consumer electronic superstores, office
supply superstores, specialty computer stores, on-line companies and OEMs and,
to a lesser extent, mass merchants and mail order companies. Accordingly, the
Company is dependent upon the continued viability and financial stability of
these resellers. The Company's reseller customers offer products of several
different companies, including scanner products that are competitive with the
Company's products. Accordingly, these resellers may give higher priority to
products of suppliers other than the Company through increased shelf space or
promotions, thus reducing their efforts to sell the Company's product. In
addition to the foregoing, any special distribution arrangements and product
pricing arrangements that the Company may implement in one or more
distribution channels for strategic purposes could adversely affect gross
profits for its products.
As is typical in the personal computer industry, the Company grants its
distributors price protection and certain rights of return with respect to
products purchased by them. The Company accrues for expected returns and
anticipated price reductions in amounts that the Company believes are
8
<PAGE>
reasonable. However, there can be no assurance that these accruals will be
sufficient or that any future returns or price protection charges will not
have a material adverse effect on the Company's business, financial condition
and results of operations, especially in light of the rapid product
obsolescence that often occurs during product transitions. In order to respond
to competitive pricing actions, increase sales or expand the distribution of
its products, the Company may reduce the prices of its products, which could
give rise to significant price protection charges and which would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the difficulty in predicting future sales
and the anticipated short product life cycles of the Company's products due to
frequent upgrades increase the risk that new product introductions, price
reductions by the Company or its competitors, or other factors affecting the
digital photo market could result in significant product returns. Any price
protection charges or product returns in excess of recorded allowances would
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Sales, Marketing and Customer
Support."
Since February 1995, the Company's sales to OEMs have represented only a
small percentage of net sales; however, the Company believes that its ability
to sell products to OEMs will become increasingly important to the Company's
success. OEMs have significantly different, and in some cases more stringent,
purchasing procedures and quality standards than retail distributors and other
resellers. There can be no assurance that the Company will be successful in
developing and delivering products for the OEM market, or that it will be
successful in establishing and maintaining an effective distribution and
customer support system for OEMs.
MANAGEMENT OF EXPANDED OPERATIONS; NEED FOR ADDITIONAL PERSONNEL
The Company has recently experienced and may continue to experience growth
in the number of employees, the scope of its operating and financial systems
and the geographic distribution of its operations and customers due to an
anticipated increase in sales and the recent acquisition transaction with
Primax. This recent increase in the scope and complexity of the Company's
business has placed, and will continue to place, a significant strain on the
Company's management and operations. Accordingly, the Company's future
operating results will depend on the ability of its officers and other key
employees to continue to implement and improve its operational, customer
support and financial control systems. There can be no assurance that the
Company will be able to manage any future expansion successfully, and any
inability to do so would have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview" and "Management--Executive Officers, Directors and Key Employees."
In addition, the Company has recently recruited and expects to continue to
recruit a significant number of key employees in engineering, marketing, sales
and manufacturing who are expected to play a substantial role in the execution
of the Company's expansion plans. The Company's future performance depends
significantly upon the Company's ability to attract and retain these key
employees. The Company's ability to compete effectively and to manage future
growth, if any, will require the Company to continue to assimilate such new
personnel and to implement and improve its financial and management controls,
reporting systems and procedures on a timely basis and expand, train and
manage its employee work force. There can be no assurance that the Company
will be able to do so successfully, and the Company's failure to do so could
have a material adverse effect upon the Company's business, financial
condition and results of operations.
COMPETITION
The market for the Company's products is a relatively new and emerging
market. Although the Company currently competes directly with a relatively
small number of competitors, it faces indirect competition from a number of
sources and expects to experience increased competition in the future.
9
<PAGE>
One source of potential future competition may arise from a group of
established manufacturers of text-oriented scanners such as Logitech Inc.
("Logitech"), Microtek Lab Inc. ("Microtek"), Mustek Inc. ("Mustek"), PlusTek
USA Inc. ("PlusTek"), UMAX Technologies Inc. ("UMAX") and Visioneer
Communications Inc. ("Visioneer"). These manufacturers may leverage their
existing scanning technology in the future in an attempt to produce digital
photo devices at a price point and profile that is attractive to consumers,
thereby competing more directly with those of the Company. A second source of
potential future competition may arise from other current significant
participants in the digital photo market. Certain companies, including Epson
America Inc. ("Epson"), Eastman Kodak Company ("Kodak") and Polaroid
Corporation ("Polaroid"), some of which are OEM software customers, have
shipped or indicated an intention to ship photo input devices. Other
companies, including Hewlett-Packard Company ("HP"), may choose to broaden
their product mix to include small or large sized sheetfed scanners that are
targeted toward consumers and directly compete with those offered by the
Company. In addition, competition with the Company's EasyPhoto software
environment and application products may emanate from developers of photo-
oriented software such as Adobe Systems Incorporated ("Adobe"), Fractal Design
Corporation ("Fractal Design"), Microsoft Corporation ("Microsoft"), and a
significant number of small companies, now developing photo-centric software.
This latter group of companies may in the future compete with the Company by
developing advanced software capabilities to be offered on a stand-alone
basis, bundled with hardware, or integrated as part of an operating system.
The Company believes that as the digital photo market evolves, it will face
competition from a variety of sources, including those identified above.
Many of the Company's potential competitors have longer operating histories
and significantly greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and larger customer bases, than
the Company. As a result, these competitors may be able to respond more
effectively to new or emerging technologies and changes in customer
requirements, withstand significant price decreases or devote greater
resources to the development, promotion, sale and support of their products
than the Company. There can be no assurance that the Company will be able to
compete successfully in the future or that competition will not have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company believes that the principal competitive factors in its market
are integration of hardware and software design, ease of use, product
performance, feature functionality and reliability, price, availability of
third-party applications, timeliness of new product introductions, service,
support, size and installed base, as well as ability to enter into successful
strategic marketing alliances. Although the Company believes that it is
competitive with respect to most of these factors, there can be no assurance
that it will remain competitive in the future.
CUSTOMER CONCENTRATION
Historically, a relatively small number of customers have accounted for a
significant percentage of the Company's total revenues, and the Company
expects that it will continue to experience significant customer concentration
for the foreseeable future. In 1993, sales to Radius Inc. ("Radius") accounted
for 59% of total revenues; in 1994, sales to Apple Computer, Inc. ("Apple
Computer") and Radius accounted for 41% and 39%, respectively, of total
revenues; in 1995, sales to Circuit City Stores, Inc. ("Circuit City") and
Best Buy Company, Inc. ("Best Buy") accounted for 27% and 11%, respectively,
of total revenues; and in the six months ended June 30, 1996, sales to America
Online Inc. ("America Online"), Ingram Micro Inc. ("Ingram Micro") and Best
Buy accounted for 17%, 15% and 11%, respectively, of total revenues. The
Company does not expect that these customer percentages for the first half of
1996 will necessarily be representative of customer concentration for the full
year or any future period. In particular, the high percentage of sales to
America Online resulted from a promotional program during the first quarter of
1996. There can be no assurance that such customers or any other customers
will in the future continue to license or purchase products or services from
the Company at levels that equal or exceed those of prior periods, if at all.
10
<PAGE>
RAPID TECHNOLOGICAL CHANGE
The market for the Company's products is characterized by rapidly changing
technology and frequent new product introductions. The Company's success will
depend to a substantial degree upon its ability to develop and introduce, in a
timely fashion, new products and enhancements to its existing products that
meet changing customer requirements and emerging industry standards. The
development of new, technologically-advanced products and product enhancements
is a complex and uncertain process requiring high levels of innovation, as
well as the accurate anticipation of technological and market trends. There
can be no assurance that the Company will be able to identify, develop,
manufacture, market or support new products and product enhancements
successfully, that any new products or product enhancements will gain market
acceptance, or that the Company will be able to respond effectively to
technological changes, emerging industry standards or product announcements by
competitors. New product announcements by the Company could cause customers to
defer purchases of existing products or cause distributors to request price
protection credits or return such products to the Company. Any of these events
could have a material adverse effect on the Company's business, operating
results and financial condition.
PROPRIETARY TECHNOLOGY
The Company's ability to compete successfully will depend, in part, on its
ability to protect its proprietary technology. Although the Company continues
to implement protective measures and intends to defend its proprietary rights,
there can be no assurance that measures to deter or prevent unauthorized use
of the Company's technology will be successful. The Company relies on a
combination of patent, copyright and trade secret protection, nondisclosure
agreements and licensing arrangements to establish and protect its proprietary
rights. The Company has several patent applications pending in the United
States and intends to file additional applications as appropriate for patents
covering its products. There can be no assurance that patents will issue from
any of these pending applications or, if patents do issue, that any claims
allowed will be sufficiently broad to protect the Company's technology. There
can also be no assurance that any patents that may be issued to the Company
will not be challenged, invalidated or circumvented, or that any rights
granted thereunder would provide proprietary protection to the Company. In
addition, the laws of certain foreign countries may not protect the Company's
proprietary rights to the same extent as do the laws of the United States. See
"Business--Proprietary Rights."
The Company has from time to time received, and may receive in the future,
communications from third parties asserting that the Company's products,
trademarks or trade names infringe on the proprietary rights of third parties
or seeking indemnification against such infringement. In response to such
communications, the Company consults with its counsel to assess the basis for
any claims of infringement by the Company's products. Due to a recent
communication, the Company has entered into a patent cross license agreement
with a third party. This agreement provides for a lump sum payment by the
Company and potential ongoing royalty payments after two years relating to an
ancillary feature of certain of the Company's products for which payments
Primax has agreed to reimburse the Company pursuant to indemnification
obligations entered into in connection with the sale of technology to the
Company in March 1996. The Company believes that this agreement will not have
a material adverse effect on the Company's business, operating results or
financial condition.
The Company is not currently aware of any pending or threatened claims of
infringement of the proprietary rights of others with respect to the Company's
current or planned products. However, there can be no assurance that third
parties will not assert such claims or that any such claims will not require
the Company to enter into license agreements or result in costly protracted
litigation, regardless
11
<PAGE>
of the merits of such claims. No assurance can be given that any necessary
licenses will be available or that, it available, such licenses will be
obtainable on commercially reasonable terms.
The Company also relies on certain technology that it obtains from others,
including certain embedded system level software. The Company may find it
necessary or desirable in the future to obtain licenses relating to one or more
of its products or relating to current and future technologies. There can be no
assurance that the Company can obtain these licenses or other rights on
commercially reasonable terms, if at all.
UNCERTAINTY OF INTERNATIONAL SALES
The Company plans to expand distribution of its products in international
markets and, in particular, Europe and Asia Pacific. International sales have
been insignificant to date. The Company plans to expand its international sales
efforts through agreements with affiliated Primax companies. The Company has
limited experience in marketing, distributing, servicing and supporting its
products internationally. There can be no assurance that the Primax companies,
together with the Company, will successfully market, sell, deliver, service and
support the Company's products in international markets. In addition, there are
certain risks inherent in doing business internationally, such as unexpected
changes in regulatory requirements, import and export duties and restrictions,
tariffs and other trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, uncertainties in connection with collecting
accounts receivable, political instability, fluctuations in currency exchange
rates, logistical difficulties in managing multinational operations, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world, and potentially adverse tax consequences, any of
which could adversely affect the success of the Company's international
operations. There can be no assurance that one or more of these factors will
not have a material adverse effect on the Company's international operations
and, consequently, on the Company's business, operating results and financial
condition.
CONTROL BY MANAGEMENT AND MAJOR STOCKHOLDER
After this offering, the Company's executive officers and directors, and
their affiliates (including Primax), in the aggregate, will own and control
approximately 49% of the Company's Common Stock. In particular, Primax will own
approximately 31% of the Company's Common Stock. As a result, these
stockholders will be able to exercise significant influence over all matters
requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. In addition, the Board of
Directors has the authority to issue undesignated Preferred Stock and, subject
to certain limitations, to determine the rights, preferences, privileges and
restrictions, including voting rights, of such shares without any further vote
or action by the stockholders. The voting power of Primax and the Company's
executive officers and directors or the issuance of Preferred Stock under
certain circumstances could have the effect of delaying or preventing a change
in control of the Company. See "Principal and Selling Stockholders" and
"Description of Capital Stock."
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS
The completion of the offering made by this Prospectus will benefit Primax
directly through the sale of 742,500 shares at a large gain. In addition, this
offering will benefit all current stockholders of the Company, including its
directors and executive officers, indirectly by, among other things, creating
12
<PAGE>
a public market for the Company's Common Stock, thereby increasing liquidity
and potentially increasing the market value of such stockholders' investment
in the Company. The Company's directors and executive officers and their
affiliates (including Primax) beneficially own prior to this offering an
aggregate of 5,664,047 shares of Common Stock. Based on the assumed public
offering price of $10.00 per share, such shares beneficially owned (including
shares subject to such options) will have an aggregate market value of
approximately $56.6 million.
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock and there can be no assurance that an active public market for
the Common Stock will develop or continue after the offering. The initial
public offering price negotiated among the Company, the Selling Stockholders
and representatives of the Underwriters may not be indicative of future market
prices. See "Underwriting." The trading price of the Company's Common Stock
could be subject to wide fluctuations in response to quarter-to-quarter
variations in operating results, changes in earnings estimates by analysts,
announcements of technological innovations or new products by the Company or
its competitors and other events or factors. In addition, the stock market
from time to time has experienced extreme price and volume fluctuations that
have particularly affected the market price for many high technology companies
and that often have been unrelated to the operating performance of these
companies. These market fluctuations may adversely affect the market price of
the Company's Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
The initial public offering price is substantially higher than the book
value per outstanding share of Common Stock. Investors purchasing Common Stock
in this offering will, therefore, incur immediate dilution of $8.32 in net
tangible book value per share of Common Stock (based upon the initial public
offering price of $10.00 per share and after deducting the estimated
underwriting discount and offering expenses) from the initial public offering
price and will incur additional dilution upon the exercise of outstanding
options and warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
10,021,556 shares of Common Stock (assuming no exercise of outstanding options
after June 30, 1996). Of these shares, the 2,750,000 shares sold in this
offering will be freely transferable without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 of the Securities Act (an
"Affiliate"), which shares will be subjected to the resale limitations of Rule
144 adopted under the Securities Act. The remaining 7,271,556 shares
outstanding upon completion of this offering and held by existing shareholders
will be "restricted securities" as that term is defined under Rule 144 (the
"Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act. As a result of
the contractual restrictions described below, and the provisions of Rule 144,
144(k) and 701, additional shares will be available for sale in the public
market as follows: (i) no shares will be available for immediate sale in the
public market on the date of the Prospectus, (ii) 2,960,057 currently
outstanding shares (as well as 98,803 additional shares issuable upon the
exercise of stock options granted under the Option Plan that will be vested)
will be eligible for sale upon expiration of lock-up agreements 180 days after
the date of this Prospectus and (iii) 4,311,499 currently outstanding shares
will be eligible for sale upon expiration of their respective two-year holding
periods, subject in the case of shares held by affiliates to compliance with
certain volume restrictions.
The Securities and Exchange Commission has proposed to reduce the two- and
three-year holding periods under Rule 144 to one and two years, respectively.
If enacted, such modification will have a material effect on the timing of
when certain shares of Common Stock become eligible for resale.
In addition, commencing 180 days after the offering, the holders of
4,311,499 shares of outstanding Common Stock and 44,799 shares of Common Stock
issuable upon exercise of certain
13
<PAGE>
warrants will have rights under certain circumstances to require the Company
to register their shares for future sale. See "Description of Capital Stock--
Registration Rights of Certain Holders."
Persons who hold approximately 7,271,556 shares of the Company's Common
Stock after completion of the offering, including the Selling Stockholder and
all officers, directors and existing stockholders of the Company, have agreed
with the Representatives and/or the Company that, for a period of 180 days
following the date of this Prospectus, they will not sell, offer to sell,
contract to sell, grant any options to purchase, make any short sale or
otherwise dispose of any shares of Common Stock of the Company, or any options
or warrants to purchase any shares of Common Stock of the Company, whether now
owned or hereinafter acquired, by such holders or with respect to which they
have beneficial ownership within the rules and regulations of the SEC. The
Company has also agreed not to sell, offer to sell, contract to sell, grant
any option to purchase or otherwise dispose of any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock or any rights to acquire Common Stock for a period of 180 days following
the date of this Prospectus without the prior written consent of Goldman,
Sachs & Co. on behalf of the Underwriters, subject to certain limited
exceptions. The lockup agreements may be released at any time as to all or any
portion of the shares subject to such agreements at the sole discretion of
Goldman, Sachs & Co. on behalf of the Underwriters.
The Company intends to file a Registration Statement on Form S-8 to register
the shares of Common Stock issuable upon exercise of options granted under the
Option Plan, the Directors' Plan and the Purchase Plan approximately 90 days
after this offering. Following the filing of the Form S-8, shares of Common
Stock issued under the Option Plan, Directors' Plan and Purchase Plan will be
available for sale in the public market upon vesting and exercise of such
options, subject to lock-up restrictions described above and the Rule 144
volume limitations applicable to affiliates.
Prior to this offering, there has been no public market for the Common Stock
and there is no assurance a significant public market for the Common Stock
will develop or be sustained after this offering. Sales of a substantial
amount of Common Stock in the public market could adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise capital through the sale of its equity securities.
EFFECT OF ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and By-Laws
could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control
of the Company. Such provisions could limit the price that certain investors
might be willing to pay in the future for shares of the Company's Common
Stock. Certain of these provisions allow the Company to issue Preferred Stock
with rights senior to those of the Common Stock without any further vote or
action by the stockholders, eliminate the right of stockholders to act by
written consent and impose various procedural and other requirements that
could make it more difficult for stockholders to effect certain corporate
actions. These provisions could also have the effect of delaying or preventing
a change in control of the Company. The issuance of Preferred Stock could
decrease the amount of earnings and assets available for distribution to the
holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. See "Description of Capital Stock."
Under the terms of the Series F Preferred Stock Purchase Agreement, in the
event of any proposed transaction that would result in a change of control or
a sale of all or substantially all of the Company's assets, the Company must
provide written notice to Intel and Intel has a right to propose a competitive
offer that the Board of Directors of the Company must consider in good faith.
In certain circumstances, this notice right could limit the price certain
investors might be willing to pay in the future for shares of the Company's
Common Stock, and could have the effect of delaying or preventing a change in
control of the Company.
14
<PAGE>
THE COMPANY
The Company was incorporated in California in January 1990 under the name
"Storm Technology, Inc." and changed its name to Storm Software, Inc. in
August 1994 and then to "Storm Primax, Inc." in March 1996. The Company
reincorporated in Delaware in September 1996 and changed its name back to
"Storm Technology, Inc.". References to the "Company" include its California
predecessor. The Company's executive offices are located at 521 Almanor
Avenue, Sunnyvale, California, 94086; (408) 522-1200.
Storm Technology and EasyPhoto are registered trademarks of the Company and
ClearScan, the EasyPhoto logo, EasyPhoto Reader, EasyPhoto SmartPage,
EasyPhoto Drive, EasyPhoto Phone EasyPhoto DesignWorks and PhotoDrive are
trademarks of the Company. This Prospectus also contains trademarks of other
companies.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock being offered by the Company are estimated to be approximately
$17.8 million ($21.6 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $10.00 per
share and after deduction of the estimated underwriting discount and offering
expenses. The Company will not receive any proceeds from the sale of Common
Stock by the Selling Stockholders.
The principal purposes of the offering are to obtain additional working
capital, to create a public market for the Company's Common Stock and to
facilitate future access by the Company to public securities markets. The
Company expects to use the net proceeds of the offering for working capital
and other general corporate purposes and to repay approximately $3.9 million
of accounts payable owed to Primax. These accounts payable were assumed by the
Company as a result of the acquisition by the Company in March 1996 of
Primax's U.S. subsidiary. See "Certain Transactions." The Company may also use
a portion of the net proceeds to fund acquisitions of complementary
businesses, products or technologies, although there are no current agreements
or negotiations with respect to any material acquisitions of businesses,
products or technologies. Pending use of the net proceeds for the foregoing
purposes, the Company intends to invest the net proceeds in investment grade
income-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its future earnings, if any, to
fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. The Company's
bank line of credit agreement currently prohibits the payment of dividends.
See Note 8 of Notes to Company's Consolidated Financial Statements.
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996,
was approximately $(1.0) million or $(0.12) per share after giving effect to
the issuance of 3,413 shares of Common Stock upon the exercise of outstanding
warrants that terminate upon the closing of the offering. "Net tangible book
value" per share represents the amount of total tangible assets of the Company
reduced by the amount of its total liabilities, divided by the total number of
shares of Common Stock outstanding, including shares of Common Stock resulting
from the conversion of the Preferred Stock. After giving effect to the
estimated net proceeds of approximately $17.8 million from the sale of the
2,000,000 shares of Common Stock offered by the Company at an assumed initial
public offering price of $10.00 per share (assuming no exercise of the
Underwriters' over-allotment option and after deducting the estimated
underwriting discount and offering expenses) and the adjustments set forth
above, the pro forma net tangible book value of the Company as of June 30,
1996 would have been approximately $16.8 million or $1.68 per share of Common
Stock. This represents an immediate increase in net tangible book value of
$1.80 per share to existing stockholders and an immediate dilution of $8.32
per share to new investors. The following table illustrates the per share
dilution in net tangible book value to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $10.00
Pro forma net tangible book value per share before
offering.................................................. $(0.12)
Increase per share attributable to new investors........... 1.80
------
Pro forma net tangible book value per share after offering... 1.68
------
Dilution per share to new investors.......................... $ 8.32
======
</TABLE>
The following table summarizes, on a pro forma basis, as of June 30, 1996
the differences in the total consideration paid and the average price per
share paid between existing stockholders and new investors with respect to the
number of shares of Common Stock purchased from the Company assuming an
initial public offering price of $10.00 per share (assuming no exercise of the
Underwriters' over-allotment option and before deducting the underwriting
discount and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)........ 8,021,556 80.0% $16,079,000 44.6% $ 2.00
New investors(1)........ 2,000,000 20.0% 20,000,000 55.4% 10.00
---------- ----- ----------- -----
Total................. 10,021,556 100.0% $36,079,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) The net effect of sales by the Selling Stockholders in this offering will
reduce the number of shares held by existing stockholders to 7,271,556
shares or approximately 72.6% of the total number of shares of Common
Stock outstanding after the offering, and will increase the number of
shares held by new investors to 2,750,000 shares or approximately 27.4% of
the total number of shares of Common Stock to be outstanding after the
offering. See "Principal and Selling Stockholders."
The above computations assume no exercise of outstanding options under the
Option Plan or the Directors Plan after June 30, 1996. As of June 30, 1996,
options to purchase 367,667 shares of Common Stock were outstanding under such
plans. In addition, 44,799 shares of Common Stock were reserved for issuance
upon exercise of outstanding warrants. The exercise of such options and
warrants will result in further dilution to new investors. See
"Capitalization," "Management--Benefit Plans" and Note 6 of Notes to the
Company's Consolidated Financial Statements.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company, (i) as of
June 30, 1996 unaudited, (ii) pro forma unaudited as of such date to reflect
the conversion upon the closing of this offering of all outstanding shares of
Preferred Stock at June 30, 1996 into shares of Common Stock and (iii) as
adjusted as of such date to reflect the sale by the Company of 2,000,000
shares of Common Stock offered hereby, the application of the net proceeds
therefrom and the issuance of Common Stock upon the exercise of outstanding
warrants which terminate upon the closing of this offering.
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, 1996
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Stockholders' equity (deficit):
Preferred Stock, $.001 par value;
10,000,000 shares authorized and
6,713,192 shares outstanding, actual;
no shares outstanding pro forma; and
500,000 shares authorized and no
shares
outstanding, as adjusted(1).......... $ 7 $ -- $ --
Common Stock, $.001 par value;
10,000,000 shares authorized and
1,245,919 shares outstanding, actual;
8,021,556 shares outstanding pro
forma; and
30,000,000 shares authorized and
10,021,556 shares outstanding, as
adjusted(1)(2)....................... 1 8 10
Additional paid-in capital............. 16,391 16,391 34,189
Deferred compensation.................. (217) (217) (217)
Accumulated deficit.................... (16,379) (16,379) (16,379)
----------- ----------- -----------
Total stockholders' equity (deficit).. (197) (197) 17,603
----------- ----------- -----------
Total capitalization................. $ (197) $ (197) $ 17,603
=========== =========== ===========
</TABLE>
- --------
(1) Includes 500,000 shares of Preferred Stock and 30,000,000 shares of Common
Stock that will be authorized upon filing for reincorporation in Delaware
prior to the effectiveness of this offering.
(2) Excludes (i) 333,917 shares of Common Stock issuable upon exercise of
options outstanding under the Option Plan as of June 30, 1996, (ii)
257,791 shares of Common Stock reserved for issuance upon exercise of
options that may be granted in the future under the Option Plan, (iii)
33,750 shares of Common Stock issuable upon exercise of options
outstanding as of June 30, 1996 and 78,750 shares of Common Stock reserved
for issuance upon exercise of options that may be granted under the
Directors Plan, (iv) 75,000 shares of Common Stock reserved for issuance
under the Purchase Plan, and (v) 44,799 shares of Common Stock reserved
for issuance upon exercise of outstanding warrants. See "Capitalization,"
"Management--Benefit Plans" and Note 6 of Notes to the Company's
Consolidated Financial Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of the Financial
Condition and Results of Operations" and the Company's consolidated financial
statements and notes thereto included elsewhere in this Prospectus. The
selected financial data for the years ended December 31, 1993, 1994 and 1995
and the balance sheet data at December 31, 1994 and 1995 are derived from the
consolidated financial statements of the Company included elsewhere in this
Prospectus, which have been audited by Price Waterhouse LLP, independent
accountants, whose report is included elsewhere in this Prospectus. The
selected financial data for the years ended December 31, 1991 and 1992 and as
of December 31, 1991, 1992 and 1993 are also derived from the consolidated
financial statements of the Company, which have been audited by Price
Waterhouse LLP, independent accountants. The statement of operations data
presented for the six-month periods ended June 30, 1995 and 1996 and the
balance sheet data as of June 30, 1996 are derived from unaudited financial
statements of the Company included elsewhere in this Prospectus, have been
prepared on the same basis as the audited financial statements, and, in the
opinion of management, include all normal recurring adjustments that the
Company considers necessary for a fair presentation of its results of
operations. The pro forma data for the year ended December 31, 1995 and the
six months ended June 30, 1996 have been derived from the unaudited Pro Forma
Combined Financial Information included elsewhere herein. The results of the
six-month period ended June 30, 1996 are not necessarily indicative of the
results to be expected for any future period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ----------------- ------- -----------------
PRO PRO
ACTUAL FORMA(1) ACTUAL FORMA(1)
------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product................ $ 899 $ 2,373 $ 1,211 $ 655 $ 5,245 $12,666 $ 1,542 $ 7,633 $ 9,625
Royalty and other...... 531 215 1,772 2,545 549 1,229 461 388 500
------ ------- ------- ------- ------- ------- ------- ------- -------
Total revenues........ 1,430 2,588 2,983 3,200 5,794 13,895 2,003 8,021 10,125
Cost of product
revenues............... 374 1,048 276 178 3,735 8,936 1,074 5,697 7,217
------ ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 1,056 1,540 2,707 3,022 2,059 4,959 929 2,324 2,908
------ ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 514 1,219 1,845 2,102 1,494 1,494 749 1,125 1,125
Marketing and selling.. 515 922 1,604 1,981 3,384 6,132 1,389 3,419 4,079
General and
administrative........ 530 500 625 628 633 2,023 341 702 1,089
In-process research and
development........... -- -- -- 500 -- -- -- 5,000 --
------ ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 1,559 2,641 4,074 5,211 5,511 9,649 2,479 10,246 6,293
------ ------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (503) (1,101) (1,367) (2,189) (3,452) (4,690) (1,550) (7,922) (3,385)
Interest income, net.... 47 69 42 96 56 (56) 25 33 17
------ ------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $ (456) $(1,032) $(1,325) $(2,093) $(3,396) $(4,746) $(1,525) $(7,889) $(3,368)
====== ======= ======= ======= ======= ======= ======= ======= =======
Pro Forma:
Net loss per common and
common equivalent
share(2).............. $ (0.45) $ (0.63) $ (0.20) $ (0.98) $ (0.42)
Weighted average number
of common and common
equivalent shares
outstanding(2)........ 7,588 7,588 7,473 8,047 8,047
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-
term investments................. $2,849 $1,696 $1,663 $2,289 $1,865 $ 2,503
Working capital (deficit)......... 2,419 1,870 422 2,396 2,573 (1,365)
Total assets...................... 3,170 2,355 2,261 3,026 5,979 10,893
Long-term liability............... -- -- -- 100 -- --
Total stockholders' equity
(deficit)........................ 2,505 2,013 727 2,541 2,733 (197)
</TABLE>
- --------
(1) The unaudited pro forma combined statement of operations data for the year
ended December 31, 1995 and the six months ended June 30, 1996 reflect the
effect of the acquisition of the outstanding stock of Primax (USA) and
certain technologies from Primax, both on March 18, 1996, as if the
acquisition had occurred on January 1, 1995. The acquisition was accounted
for as a purchase. The Company has discontinued the Primax USA product
line acquired in the Primax transaction. As a result, the revenues of
Primax USA are not indicative of the future revenues of the Company
derived from the operations or products of Primax USA.
(2) See Note 2 of Notes to the Company's Consolidated Financial Statements.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's revenues and results of operations are difficult to forecast
and could differ materially from those projected in the forward-looking
statements contained in this Prospectus as a result of a number of factors,
including without limitation, those discussed under "Risk Factors" above.
OVERVIEW
The Company is a leading provider of digital photo solutions that enable
consumers and small businesses to input, store, organize, enhance and use
photos easily on their PCs. The Company was founded in 1990 to pioneer Joint
Photographic Experts Group ("JPEG") image compression technology. During its
initial years, the Company began its recruitment of an experienced management
team and developed and licensed its image compression hardware and software
technology to leading desktop publishing companies on an OEM basis as a source
of cash flow to fund the Company. In 1993, the Company released its PhotoFlash
image editing software targeted for use with desktop publishing applications
predominantly by small business users. PhotoFlash was distributed by the
Company exclusively to Apple Computer, Inc. in exchange for an advance and
ongoing royalties again intended to reduce the need for additional external
capital.
During 1994, the Company began development of its EasyPhoto software, a
powerful consumer-friendly environment for using digital photos, and began its
transition from being focused solely on OEM technology licensing to being a
provider of consumer-oriented digital photo solutions sold at retail and on an
OEM basis. This resulted in a shift in the Company's financial model to higher
sales growth at a lower gross margin.
In September 1994, the Company entered into an agreement with Primax
providing for the OEM purchase by the Company of photo scanners manufactured
by Primax to be bundled with the Company's EasyPhoto software environment. The
Company decided to enter into the photo input business primarily to take
advantage of a consumer need for an integrated hardware/software solution that
is easy to install and use and is affordable at consumer price points. Sales
of the EasyPhoto Reader product began in February 1995, and the Company
expanded retail distribution of the product throughout 1995.
In March 1996, the Company acquired from Primax the technology for the
hardware component of the EasyPhoto Reader product, in-process technology of
other photo scanner products and Primax's U.S. subsidiary, which was primarily
a sales distribution company for Primax products in North America. This
acquisition, which was accounted for as a purchase, resulted in a $5.0 million
write-off by the Company of acquired in-process research and development
during the first quarter of 1996. In addition, the Company recorded $0.8
million of goodwill to be amortized over a four-year period. Also in the first
quarter of 1996, the Company recorded reserves in anticipation of a price
reduction of its EasyPhoto Reader product and incurred lower margins on
product lines acquired from Primax USA that the Company is in the process of
phasing out. As a result, the revenues of Primax USA contained in the
Company's unaudited pro forma combined statements of operations for the year
ended December 31, 1995 and for the six months ended June 30, 1996 beginning
on page F-19 are not indicative of the future revenues of the Company derived
from the operations or products of Primax USA.
Product revenues from customers are generally recognized when the product is
shipped, provided collectibility is probable. Product revenues from
distributors and authorized resellers are subject to agreements allowing price
protection and certain rights of return. Accordingly, reserves for estimated
future returns and credits for price protection are provided for upon revenue
recognition. Such reserves are estimated based on historical rates of returns
and allowances, distributor inventory levels and other factors. However, there
can be no assurance that these accruals will be sufficient or that any future
returns or price protection charges will not have a material adverse effect on
the Company's business and operating results, especially in light of the rapid
product obsolescence that often occurs during product transitions. Royalty and
other revenue under certain product royalty agreements are generally
recognized upon shipment of related products to customers.
19
<PAGE>
The Company has incurred net losses in every period since inception. There
can be no assurance that it will attain profitability, or, if profitability is
attained, that the Company will sustain profitability on a quarterly or an
annual basis. As of June 30, 1996, the Company had an accumulated deficit of
$16.4 million. The market for digital photo products and, in particular, for
the Company's digital photo hardware and software products, is new and rapidly
evolving. There can be no assurance that the market for digital photos will
develop as anticipated by the Company, or that the Company's products will be
broadly accepted. The Company intends to begin volume shipments of two new
products, EasyPhoto SmartPage and EasyPhoto Drive, in the third quarter of
1996, and expects to receive significant revenues from the sale of these
products in the third and fourth quarter of this year. There can be no
assurance that these products will achieve broad market acceptance or that
they will be successfully marketed or sold on a profitable basis. Primax is
currently the sole manufacturing source for most of the Company's hardware
products and the Company expects that it will continue to rely in the
foreseeable future on Primax for substantially all of its materials
procurement, assembly, system integration, testing and quality assurance.
There can be no assurance that Primax will be able to meet the Company's
requirements for quality manufactured products at competitive prices. The
Company has recently experienced and may continue to experience growth in the
number of employees, the scope of its operating and financial systems and the
geographic distribution of its operations and customers due to an anticipated
increase in sales and the recent acquisition transaction with Primax. The
Company's ability to compete effectively and to manage future growth, if any,
will require the Company to continue to assimilate such new personnel and to
implement and improve its financial and management controls, reporting systems
and procedures on a timely basis and expand, train and manage its employee
work force. There can be no assurance that the Company will be able to do so
successfully.
In June 1996, the Company recorded noncash deferred compensation of
approximately $233,000 in connection with certain stock options granted during
the second quarter of 1996. The deferred compensation will be expensed ratably
over the vesting periods of these options (primarily four years) and,
therefore, will continue to impact the Company's operating results through the
year 2000.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain line items
from the Company's statement of operations as a percentage of the Company's
total revenues:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Product.................. 40.6% 20.5% 90.5% 77.0% 95.2%
Royalty and other........ 59.4 79.5 9.5 23.0 4.8
------- ------- ------- -------- --------
Total revenues......... 100.0 100.0 100.0 100.0 100.0
Cost of product revenues... 9.3 5.6 64.5 53.6 71.0
------- ------- ------- -------- --------
Gross profit............... 90.7 94.4 35.5 46.4 29.0
------- ------- ------- -------- --------
Operating Expenses:
Research and
development............. 61.8 65.7 25.8 37.4 14.0
Marketing and selling.... 53.8 61.9 58.4 69.4 42.6
General and
administrative.......... 20.9 19.6 10.9 17.0 8.8
In-process research and
development............. -- 15.6 -- -- 62.4
------- ------- ------- -------- --------
Total operating
expenses.............. 136.5 162.8 95.1 123.8 127.8
------- ------- ------- -------- --------
Loss from operations....... (45.8) (68.4) (59.6) (77.4) (98.8)
Interest income, net....... 1.4 3.0 1.0 1.3 0.4
------- ------- ------- -------- --------
Net loss................... (44.4)% (65.4)% (58.6)% (76.1)% (98.4)%
======= ======= ======= ======== ========
</TABLE>
20
<PAGE>
COMPARISON OF 1993, 1994 AND 1995
REVENUES
Total revenues increased from approximately $3.2 million in 1994 to $5.8
million in 1995. This 81% increase was due primarily to the introduction and
sales of the Company's EasyPhoto Reader product. Total revenues increased by
7% from $3.0 million in 1993 to $3.2 million in 1994, due primarily to
royalties generated from the licensing to Apple Computer on an exclusive basis
of the Company's PhotoFlash software.
Product revenues were $1.2 million, $0.7 million and $5.2 million,
respectively, in 1993, 1994 and 1995, and represented 40.6%, 20.5% and 90.5%,
respectively, of total revenues. Royalties and other revenues were $1.8
million, $2.5 million and $0.5 million, respectively, in 1993, 1994 and 1995,
and represented 59.4%, 79.5% and 9.5%, respectively, of total revenues. The
decrease in product revenues and the increase of royalty and other revenues in
1994 was due to the Company's relative focus on OEM licensing of its hardware
and software products on a royalty basis during that year. The increase in
product revenues in 1995 was due to the Company's introduction and sales of
the EasyPhoto Reader product, which is sold on a retail basis. The decrease in
royalty and other revenues in 1995 was due to a decrease in royalties from
Apple Computer for the PhotoFlash software and a decrease in royalties from
the licensing of image acceleration hardware technology. Such royalty
decreases were due primarily to the Company's focus on the EasyPhoto product
line.
COST OF PRODUCT REVENUES
Cost of product revenues were $0.3 million, $0.2 million and $3.7 million,
respectively, in 1993, 1994 and 1995, and, as a percentage of total revenues,
were 9.3%, 5.6% and 64.5%, respectively. The increase in 1995 both in absolute
dollars and as a percentage of total revenues, was due to the introduction of
the EasyPhoto Reader product, which included a relatively higher cost hardware
component purchased from Primax.
GROSS PROFIT
Gross profit was approximately $2.7 million, $3.0 million and $2.1 million,
respectively, for 1993, 1994 and 1995 and represented 90.7%, 94.4% and 35.5%,
respectively, of total revenues. The large decrease in gross margin in 1995
was due to the Company's transition from being engaged primarily in the high
margin OEM licensing business to providing lower margin hardware and software
solutions primarily on a retail basis.
RESEARCH AND DEVELOPMENT
Research and development expenses for 1993, 1994 and 1995 were approximately
$1.8 million, $2.1 million and $1.5 million, respectively, representing 61.8%,
65.7% and 25.8%, respectively, of total revenues. The increase in absolute
dollars in 1994 was primarily due to initial costs incurred in the development
of the EasyPhoto software environment. The decrease in research and
development expenses in absolute dollars in 1995 as compared to 1994 was
primarily due to a decrease in engineering headcount through attrition,
combined with an increase in relative focus on marketing and selling expenses
to support the release of the EasyPhoto Reader product. The Company believes
that a significant level of research and development expenses will be required
to be competitive in the future and intends to recruit additional engineering
personnel in 1996. Accordingly, the Company expects that such expenses will
increase.
MARKETING AND SELLING
Marketing and selling expenses for 1993, 1994 and 1995 were approximately
$1.6 million, $2.0 million and $3.4 million, respectively, representing 53.8%,
61.9% and 58.4%, respectively, of total revenues. The increase in absolute
dollars in 1995 was primarily due to initial and ongoing costs incurred for
the Company's introduction of the EasyPhoto Reader product into the
competitive retail
21
<PAGE>
market in the first quarter of 1995. The decrease in marketing and selling
expenses as a percentage of total revenues from 1994 to 1995 was due primarily
to increased total revenues. The Company believes that such expenses will
increase in dollar amounts as the Company expands its sales and marketing
staff.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were approximately $0.6 million in 1993,
1994 and 1995, and represented 20.9%, 19.6% and 10.9%, respectively of total
revenues. The Company believes that such expenses will increase in dollar
amounts as the Company expands its staffing and as the Company experiences
higher costs associated with being a public company.
IN-PROCESS RESEARCH AND DEVELOPMENT
The Company acquired certain products of a consumer application software
business in 1994, including certain in-process technology, which resulted in a
write-off of acquired in-process research and development. In 1995, the
Company terminated rights to such technology and returned the assets.
INTEREST INCOME, NET
Interest income, net consists primarily of interest earned on cash
equivalents and short-term investments. Interest income, net was approximately
$0.1 million in 1993, 1994 and 1995 and represented 1.4%, 3.0% and 1.0% of
total revenues, respectively. Interest income, net increased in 1994 as a
result of the investment of funds received from the issuance of securities.
PROVISION FOR INCOME TAXES
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses through December 31, 1995. As of
December 31, 1995, the Company has net operating loss carryforwards of
approximately $5.1 million for federal income tax purposes, which can be used
to reduce future taxable income. These net operating loss carryforwards begin
to expire in 2007.
The acquisition of Primax USA and certain technologies from Primax in March
1996 triggered an ownership change of greater than 50%, thereby limiting the
potential benefits from utilization of tax carryforwards, which totaled
approximately $5.1 million at December 31, 1995. The annual limitation on the
utilization of those carryforwards may range from $0.3 to $0.4 million.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995
REVENUES
Product revenues increased from approximately $1.5 million for the six
months ended June 30, 1995 to approximately $7.6 million for the six months
ended June 30, 1996 due primarily to higher unit sales of the Company's
EasyPhoto Reader product during the first six months of 1996. In addition,
initial sales of the Company's EasyPhoto SmartPage product began in June 1996.
Royalty and other revenues decreased from $0.5 million for the six months
ended June 30, 1995 to $0.4 million for the six months ended June 30, 1996
primarily due to the Company's focus on the retail distribution of the
EasyPhoto Reader product during the first two quarters of 1996. This decrease
was partially offset by the initial recognition of royalty revenues related to
the OEM licensing of certain photo scanners during the second quarter of 1996.
22
<PAGE>
COST OF PRODUCT REVENUES
Cost of product revenues increased from $1.1 million for the six-month
period ended June 30, 1995 to $5.7 million for the six months ended June 30,
1996, as the Company incurred higher costs associated with higher unit sales
of the EasyPhoto Reader product and the introduction of the EasyPhoto
SmartPage product.
GROSS PROFIT
Gross profit was $0.9 million and $2.3 million, respectively, for the six
months ended June 30, 1995 and June 30, 1996, representing 46.4% and 29.0%,
respectively, of total revenues for such periods. The decrease in gross margin
was due to the Company's transition from being engaged primarily in the high
margin OEM licensing business to providing lower margin hardware and software
solutions primarily on a retail basis. Additionally, during the first quarter
of 1996, the Company recorded reserves in anticipation of a price reduction of
its EasyPhoto Reader product intended to increase unit sales and incurred
lower margins on product lines acquired from Primax USA that the Company is in
the process of phasing out.
RESEARCH AND DEVELOPMENT
Research and development expenses were $0.7 million and $1.1 million,
respectively, for the six months ended June 30, 1995 and June 30, 1996. These
expenses as a percentage of total revenues were 37.4% and 14.0%, respectively,
during these periods. The increase in these expenses in dollar amounts from
the first six months of 1995 to the first six months of 1996 was primarily
attributable to an increase in research and development personnel.
MARKETING AND SELLING
Marketing and selling expenses increased from $1.4 million for the six
months ended June 30, 1995 to $3.4 million for the six months ended June 30,
1996. These expenses as a percentage of total revenues were 69.4% and 42.6%,
respectively, during these periods. The increase in these expenses in dollar
amounts from the first six months of 1995 to the first six months of 1996 was
primarily the result of increased marketing, advertising and promotional
expenses associated with new and existing retail products and an increase in
the number of sales personnel due to the acquisition of Primax USA.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $0.3 million and $0.7 million,
respectively, for the first six months ended June 30, 1995 and June 30, 1996.
These expenses as a percentage of total revenues were 17.0% and 8.8%,
respectively, during these periods. The increase in these expenses in dollar
amounts from the first six months of 1995 to the first six months of 1996 was
primarily attributable to an increase in administrative personnel due to the
acquisition of Primax USA. As part of the Primax acquisition transaction, in
March 1996, the Company recorded $0.8 million of goodwill, which the Company
is amortizing over a four-year period as part of its general and
administrative expenses.
IN-PROCESS RESEARCH AND DEVELOPMENT
In March 1996, the Company acquired certain in-process photo scanner
technologies from Primax in a transaction accounted for as a purchase. The
Company recorded a one-time write-off of $5.0 million to acquired in-process
research and development as a result of the acquisition.
23
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents the Company's unaudited operating results for
each of the six quarters in the period ended June 30, 1996 and certain items
as a percentage of total revenues for the respective periods. The information
has been derived from unaudited financial statements of the Company that have
been prepared on the same basis as the audited financial statements appearing
elsewhere in this Prospectus, and, in the opinion of management, include all
normal recurring adjustments that the Company considers necessary for a fair
presentation of the interim periods when read in conjunction with the audited
financial statements of the Company. The operating results are not necessarily
indicative of the results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- -------- ------------- ------------ --------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA AND PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues:
Product................ $ 285 $1,257 $ 795 $2,908 $ 2,435 $ 5,198
Royalty and other...... 405 56 51 37 94 294
------ ------ ------- ------ ------- -------
Total revenues......... 690 1,313 846 2,945 2,529 5,492
Cost of product
revenues............... 178 896 576 2,085 1,981 3,716
------ ------ ------- ------ ------- -------
Gross profit............ 512 417 270 860 548 1,776
------ ------ ------- ------ ------- -------
Operating expenses:
Research and
development........... 455 294 358 387 459 666
Marketing and selling.. 626 763 890 1,105 1,402 2,017
General and
administrative........ 188 153 145 147 225 477
In-process research and
development........... -- -- -- -- 5,000 --
------ ------ ------- ------ ------- -------
Total operating
expenses.............. 1,269 1,210 1,393 1,639 7,086 3,160
------ ------ ------- ------ ------- -------
Loss from operations.... (757) (793) (1,123) (779) (6,538) (1,384)
Interest income, net.... 16 9 8 23 19 14
------ ------ ------- ------ ------- -------
Net loss................ $ (741) $ (784) $(1,115) $ (756) $(6,519) $(1,370)
====== ====== ======= ====== ======= =======
AS A PERCENTAGE OF
TOTAL REVENUES:
Revenues:
Product................ 41.3% 95.7% 94.0% 98.7% 96.3% 94.6%
Royalty and other...... 58.7 4.3 6.0 1.3 3.7 5.4
------ ------ ------- ------ ------- -------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0
Cost of product
revenues............... 25.8 68.2 68.1 70.8 78.3 67.7
------ ------ ------- ------ ------- -------
Gross profit............ 74.2 31.8 31.9 29.2 21.7 32.3
------ ------ ------- ------ ------- -------
Operating expenses:
Research and
development........... 66.0 22.4 42.3 13.1 18.2 12.1
Marketing and selling.. 90.7 58.1 105.2 37.5 55.4 36.7
General and
administrative........ 27.2 11.7 17.1 5.0 8.9 8.7
In-process research and
development........... -- -- -- -- 197.7 --
------ ------ ------- ------ ------- -------
Total operating
expenses.............. 183.9 92.2 164.6 55.6 280.2 57.5
------ ------ ------- ------ ------- -------
Loss from operations.... (109.7) (60.4) (132.7) (26.4) (258.5) (25.2)
Interest income, net.... 2.3 0.7 0.9 0.7 0.7 0.3
------ ------ ------- ------ ------- -------
Net loss................ (107.4)% (59.7)% (131.8)% (25.7)% (257.8)% (24.9)%
====== ====== ======= ====== ======= =======
</TABLE>
24
<PAGE>
The Company has experienced seasonality in its operating results, with the
fourth quarter typically having the highest total revenues in any year and
with third quarter revenues usually reflecting a lower volume of sales in the
summer months. The Company believes that the seasonality of its revenues
results primarily from the purchasing habits of consumers and the timing of
the Company's fiscal year end. The Company currently believes that these
patterns will continue.
The Company's product revenues declined from the second quarter of 1995 to
the third quarter of 1995 due to large orders received from two large retail
accounts as initial purchases in June 1995 and lower volume of product
revenues in the third quarter of 1995 due to seasonality.
Cost of product revenues increased as a percentage of total revenues from
the fourth quarter of 1995 to the first quarter of 1996 mainly due to reserves
for price protection recorded against revenues for the first quarter of 1996
in anticipation of a price reduction of its EasyPhoto Reader product. During
the first quarter of 1996, the Company also incurred lower margins on product
lines acquired from Primax USA which the Company is in the process of phasing
out.
General and administrative expenses increased in dollar amounts from the
fourth quarter of 1995 to the first and second quarters of 1996 primarily as a
result of the inclusion of Primax USA administrative personnel at the end of
the first quarter of 1996 and the cost of a lease for an additional facility
that was assumed as part of the Primax transaction.
The Company has experienced and will continue to experience significant
fluctuations in revenues and operating results from quarter to quarter and
from year to year due to a combination of factors, many of which are outside
of the Company's direct control. These factors include development of consumer
demand for digital photos on PCs in general and for the Company's products in
particular, the Company's success in developing, introducing and shipping new
products and product enhancements in a timely manner, the purchasing patterns
and potential product returns from the Company's retail distribution, reduced
revenue due to price protection granted to distributors, the performance of
the Company's contract manufacturers and component suppliers, the Company's
ability to respond to new product introductions and price reductions by its
competitors, the timing, cancellation or rescheduling of significant orders
from OEMs or distributors, the availability of key components and changes in
the cost of materials for the Company's products, the Company's ability to
attract, retain and motivate qualified personnel, the timing and amount of
research and development, marketing and selling, general and administrative
expenditures, and general economic conditions. Revenues and operating results
in any quarter depend on the volume, timing and ability to fulfill customer
orders, the receipt of which is difficult to forecast. A significant portion
of the Company's operating expenses is relatively fixed in advance, based in
large part on the Company's forecasts of future sales. If sales are below
expectations in any given period, the adverse effect of a shortfall in sales
on the Company's operating results will be magnified by the Company's
inability to adjust operating expenses in the short term to compensate for
such shortfall. Accordingly, any significant shortfall in revenues relative to
the Company's expectations would have an immediate material adverse impact on
the Company's operating results and financial condition. The Company may also
be required to reduce prices in response to competition or increase spending
to pursue new product or market opportunities. In the event of significant
price competition in the market for the Company's products, the Company would
be required to decrease costs in order to maintain profit margins and would be
at a significant disadvantage compared to competitors with substantially
greater resources, which could more readily withstand an extended period of
downward pricing pressure.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its working capital and capital
expenditure requirements primarily through the private sale of equity
securities totalling approximately $12.8 million
25
<PAGE>
and cash generated from operations in 1993. In 1994 and 1995 and for the six
months ended June 30, 1996, approximately $2.8 million, $3.9 million and $1.2
million, respectively, of cash was used in operations.
In 1993 and 1994, the Company's investing activities used cash of
approximately $277,000 and $943,000, respectively. In 1995, the Company
generated cash from investing activities of approximately $1.6 million. In the
first six months ended June 30, 1996, the Company's investing activities used
cash of approximately $814,000. The Company's investing activities consisted
primarily of purchases of property and equipment and purchases and sales of
short-term investments. As of June 30, 1996, the Company's principal
commitments consisted primarily of a lease line of credit for equipment and
leases for office facilities. See Note 8 of Notes to the Company's
Consolidated Financial Statements.
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. The
Company expects that, in the future, cash in excess of current requirements
will be invested in investment grade, interest-bearing securities.
As of June 30, 1996, the Company had $2.5 million in cash, cash equivalents
and short-term investments. On May 16, 1996, the Company entered into a loan
and security agreement for a $3.5 million revolving line of credit and a $6.5
million accounts receivable line of credit. Borrowings under the accounts
receivable line of credit are limited to the sum of 80% of eligible domestic
non-distributor accounts receivable and 70% of eligible domestic distributor
accounts receivable. The lines of credit are secured by the assets of the
Company. All obligations up to an amount of $3.5 million under the revolving
line of credit are guaranteed by Primax. As of June 30, 1996, there were no
outstanding borrowings under the bank lines of credit. See Note 8 of Notes to
the Company's Consolidated Financial Statements.
The Company believes that the net proceeds from the offering, existing cash
balances, the bank lines of credit and funds generated from operations will be
sufficient to meet the Company's capital and operating requirements for the
next 12 months. Although operating activities may provide cash in certain
periods, to the extent that the Company experiences growth in the future, the
Company anticipates that its operating and investing activities may use cash.
Consequently, any such growth may require the Company to obtain additional
equity or debt financing. In addition, although there are no present
understandings, commitments or agreements with respect to any material
acquisition of other businesses, products or technologies, the Company from
time to time evaluates potential acquisitions of businesses, products and
technologies and may in the future require additional equity or debt
financings to consummate such potential acquisitions.
26
<PAGE>
BUSINESS
Storm Technology, Inc. ("Storm" or the "Company") is a leading provider of
digital photo solutions that enable consumers and small businesses to input,
store, organize, enhance and use photos easily on their personal computers
("PCs"). The Company's vision is to empower consumers to use digital photos to
create more personal, memorable and effective communications. The Company
believes that the $16 billion worldwide chemical photography market is
evolving to a market that will increasingly include digital photos due in part
to the increasing availability of photo input devices and software which
enable people to use digital photos with their computers. This transition,
coupled with the recent proliferation of powerful multimedia home PCs, is
leading to the emergence of digital photos as a new and rapidly growing
product category for consumers. To capitalize on this emerging market
opportunity, Storm develops and markets software-differentiated, consumer-
branded products that are easy to use, result in high image quality and
provide consumers and small businesses with a comprehensive digital photo
solution.
INDUSTRY BACKGROUND
Photographs empower people to communicate in a more personal, memorable and
effective way. While graphics professionals have utilized digital photos for
years, consumer usage has been limited due to the complexity, expense and high
end hardware requirements. However, the ability to utilize digital photos is
now becoming available to consumers as advances in digital technology, such as
PCs, software, related input and output devices and the Internet, are becoming
increasingly prevalent. The Company believes that this use of photos on
computers represents the early stages of an evolution from a purely chemical-
based photography market to a market that will increasingly include digital
photos.
According to Link Resources, U.S. households own more than 40 million PCs
and more than 35% of U.S. homes have at least one PC. The increasing
penetration of PCs into the home market has led to a significant increase in
the demand for add-on peripherals and software that increase the functionality
of a PC. For example, CD-ROM drives have facilitated increased educational and
entertainment value, modems have become virtually standard given the
increasing significance of Internet or on-line service access, and inkjet
printers have enabled high quality black-and-white or color output at a
relatively low cost. In addition, consumers are searching for compelling new
software applications for their PCs beyond word processing, personal finance
and games, due in part to their significant investment in PCs and peripherals.
The Company believes that the emergence of digital photos as a new and
rapidly growing product category for consumers has been driven in large part
by the convergence of these trends, and more specifically, by a number of
important technological developments. These developments include:
. The availability of low cost, photo-capable color inkjet printers,
enabling printing of high quality photos on regular bond paper and near
magazine quality photographic output on more expensive coated paper.
. The proliferation of 486 and Pentium class PCs, providing the computing
power necessary to process digital photos in typical sizes and quality.
. The availability of more affordable and greater storage capacity, which,
combined with JPEG image compression technology, has enhanced the
ability of standard PCs to store and manipulate photos. Hundreds or even
thousands of photos can now be stored on a typical hard disk.
. The rapid growth of the Internet and the proliferation of graphically-
oriented Web browsers, which have led to the presence of thousands of
photos on Web sites.
. The availability of photo-capable software incorporating Microsoft's
Object Linking and Embedding (OLE) standard, enabling different software
applications such as word processors and family-oriented software
programs to include photos.
27
<PAGE>
While these advances in technology have led to increasing availability of
photo-capable PCs, until recently, the use of photos on PCs has been limited,
primarily due to the shortcomings of digital photo peripherals and software.
The devices for reading photos into computers, such as photo CDs and scanners,
generally have been very expensive and difficult to use. These devices also
generally have involved long processing times or have not produced high
quality images. Digital cameras, which potentially may provide the most
efficient and effective means for the creation and reading of digital photos,
presently are too costly, have capacity and quality shortcomings and require
changes in consumer behavior that are not likely to occur quickly. The
software environments for utilizing digital photos often have been expensive,
complex or difficult to use because of either their orientation toward
professional users or their focus on other applications such as image editing
or page layout. Some existing software applications, such as genealogy charts,
personal calendars and greeting cards, allow for the use of digital photos.
However, these applications have not been optimized for photo usage and
provide limited tools for organization, enhancement and integration of digital
photos.
STORM SOLUTION
Storm's software-differentiated, consumer-branded family of products
provides a high quality, easy to use and comprehensive solution for the use of
digital photos on a personal computer at an affordable price. The Company's
first digital photo scanner product, the EasyPhoto Reader, which was
introduced in 1995, made it possible for a personal computer user to turn an
existing snapshot print into a useful digital photo. The following diagram
illustrates the operation of the EasyPhoto Reader product:
[LEAVE SPACE FOR DIAGRAM]
Begin by The EasyPhoto Drag and drop Print out a great
typing an Reader plugs your photo into looking document
ordinary directly into your document with sharp, true
letter, your computer (no with EasyPhoto color results.
invitation, boards to software
flyer, etc. on install) and lets (included).
your computer you add your
using your photos quickly
regular with the push of
programs. a button.
Storm's products provide easy to install and easy to operate methods to
input standard chemical-based photos into a PC, high quality resolution for
viewing and printing photos, automatic compression of stored photos to save
disk space, easy to use tools to retrieve, organize, edit and enhance the
photos in the computer and drag and drop capability to place photos into
virtually any computer document. For example, consumers are using the
Company's products to share photo memories with family and friends through
family trees, personal letters and greeting cards, and real estate brokerage
and service companies are using the EasyPhoto Reader to include digital photos
in their marketing and sales brochures and flyers.
The Company believes that the advanced functionality, ease of use and
competitive differentiation of its EasyPhoto products are driven by the
following key technological advantages:
. ADVANCED OLE CAPABILITIES: The EasyPhoto software environment is
designed to capitalize on Microsoft's OLE image handling standard to
facilitate using photos with other applications and to improve image
quality.
28
<PAGE>
. VIRTUAL MEMORY: The Company's unique image-oriented virtual memory
technology substantially reduces the processing and storage requirements
associated with digital images; this results in faster photo viewing and
manipulation while enabling consumers to enjoy advanced digital photo
functionality using consumer-oriented PC configurations, such as 486
class computers with only 8 megabytes (MB) of random access memory
(RAM).
. ADVANCED PHOTO DATABASE FUNCTIONALITY: Central to the EasyPhoto software
environment is a fully-featured database with visual photo access, which
is optimized for image management and retrieval.
. IMAGING ALGORITHMS: The EasyPhoto environment incorporates a number of
easy to use image enhancement tools based on sophisticated imaging
algorithms, such as the ability to quickly remove scratches and
eliminate "red eye" from flash photographs.
. PHOTO SCANNER TECHNOLOGY AND SOFTWARE INTEGRATION: The Company's photo
scanner technology enables high quality, cost-effective photo input in a
small form factor. The Company adds additional value to its photo
scanners by tightly integrating them with its EasyPhoto software
environment and photo-centric applications resulting in powerful yet
easy to use photo input solutions.
Storm offers its products through mass market distribution channels at
affordable consumer-oriented price levels. The Company's products are designed
to operate with the most popular consumer and small business operating
systems, including Windows 3.1, Windows 95 and Macintosh, and with most word
processors, presentation packages, drawing and publishing programs and home
creativity programs. The Company's products are designed to enable consumers
to realize the benefits of digital photography immediately without changing
their current film purchasing, photo taking and photo processing behavior.
STRATEGY
The Company's objective is to become the leading provider of digital photo
input and software solutions for consumers and small businesses. The Company's
strategy is focused on (i) making its EasyPhoto software environment the de
facto standard for organizing and storing digital photos on PCs, (ii)
developing and marketing high quality, easy to use, affordable photo input
solutions that are tightly integrated with its EasyPhoto software environment,
and (iii) distributing photo-centric applications that further enhance the
value of its photo input products. The Company expects to extend its
competitive advantage in these product categories through technology
leadership, strategic partnerships, brand marketing and worldwide retail and
OEM distribution. Key elements of the Company's strategy are:
ESTABLISH EASYPHOTO AS A LEADING CONSUMER BRAND FOR THE DIGITAL PHOTO MARKET
Extensive consumer market research by the Company has consistently
identified ease of use and high quality at affordable prices as the compelling
consumer needs that must be addressed in order to expand consumers' use of
digital photos. The Company's EasyPhoto brand is designed to address these
needs and is supported by innovative technology, consumer friendly products,
creative end-user marketing and competitive price performance. The Company
believes that it can achieve increased consumer recognition by extending
EasyPhoto branding throughout the Company's retail product offerings and
enabling OEMs to proliferate the EasyPhoto branded software environment.
ESTABLISH EASYPHOTO SOFTWARE AS THE LEADING SOFTWARE ENVIRONMENT FOR DIGITAL
PHOTOS
EasyPhoto was designed with an open architecture using industry standards
such as the JPEG image compression file format, Microsoft OLE for utilizing
photos in other applications and TWAIN for input of photos from all industry
standard scanning devices. By continually improving and widely proliferating
an open environment for digital photos, the Company intends to make EasyPhoto
the de facto standard for enabling consumers to input, organize, store,
enhance and use photos on PCs.
29
<PAGE>
ENHANCE ITS LEADING LINE OF PHOTO SCANNERS TO ADDRESS ADDITIONAL CUSTOMER
NEEDS
The Company believes that it is currently the leading provider, through
retail distribution and OEM partnerships, of photo-oriented scanners targeted
at the consumer and small business markets. Leveraging its expertise in
digital imaging hardware in addition to its core software technology, the
Company is continuing to enhance its EasyPhoto scanner line to address
additional customer demands, such as a preference for a photo-reading device
installed inside the computer, a need to scan larger sized photos and
continuous improvement in price performance. The Company expects its future
photo scanners to offer extended functionality and lower prices through the
use of large scale integrated circuits, an integrated subassembly for optics
and economies of scale.
MARKET A LINE OF PHOTO-CENTRIC SOFTWARE APPLICATIONS
The Company intends to capitalize on its unique technological expertise in
both imaging hardware and software by developing and marketing value-added
application software that enables consumers to use digital photos in
imaginative and persuasive ways. The Company also currently plans to
distribute third party photo-centric applications to its customers. Such
applications are intended to increase the Company's profit margin and expand
the consumer market for digital photos.
LEVERAGE STRATEGIC PARTNERSHIPS
The Company intends to use strategic partnerships in the following key
areas:
. MANUFACTURING. The Company's strategy is to utilize strategic
partnerships to manufacture its products with the highest quality at the
lowest possible cost. The Company presently maintains a strategic
relationship with Primax in Taiwan. The Company intends to develop a
relationship with a second source strategic manufacturing partner during
1997 to ensure cost leadership, sufficient capacity and product quality.
. DIGITAL CAMERA DEVELOPMENT. The Company intends to participate in the
emerging digital camera market through third party strategic
partnerships. An existing alliance involves customizing EasyPhoto
software for use with digital cameras from Epson.
. DISTRIBUTION. The Company believes that broadening the distribution of
its products through strategic alliances with a variety of companies
within the computer industry is a key element in establishing its
products as market leaders and its EasyPhoto software environment as an
industry standard. The Company has recently established an OEM
arrangement with HP for the incorporation of the Company's PhotoDrives
into certain models of HP's Pavilion line of computers, as well as with
Polaroid for a private label external photo reader device. The Company's
EasyPhoto software is distributed broadly by numerous partners,
including HP and Acer with their home PCs, Polaroid and Nikon Inc.
("Nikon") with select scanner products, Epson both with its digital
cameras and in 1996 as part of an Epson Color Stylus inkjet printer
promotion, and Intel to its motherboard customers. In addition, the
Company has entered into an agreement for the bundling of its EasyPhoto
software with Netscape's Navigator Gold Internet product.
ENSURE PRODUCTIVE RETAIL DISTRIBUTION ON A WORLDWIDE BASIS
The Company intends to enable its end-user customers to purchase its
products as easily and conveniently as possible through a broad array of
retail outlets, catalogs and alternative channels, provided that such outlets
are cost effective based on sell-through of the Company's products. The
Company's products are presently sold by most of the leading retailers of
computer products in the United States, including Best Buy, Circuit City,
CompUSA Inc. ("CompUSA"), Computer City, Egghead Inc. ("Egghead Software"),
Fry's Electronics, Good Guys Inc. ("Good Guys"), OfficeMax Inc. ("OfficeMax"),
Staples Inc. ("Staples") and others. In addition, the Company's retail
distribution includes on-line companies (such as America Online) and Internet
stores, mail order catalogs and
30
<PAGE>
direct consumer order fulfillment. Distribution partnerships with Primax for
Asia-Pacific distribution and Primax Electronics International B.V. ("Primax
International") for European distribution provide the Company with an
established channel to access key international markets.
PRODUCTS
The Company's products span the following categories of the digital photo
market: photo software environment, photo input solutions and photo-centric
application software. The products currently expected to be offered by Storm
by the end of 1996 are as shown in the following table:
<TABLE>
<CAPTION>
PRIMARY
DISTRIBUTION TARGET RETAIL FIRST SHIPMENT
PRODUCT CATEGORY/NAME DESCRIPTION CHANNEL STREET PRICE DATE(S)
--------------------- ----------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
1. PHOTO SOFTWARE ENVIRONMENT
EasyPhoto Software environment OEM N/A Version 1.0 February
and core technology 1995 Version 2.0
to input, store, October 1995
organize, enhance
and use digital
photos; includes
localized foreign
language versions
2. PHOTO INPUT
SOLUTIONS*
EasyPhoto Reader External photo Retail $199 Version 1.0 February
reader (up to 5 in. x 1995 Version 2.0
7in. photos) October 1995 Version
2.5 August 1996
EasyPhoto SmartPage External large form Retail $299 Version 1.0 June
factor 1996
photo/document
reader (up to 8 1/2 in.
x 14in.)
EasyPhoto Drive Internal photo Retail $199 Version 1.0 August
reader (up to 5 in. x 1996
7in. photo)
PhotoDrives (OEM) Internal photo OEM N/A April 1996
readers (up to 5 in. x
7in. photo) designed
to be incorporated
into 5 1/4in. PC drive
bays
PhotoReaders (OEM) External photo OEM N/A January 1996
readers (up to 5 in. x
7in. photo) with
unique industrial
designs for specific
OEMs
3. PHOTO-CENTRIC APPLICATION SOFTWARE
EasyPhoto Phone Software application OEM or N/A Expected in third
to share photos over bundled with quarter of 1996
telephone lines EasyPhoto
branded
photo
scanners
EasyPhoto DesignWorks Software application OEM or N/A Expected in fourth
to enable page bundled with quarter of 1996
layout and use of EasyPhoto
text and sound for branded
photo-based projects photo
to send on-line or scanners
print out
</TABLE>
- --------
* Photo Input Solutions generally are bundled with the EasyPhoto Software
Environment
EASYPHOTO SOFTWARE ENVIRONMENT
The EasyPhoto software environment provides a user friendly, easy to install
environment for consumers to input, organize, store, enhance and use photos on
their PCs. EasyPhoto enables users to build galleries of photos using a
familiar film strip metaphor for display and to perform photo adjustment and
improvement functions such as editing, cropping and resizing of photos. In
addition to being integrated with the Company's own line of photo scanners,
EasyPhoto software has been distributed broadly through OEM partners,
including HP, Acer, Epson, Polaroid and Nikon, in conjunction with PCs,
scanners, printers and digital cameras.
31
<PAGE>
EasyPhoto creates a powerfully simple "digital shoebox" for photos,
utilizing the following key elements of the Company's technology:
ADVANCED OLE CAPABILITIES: EasyPhoto is designed to capitalize on
Microsoft's OLE standard to facilitate using photos with other
applications. The Company believes that EasyPhoto is one of the most fully-
featured OLE servers available today, enabling users to "drag and drop"
images into text documents, to resize and manipulate the images and, in
certain applications, to retain control over printing and adjustment of the
photo within the third party software application.
VIRTUAL MEMORY: The Company's proprietary virtual memory technology
substantially reduces the processing and storage requirements associated
with digital images, enabling consumers to enjoy advanced digital photo
functionality using consumer-oriented PC configurations, such as 486 class
computers with only 8 MB of RAM. The Company's unique "tiling" system,
which breaks images into large, independent sectors rather than numerous
linear strips, dramatically increases the speed with which images can be
manipulated on screen, without degrading image quality. In addition, the
Company's image compression technology minimizes the amount of memory
dedicated to image storage and limits time-consuming hard disk access.
ADVANCED PHOTO DATABASE FUNCTIONALITY: Central to the EasyPhoto software
environment is a fully-featured database with visual photo access that is
optimized for image management and retrieval. The database is organized
around a film strip metaphor and allows users to organize and find images
by visual content, subject or caption text. In addition, the photo database
is designed to store compressed "thumbnail" copies of digital images in
multiple film strips without duplicating the full images, thereby reducing
storage requirements and increasing overall speed.
IMAGING ALGORITHMS: The EasyPhoto environment incorporates a number of
easy-to-use image enhancement tools based on sophisticated imaging
algorithms. EasyPhoto's "magic filter" tools automatically detect and
digitally correct surface flaws such as scratches in the input image and
enable users to correct "red eye" in flash photographs. EasyPhoto's
ClearScan technology offers unique algorithms to identify and automatically
brighten dark areas. Finally, EasyPhoto's ClearPrint technology utilizes
intelligence regarding the capabilities of various output devices to
optimize the printed image.
EasyPhoto is now available in five languages, and the Company estimates that
it has an installed base of over 825,000 units as of July 31, 1996. The
EasyPhoto software, bundled with the EasyPhoto Reader, won a 1995 Software
Publishing Association (Codie) award for Best Product Launch.
EASYPHOTO READER
In February 1995, the Company
introduced the EasyPhoto Reader, which
was the first consumer-oriented photo
scanner designed specifically to read
photo prints of up to 5 in. x 7 in into a [PICTURE OF EASYPHOTO RIDER]
personal computer. Smaller than a
standard mousepad, the device was
designed specifically with the consumer
in mind to occupy limited desk space.
Installation is easy, with no interface
boards required. The device plugs
directly into the parallel port of a
computer with a pass-through connector
that enables printers to utilize the same
port. The EasyPhoto Reader includes a
motorized feeder and photo guides to read
photos automatically at the push of a
single button and to
ensure consistently high quality. It also reads over 16.7 million colors and
its standard hardware resolution, compatible with typical consumer output
devices, is set at 200 dots per inch (dpi), with software interpolation
enabling resolutions of up to 1200 dpi. The Company presently believes the
32
<PAGE>
EasyPhoto Reader to be the highest quality, easiest to use photo scanning
device at its present target street price of $199.
EASYPHOTO SMARTPAGE
The EasyPhoto SmartPage is a full-page,
sheetfed color scanner capable of
scanning wallet-sized to full-page photos [PICTURE OF EASYPHOTO
and documents (up to 8 1/2 in. x 14 in). While SMARTPAGE]
alternative products exist in the larger
size sheetfed category, the EasyPhoto
SmartPage is uniquely positioned beyond
the capabilities of text-based document
scanners toward the more demanding
requirements of color rich photo-centric
usage. The initial version of the
EasyPhoto SmartPage, which began shipping
in June 1996, uses a plug-and-play
interface board to scan photos at 300 dpi
resolution, with software interpolation
enabling resolutions of up to 1200 dpi as
with the EasyPhoto Reader. The product's
automatic document feeder handles up to
10 pages at a time to scan multiple
photos or documents with no intervention
required. Documents, which may include a
combination of photos, text and graphics,
may be stored either in
bitmapped form for applications such as electronic faxing or in text form for
use in computer data files via the bundled OCR software from TextBridge. The
EasyPhoto SmartPage is sold at a targeted street price of $299. The EasyPhoto
SmartPage hardware is currently purchased on an OEM basis from a third party.
EASYPHOTO DRIVE
The EasyPhoto Drive performs the [PICTURE OF EASYPHOTO DRIVE]
same photo reading functions as the
EasyPhoto Reader but is embedded
within a 5 1/4 drive bay of a PC,
permitting consumers to incorporate
photo reading capabilities inside
their PCs rather than having to
utilize an external device. A unique
feature of the EasyPhoto Drive is the
automatic nature of the photo scanning
process. Simply inserting a photo into
the EasyPhoto Drive launches the
EasyPhoto software on the PC and scans
the photo into the computer,
displaying the scan on the screen in
real
time as it is completed. The photo is then available for manipulation,
storage, organization and retrieval through the EasyPhoto software
environment. The EasyPhoto Drive is scheduled for release in the third quarter
of 1996 at a targeted street price of $199. The EasyPhoto Drive is capable of
up to a 400 dpi hardware resolution and 1200 dpi effective resolution through
software interpolation. The product includes an ISA interface board to be
installed with the drive.
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<PAGE>
PHOTODRIVE (OEM)
The PhotoDrive product first began
shipping in April 1996 and is an OEM-only [PICTURE OF PHOTODRIVE]
version of the EasyPhoto Drive with
equivalent specifications and capabilities.
Through October 1996, HP is the exclusive
OEM of the PhotoDrive product and bundles it
with certain models of the HP Pavilion line
of PCs. The PhotoDrive is generally offered
to PC suppliers with a customized
front bezel in order to integrate seamlessly
into the supplier's personal computer casing
from a design perspective. The Company
intends to expand distribution of the
PhotoDrive to additional OEMs once the
exclusivity period offered to HP
has elapsed.
PHOTO READER (OEM)
The Company also sells custom industrial design photo readers on an OEM
basis. The first such OEM is Polaroid with its PhotoPad product. The Company's
OEM distribution of its Photo Reader products is intended, in part, to address
certain non-consumer markets to which the Company does not directly market its
retail products, such as vertical markets in real estate, construction or
insurance.
PHOTO-CENTRIC APPLICATION SOFTWARE
While the EasyPhoto software environment enables organization of digital
photos, photo-centric application software enables the consumer to use digital
photos in interesting and creative ways. The Company expects such applications
to be developed both internally and by third parties for marketing and
distribution by the Company. The Company's first two such applications are
EasyPhoto Phone and EasyPhoto DesignWorks. EasyPhoto Phone, currently targeted
for release in the third quarter of 1996, was originally developed by Intel
and enables easy sharing of photos over normal analog phone lines, with
simultaneous voice in the event that digital simultaneous voice and data
(DSVD) modems are available. EasyPhoto DesignWorks, developed by the Company
and currently targeted for release in the fourth quarter of 1996, enables page
layout and use of the text and sound to create photo-based projects such as
photo albums, vacation scrapbooks, organization charts and insurance
inventories to send on line, display on screen or print. Both EasyPhoto Phone
and EasyPhoto DesignWorks will be tightly integrated with the EasyPhoto
software environment through its embedded OLE capabilities, and will be
distributed by the Company with EasyPhoto scanners and on an OEM basis through
PC providers.
PRODUCT WARRANTY
The Company's products are sold with a 30-day money-back guarantee directly
from the Company (in addition to any return policies available from the
retailer) as well as a 12-month hardware warranty.
MARKETING AND SALES
The Company pursues a two-pronged approach to marketing and sales. The first
focuses on aftermarket sales to existing PC users through leading computer
retail channels. Sales are promoted in this category through proactive
consumer marketing efforts designed to increase end user awareness of and
demand for EasyPhoto products. The second focuses on establishing OEM
relationships with leading personal computer manufacturers that distribute the
Company's products pre-installed in new PCs. Strategic marketing alliances
with a variety of select companies within the computer industry serve to
further broaden the distribution channel for the Company's products and to
establish the EasyPhoto brand.
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<PAGE>
MARKETING
The Company's marketing group is responsible for positioning and promoting
the Company's products on a worldwide basis. It employs a variety of consumer
marketing techniques to broaden end-user awareness of and demand for EasyPhoto
products. First among these is its effort to generate broad-based press
coverage, including in part product reviews, application stories and visual
product demonstrations in trade and consumer media. A small sampling of past
press coverage encompasses such publications and media as wide ranging as The
Wall Street Journal, The Today Show, CNN, PC Magazine, MacWorld, Family PC,
Brides Magazine and Rolling Stone. The Company estimates that it has generated
over 150 million press exposures for EasyPhoto products in the first quarter
of 1996 based upon subscription and viewer data reported by the media
providers.
While press coverage has been an essential component in building demand for
its EasyPhoto products, additional key elements include consumer advertising,
sampling, direct marketing, retail promotions and trade show participation.
The Company also seeks to reach a wide array of consumers through its World
Wide Web ("web") site located at http://www.easyphoto.com/storm/. Information
contained in the Company's web site shall not be deemed part of this
Prospectus.
As is common practice in the industry, in the event of a price decrease the
Company generally gives its distributors and resellers credit equal to the
difference between the price originally paid and the new price on units
remaining in the customers' inventories on the date of the price decrease.
When a price decrease is anticipated, the Company establishes reserves for
amounts estimated to be reimbursed to qualifying customers. In addition,
resellers and distributors generally have the right to return excess inventory
within specified time periods. See "Risk Factors--Distribution Risks" for a
discussion of certain risks relating to the Company's products.
STRATEGIC MARKETING ALLIANCES
The Company believes that broadening the awareness and distribution of its
products through strategic alliances with a variety of companies within the
computer industry is an important element in establishing its products as
market leaders and its EasyPhoto software as an industry standard. The Company
has recently established an OEM arrangement with HP for the incorporation of
the Company's PhotoDrives into certain models of HP's Pavilion line of home
computers, as well as with Polaroid for a private label external photo reader
device. The Company's EasyPhoto software is distributed broadly by numerous
partners, including HP and Acer with their home PCs, Polaroid and Nikon with
select scanner products, Epson both with its digital cameras and in 1996 as
part of an Epson Color Stylus inkjet printer promotion. The Company has
entered into an agreement with Intel Corp. ("Intel") providing for the right
to offer to sell the Company's EasyPhoto software environment by Intel to its
motherboard customers. The Intel agreement has a five-year term and is
automatically renewed for two successive two-year terms unless either party
provides written notice of termination. In addition, the Company has entered
into an agreement for the bundling of its EasyPhoto software with Netscape's
Navigator Gold Internet product.
RETAIL DISTRIBUTION
Retail distribution for the Company's products includes computer
superstores, consumer electronic superstores, office supply superstores and
specialty computer stores. In addition, the Company's retail distribution
includes on-line companies (such as America Online) and Internet stores, mail
order catalogs and direct consumer order fulfillment. The Company's products
are sold through many of the leading retailers of computer products in North
America, including the following retail chains and catalogs:
<TABLE>
<S> <C> <C> <C>
RETAIL CHAINS CATALOGS
- ----------------------------------------------------------- -------------------
Best Buy Elek-Tek, Inc. Nobody Beats the Wiz MicroWarehouse
Circuit City Fry's Electronics OfficeMax MidWest Micro
CompUSA Future Shop Ltd. Staples Multiple Zones
Computer
City Incredible Universe The Good Guys PC Connection, Inc.
Egghead
Software Media Play Tops Appliance City, Inc. Tiger Direct Inc.
Electronics
Boutique MicroCenter Ultimate Electronics Inc.
</TABLE>
35
<PAGE>
The Company also has distribution relationships with top North American
distributors, including Ingram Micro, Ingram Micro Canada and D&H Distributing
Co. These relationships are key to supplying the Company's products to smaller
regional, local and independent computer resellers and VARs.
CUSTOMER CONCENTRATION
Historically, a relatively small number of customers have accounted for a
significant percentage of the Company's total revenues, and the Company
expects that it will continue to experience significant customer concentration
for the foreseeable future. In 1993, sales to Radius accounted for 59% of
total revenues; in 1994, sales to Apple Computer and Radius accounted for 41%
and 39%, respectively, of total revenues; in 1995, sales to Circuit City and
Best Buy accounted for 27% and 11%, respectively, of total revenues; and in
the six months ended June 30, 1996, sales to America Online, Ingram Micro and
Best Buy accounted for 17%, 15% and 11%, respectively, of total revenues. The
Company does not expect that these customer percentages for the first half of
1996 will necessarily be representative of customer concentration for the full
year or any future period. In particular, the high percentage of sales to
America Online resulted from a promotional program during the first quarter of
1996. There can be no assurance that such customers or any other customers
will in the future continue to license or purchase products or services from
the Company at levels that equal or exceed those of prior periods, if at all.
INTERNATIONAL
The Company entered into international distribution agreements dated as of
February 29, 1996 with Primax and with Primax International, a wholly-owned
subsidiary of Primax, for the exclusive distribution of certain products in
Japan (OEM customers only), Taiwan, Korea, Hong Kong, China, India, ASEAN
countries (Singapore, Philippines, Thailand, Malaysia, Vietnam and Indonesia)
and Europe and nonexclusive distribution in Australia, New Zealand, the Middle
East and Africa. Subject to certain other terms and conditions, the Company
granted Primax and Primax International the right to distribute in their
respective territories certain of the Company's image scanning products and
technology. Primax and Primax International's exclusive distribution rights
are subject to certain quotas. Upon failure to meet such quotas, their
respective exclusive distribution licenses will convert to nonexclusive
licenses.
COMPETITION
The market for the Company's products is a relatively new and emerging
market. Although the Company currently competes directly with a relatively
small number of competitors, it faces indirect competition from a number of
sources and expects to experience increased competition in the future. One
source of potential future competition may arise from a group of established
manufacturers of text-oriented scanners such as Logitech, Microtek, Mustek,
PlusTek, UMAX and Visioneer. These manufacturers may leverage their existing
scanning technology in the future in an attempt to produce digital photo
devices at a price point and profile that is attractive to consumers, thereby
competing more directly with those of the Company. A second source of
potential future competition may arise from other current significant
participants in the digital photo market. Certain companies, including Epson,
Kodak and Polaroid, some of which are OEM software customers, have shipped or
indicated an intention to ship photo input devices. Other companies, including
HP, may choose to broaden their product mix to include small or large sized
sheetfed scanners that are targeted toward consumers and directly compete with
those offered by the Company. In addition, competition with the Company's
EasyPhoto software environment and application products may emanate from
developers of photo-oriented software such as Adobe, Fractal Design,
Microsoft, and a significant number of small companies now developing photo-
centric software. This latter group of companies may in the future compete
with the Company by developing advanced software capabilities to be offered on
a stand-alone basis, bundled with hardware, or integrated as part of an
operating system. The Company believes that as the digital photo market
evolves, it will face competition from a variety of sources, including those
identified above.
Many of the Company's potential competitors have longer operating histories
and significantly greater financial, technical, sales, marketing and other
resources, as well as greater name recognition
36
<PAGE>
and larger customer bases, than the Company. As a result, these competitors
may be able to respond more effectively to new or emerging technologies and
changes in customer requirements, withstand significant price decreases or
devote greater resources to the development, promotion, sale and support of
their products than the Company. There can be no assurance that the Company
will be able to compete successfully in the future or that competition will
not have a material adverse effect on the Company's business, operating
results and financial condition.
The Company believes that the principal competitive factors in its market
are integration of hardware and software design, ease of use, product
performance, feature functionality and reliability, price, availability of
third-party applications, timeliness of new product introductions, service,
support and size of installed base, as well as ability to enter into
successful strategic marketing alliances. Although the Company believes that
it is competitive with respect to most of these factors, there can be no
assurance that it will remain competitive in the future.
MANUFACTURING
The Company and Primax entered into a Manufacturing and Purchase Agreement
dated as of February 24, 1996 ("Manufacturing Agreement"), which provides
that, among other rights and obligations, Primax is the exclusive manufacturer
of certain of the Company's photo scanner products for a minimum 85% of its
unit volume. In addition to Primax's manufacturing obligations, Primax will in
certain circumstances deliver products it manufactures directly to the
Company's international and OEM customers. The Company will pay Primax
directly for all retail products. With regard to shipments to the Company's
OEM customers, Primax will receive payments directly from the customers then
forward a portion of such payment to the Company as a royalty.
The Company expects that it will continue to rely in the foreseeable future
on Primax for a majority of its manufacturing needs, including materials
procurement, assembly, system integration, testing and quality assurance.
There can be no assurance that Primax will be able to meet the Company's
requirements for quality manufactured products at competitive prices. Any
inability to obtain hardware components at competitive prices from Primax or
to increase manufacturing capacity from Primax as required could have a
material adverse effect on the Company's business, results of operations and
financial condition. The Company has the right to obtain an alternative
manufacturing source if Primax is unable to provide competitive pricing,
quality or availability. However, there can be no assurance that the Company
will be able to obtain such alternative manufacturing source on favorable
terms, if at all. Moreover, commencement of production of products at new
facilities involves certain start-up risks and delays, such as those
associated with the procurement of materials and training of production
personnel.
In addition, the Company is dependent on sole or limited source suppliers
for certain key components used in its products. These key components include
an ASIC within the EasyPhoto Reader product, which is currently available only
from Epson and the hardware for its EasyPhoto SmartPage product, which is
currently available only from Mustek. The Company has no long term agreements
with any of these suppliers for the purchase of these components. There can be
no assurance that such limited source suppliers will be able to meet the
Company's requirements for certain key components. If the Company or Primax
were unable to obtain sufficient supplies from their current suppliers or
develop alternative sources of these components in a timely manner, the
resultant shortage or delay could have a material adverse impact on the
Company's results of operations.
PRODUCT DEVELOPMENT
The Company's research and development team is located at the Company's
headquarters in Mountain View, California, and, as of June 30, 1996, employed
24 software and hardware design engineers, technicians and support staff. The
primary activities of these employees are new product development, enhancement
of existing products, product testing and technical documentation development.
37
<PAGE>
A principal focus of the Company's development activities is to integrate
its hardware and software systems with an intelligent user interface. To
achieve this, software development activities play a significant role in
designing a user-friendly interface, incorporating advanced user features and
developing an open environment accessible to third-party developers.
The Company believes that continued investment in research and development
is critical to the Company's future success. The Company is focusing on the
development of enhanced versions of the EasyPhoto software environment and new
photo input solutions and ongoing enhancements of existing photo scanner
products. During the years ended December 31, 1993, 1994 and 1995 and the six-
month periods ended June 30, 1995 and 1996, the Company's research and
development expenses were approximately $1.8 million, $2.1 million, $1.5
million, $0.7 million and $1.1 million, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PROPRIETARY RIGHTS
The Company's ability to compete successfully will depend, in part, on its
ability to protect its proprietary technology. Although the Company continues
to implement protective measures and intends to defend its proprietary rights,
there can be no assurance that these measures will be successful. The Company
relies on a combination of patent, copyright and trade secret protection,
nondisclosure agreements and cross-licensing arrangements to establish and
protect its proprietary rights. The Company has several patent applications
pending in the United States and intends to file additional applications as
appropriate for patents covering its products. There can be no assurance that
patents will issue from any of these pending applications or, if patents do
issue, that claims allowed will be sufficiently broad to protect the Company's
technology. There can also be no assurance that any patents issued to the
Company will not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide proprietary protection to the Company.
In addition, the laws of certain foreign countries may not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. The Company believes, however, that its success does not depend
primarily on its ownership of patents or other intellectual property rights,
but instead depends primarily upon innovative management, technical expertise
and marketing skills.
The Company has from time to time received, and may receive in the future,
communications from third parties asserting that the Company's products,
trademarks or trade names infringe on the proprietary rights of third parties
or seeking indemnification against such infringement. In response to such
communications, the Company consults with its counsel to assess the basis for
any claims of infringement by the Company's products. Due to a recent
communication, the Company has entered into a patent cross license agreement
with a third party. This agreement provides for a lump sum payment by the
Company and potential ongoing payments after two years relating to an
ancillary feature of certain of the Company's products for which payments
Primax has agreed to reimburse the Company pursuant to indemnification
obligations entered into in connection with the sale of technology to the
Company in March 1996. The Company believes that this agreement will not have
a material adverse effect on the Company's business, operating results or
financial condition.
The Company is not currently aware of any pending or threatened claims of
infringement of the proprietary rights of others with respect to the Company's
current or planned products. However, there can be no assurance that third
parties will not assert such claims or that any such claims will not require
the Company to enter into license agreements or result in costly protracted
litigation, regardless of the merits of such claims. No assurance can be given
that any necessary licenses will be available or that, if available, such
licenses will be obtainable on commercially reasonable terms.
EMPLOYEES
As of June 30, 1996, the Company had a total of 66 employees. Of this total,
24 were engaged in research, product development and engineering, 27 were
engaged in sales, marketing and customer
38
<PAGE>
support, and 15 were engaged in finance, operations and administrative
activities. Competition for employees in the Company's industry is intense.
None of the Company's employees are represented by a labor union. The Company
has not experienced any work stoppages and considers its relations with its
employees to be good.
FACILITIES
Substantially all of the Company's operations are currently located in two
Northern California facilities of approximately 12,000 and 29,000 square feet
of leased office and manufacturing space located in Mountain View and
Sunnyvale, California, respectively. The lease on the Mountain View facility
will expire in September 1996 and the lease on the Sunnyvale facility will
expire in May 2000. Upon expiration of the Mountain View facility lease, the
Company intends to consolidate its operations into the Sunnyvale facility. The
Company believes that additional space is likely to be required in the fourth
quarter of 1996 and is currently negotiating an agreement to secure such space.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The names, ages and positions of the executive officers and directors of the
Company, as of June 30, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
L. William Krause.............. 54 President, Chief Executive Officer and
Director
Adriaan Ligtenberg............. 40 Chief Technical Officer, Vice President,
Engineering and Director
Rick M. McConnell.............. 30 Chief Financial Officer and Vice President,
Finance and Administration
Barbara K. Windham............. 37 Vice President, Marketing
Robert F. Preston.............. 39 Vice President, Sales
Joseph G. Finegold............. 46 Vice President, Operations
Sherry A. Whiteley............. 36 Vice President, Human Resources
Richard C. Alberding(1)........ 65 Director
Mary Jane Elmore(1)............ 42 Director
Raymond Liang(2)............... 50 Director
Andrew S. Rappaport(2)......... 38 Director
An additional key employee of the Company is:
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dolf Starreveld................ 36 Director of Engineering
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
L. William Krause has served as President and Chief Executive Officer of the
Company since joining the Company in October 1991. Prior to joining the
Company, Mr. Krause spent ten years at 3Com Corporation, a manufacturer of
global data networking systems, where he was President and Chief Executive
Officer until he retired in September 1990. He continued as Chairman of the
Board for 3Com Corporation until 1993. Previously, Mr. Krause served in
various marketing and general management executive positions at Hewlett-
Packard, a manufacturer of computer hardware and software. Mr. Krause
currently serves as a director of Sybase, Inc. and Aureal Semiconductor, Inc.
Adriaan Ligtenberg founded the Company and has served as Director since its
inception, as Chief Technical Officer and Vice President, Engineering since
October 1991, and was its first Chief Executive Officer. Prior to Storm, Mr.
Ligtenberg co-founded C-Cube Microsystems Inc., a manufacturer of video
compression hardware, and served as Vice President from May 1989 until
December 1989. Prior to that, Mr. Ligtenberg was employed for five years by
AT&T Bell Laboratories Inc., a researcher for the communications industry,
where he served as Head of the Image Systems Group. He has been a core member
of the JPEG and MPEG image compression standards committees of the ISO/CCITT
and holds a Ph.D. from the Swiss Federal Institute of Technology.
Rick M. McConnell has served as Chief Financial Officer and Vice President,
Finance and Administration of the Company since January 1994. Prior to that,
Mr. McConnell was Director of Finance and Administration from June 1992 until
January 1994, after receiving his Masters in Business Administration from the
Stanford Graduate School of Business. From July 1987 to June 1990, Mr.
McConnell was employed as a financial engineer by The First Boston
Corporation, predecessor to CS First Boston, a financial services firm.
40
<PAGE>
Barbara K. Windham has served as Vice President, Marketing of the Company
since November 1994. Ms. Windham served as a Director of Marketing for
Electronic Arts, a marketer of entertainment software, from January 1988 to
April 1994. Previously, Ms. Windham worked at Worlds of Wonder Inc. and spent
five years at Procter & Gamble Co. in various marketing management positions.
Robert F. Preston has served as Vice President, Sales of the Company since
February 1996. From July 1993 to January 1996, Mr. Preston was Vice President
of Sales of Xircom, Inc., a manufacturer of network access products. In
January 1989, Mr. Preston founded Robert Preston & Associates, a full service
sales and marketing consulting firm, and served as its President from January
1989 to July 1993. Prior to 1989, Mr. Preston served in various sales and
marketing positions at Personal Computer Products, Inc., AST Research, Inc.
and International Business Machine Corp.
Joseph G. Finegold has served as Vice President, Operations of the Company
since June 1996. From November 1995 to June 1996, Mr. Finegold served as
Director of Production at Silicon Graphics, Inc., a manufacturer of
engineering workstations. From October 1994 to November 1995, Mr. Finegold was
Vice President of FAFCO, Inc., a solar heating and thermal energy storage
company. From December 1991 to October 1994, Mr. Finegold served as a product
marketing manager and a manufacturing manager for Quantum Corporation, a disk
drive company. From June 1985 to December 1991 Mr. Finegold served in the
positions of manufacturing manager and product manager for Hewlett-Packard.
Sherry A. Whiteley has served as Vice President, Human Resources of the
Company since June 1996. From May 1991 to June 1996, Ms. Whiteley served as a
director of Human Resources of Silicon Graphics Inc., and from November 1987
to April 1991 was the Vice President of Product Development at Activision,
Inc., a developer and distributor of entertainment software.
Richard C. Alberding has served as a director since March 1996. From 1958 to
1991, he served in various management positions with Hewlett-Packard, serving
most recently as Executive Vice President of Worldwide Marketing, Sales and
Support and as a member of the Executive Committee. Mr. Alberding is now
retired and is also a director of Digital Microwave Corp., Paging Network
Inc., Digital Link Corporation, Kennametal Inc., Quickturn Design Systems
Inc., Sybase, Inc. and Walker Interactive Systems Inc. and is a director of
various private companies.
Mary Jane Elmore has served as a director since November 1991. Since 1983,
Ms. Elmore has been a general partner of Institutional Venture Management, the
general partner of several Institutional Venture Partners venture capital
investment partnerships. Ms. Elmore also serves as a director of Clarify Inc.
Raymond Liang has served as a director since March 1996. Mr. Liang has been
Chief Executive Officer and President of Primax, which after giving effect to
the offering will be a 31.2% stockholder of the Company. Primax's stock is
traded publicly in Taiwan.
Andrew Rappaport has served as a director of the Company since November
1991. Mr. Rappaport has been the President of The Technology Research Group
Inc., a management consulting firm, since August 1984. Mr. Rappaport is also a
director of Aureal Semiconductor Inc.
Dolf Starreveld is a co-founder of the Company and has served as Director of
Engineering since January 1990. Prior to joining the Company, Mr. Starreveld
acted as a consultant for Apple Computer Europe and as Director of the
Computer Systems Group of the Department of Science at the University of
Amsterdam, where he obtained his Master's degree in high energy physics. He
has also been a member of the JPEG image compression Standards Committee of
the ISO/CCITT.
BOARD COMMITTEES
The Board of Directors has two standing committees: a Compensation Committee
and an Audit Committee. The Compensation Committee provides recommendations to
the Board concerning
41
<PAGE>
salaries and incentive compensation for officers and employees of the Company,
including stock options. The Audit Committee recommends the Company's
independent accountants and reviews the results and scope of audit and other
accounting related services provided by such auditors.
BOARD COMPENSATION
Historically, members of the Board of Directors have not received any cash
compensation for their services as members of the Board, although they are
reimbursed for reasonable travel expenses while attending Board and committee
meetings. Directors who are not employees of the Company or Primax are
eligible to participate in the automatic option grant program following the
closing of the Offering. See "--Benefit Plans--1996 Outside Directors Stock
Option Plan."
BOARD COMPOSITION
Currently all directors hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Officers are elected by and serve at the discretion of the Board of Directors.
There are no family relationships among the directors and executive officers
of the Company.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the compensation
received for services rendered to the Company during the year ended December
31, 1995 by the Chief Executive Officer of the Company and each of the
executive officers who served as such during 1995 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
1995 ANNUAL COMPENSATION AWARDS
---------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS (#)
--------------------------- --------- -------- --------------- ------------
<S> <C> <C> <C> <C>
L. William Krause.............. $150,000 -- -- --
Chief Executive Officer,
President
Dr. Adriaan Ligtenberg......... 125,000 -- -- --
Chief Technical Officer, Vice
President, Engineering
Rick M. McConnell.............. 90,000 -- -- 4,375
Chief Financial Officer, Vice
President, Finance and
Administration
Barbara K. Windham............. 125,000 $12,361 -- --
Vice President, Marketing
Former Officer:
Rick Cavin (1)................. 114,583 12,361 $2,945(2) --
Vice President, Sales
</TABLE>
- --------
(1) Mr. Cavin ceased to be an executive officer of the Company in November
1995.
(2) Represents the payment to Mr. Cavin of his accrued vacation time upon his
departure from the Company.
42
<PAGE>
STOCK OPTIONS
The following table provides information concerning grants of options to
purchase the Company's Common Stock made to each of the Named Executive
Officers during the year ended December 31, 1995.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------ ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------
NAME GRANTED(1) IN 1995 SHARE(2) DATE 5% 10%
---- ---------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
L. William Krause....... 0 -- -- -- -- --
Dr. Adriaan Ligtenberg.. 0 -- -- -- -- --
Rick M. McConnell(4).... 2,500 6.8% $0.40 1/19/05 $ 629 $1,593
1,875 5.1% $0.40 8/31/05 $472 $1,195
Robert F. Preston....... 0 -- -- -- -- --
Barbara K. Windham(5)... 3,000 8.2% $0.40 8/31/05 $ 755 $ 1,912
Former Officer:
Rick Cavin.............. 0 -- -- -- -- --
</TABLE>
- --------
(1) All options granted in 1995 were granted under the Option Plan (as defined
under "Benefit Plans"). The options generally have a four year vesting
schedule with 25% of the shares vesting at the end of each year. The Board
of Directors has discretion, subject to plan limits, to modify the terms
of outstanding options and to reprice the options. See "--Benefit Plans."
(2) The exercise price per share of options granted represented the fair
market value of the underlying shares of Common Stock on the dates the
options were granted as determined by the Board of Directors for each
grant date. The Company's Common Stock was not traded publicly at the time
of the option grants to the Named Executive Officers.
(3) Potential realizable values are net of exercise price, but before taxes
associated with exercise. The assumed 5% and 10% rates of stock price
appreciation are mandated by federal securities law and do not represent
the Company's estimate or projection of the future Common Stock price.
(4) Mr. McConnell was granted 2,500 options on January 19, 1995 and 1,875
options on August 31, 1995.
(5) Ms. Windham's option was granted on August 31, 1995.
43
<PAGE>
The following table sets forth certain information regarding option
exercises during the year ended December 31, 1995 and the value of unexercised
stock options held by each of the Named Executive Officers as of December 31,
1995.
AGGREGATE OPTION EXERCISES IN 1995
AND 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
NUMBER OF SHARES 1995 1995(2)
ACQUIRED ON VALUE -------------- --------------
NAME EXERCISE REALIZED EXERCISABLE(1) EXERCISABLE(1)
---- ---------------- -------- -------------- --------------
<S> <C> <C> <C> <C>
L. William Krause....... 0 -- 0 --
Dr. Adriaan Ligtenberg.. 0 -- 0 --
Rick M. McConnell....... 0 -- 8,125 0
Robert F. Preston....... 0 -- 0 --
Barbara K. Windham...... 33,000 0 0 0
Former Officer:
Rick Cavin ............. 0 -- 0 --
</TABLE>
- --------
(1) All options are immediately exercisable upon grant but are subject to a
repurchase option which vests monthly over four years.
(2) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1995 of $0.40 per share, as determined by the
Company's Board of Directors, less the aggregate exercise price.
BENEFIT PLANS
AMENDED AND RESTATED STOCK OPTION PLAN
The Board of Directors has reserved a total of 1,111,210 shares of Common
Stock for issuance under the Company's Amended and Restated Stock Option Plan
(the "Option Plan"), which amount will automatically be increased on the first
day of each fiscal year of the Company beginning on and after January 1, 1997
by a number of shares equal to 4% of the number of shares of the Company's
Common Stock issued and outstanding on the last day of the preceding fiscal
year. However, the automatic share reserve increase on the first day of a
fiscal year may not cause the aggregate of the outstanding options and the
share reserve for future issuances of options under the Option Plan to exceed
22% of the total number of shares of the Company's issued and outstanding
Common Stock on such date. The Option Plan permits the grant of options
intended to qualify as "incentive stock options" within the meaning of section
422 of the Internal Revenue Code of 1986, as amended, as well as nonstatutory
stock options. As of June 30, 1996, 249,120 shares subject to repurchase by
the Company had been issued upon the exercise of options granted under the
Option Plan, 270,382 shares not subject to repurchase had been issued upon the
exercise of options granted under the Option Plan, 333,917 shares were subject
to outstanding options granted under the Option Plan at a weighted average
exercise price of $3.25 and 257,791 shares remained available for future grant
under the Option Plan. Options may be granted to employees (including
directors and officers who are also employees), consultants and prospective
employees and consultants, although only employees (including directors and
officers who are also employees) may receive incentive stock options. The
exercise price per share of a nonstatutory stock option must equal at least
85% of the fair market value of a share of Common Stock on the date of grant,
and in the case of an incentive stock option, must be no less than the fair
market value of a share of Common Stock on the date of grant. Options granted
under the Option Plan are immediately exercisable, are subject to a repurchase
option which generally vests over a four year period and must be exercised
within ten years.
44
<PAGE>
1996 EMPLOYEE STOCK PURCHASE PLAN
A total of 75,000 shares of Common Stock have been reserved for issuance
under the Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan"),
none of which have yet been issued. The Purchase Plan permits eligible
employees to purchase Common Stock at a discount through accumulated payroll
deductions. The Purchase Plan is implemented through concurrent offering
periods, each of which is approximately 24 months in duration. Each offering
period will be divided into four consecutive 6-month purchase periods, and
participants will purchase shares on the last day of each purchase period. The
price at which shares are purchased under the Purchase Plan is equal to 85% of
the fair market value of a share of Common Stock on the first day of the
offering period or the last day of the purchase period, whichever is lower.
The initial offering period will commence on July 15, 1996.
1996 OUTSIDE DIRECTORS STOCK OPTION PLAN
A total of 112,500 shares of Common Stock have been reserved for issuance
under the Company's 1996 Outside Directors Stock Option Plan (the "Directors
Plan"), including 33,750 options granted prior to June 30, 1996. The Directors
Plan provides for the automatic grant of nonstatutory stock options to
directors of the Company who are not employees of the Company or Primax
("Outside Directors"). On May 20, 1996, each Outside Director was granted an
option to purchase 11,250 shares of Common Stock at an exercise price equal to
$4.00 per share. Thereafter, each new Outside Director elected after the
effective date of the offering automatically will be granted on the date of
his or her initial election an option to purchase 11,250 shares of Common
Stock. In addition, each Outside Director, other than an Outside Director who
has served on the Board of Directors for less than six months, will thereafter
be granted automatically an option to purchase 6,000 shares of Common Stock at
each annual meeting of the stockholders provided the Outside Director
continues to serve in such capacity following the annual meeting. The exercise
price per share of options granted under the Directors Plan will be equal to
the fair market value of a share of Common Stock on the date of grant. Shares
subject to an option granted under the Directors Plan vest over two years and
options granted under the Directors Plan must be exercised within ten years
from the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1995, the Compensation Committee of the
Company's Board of Directors established the levels of compensation for
certain of the Company's executive officers. The members of the Company's
Compensation Committee elected as of April 18, 1996 are Richard C. Alberding
and Mary Jane Elmore. Neither of these individuals has ever been an officer or
employee of the Company. Mr. Krause, the Company's President and Chief
Executive Officer, participated in the deliberations of the Compensation
Committee regarding executive compensation that occurred during 1995, but did
not take part in the deliberations regarding his own compensation.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company has
included in its Certificate of Incorporation a provision to eliminate the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, subject to certain exceptions.
In addition, the Bylaws of the Company provide that the Company is required to
indemnify its officers and directors under certain circumstances, including
those circumstances in which indemnification would otherwise be discretionary,
and the Company is required to advance expenses to its officers and directors
as incurred in connection with proceedings against them for which they may be
indemnified. The Company has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require the Company, among
other things, to indemnify such officers and directors against certain
liabilities that may arise by reason of their status or service as directors
or officers (other than liabilities arising from willful misconduct of a
culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms. The
Company is in the process of obtaining directors' and officers' liability
insurance. At present, the Company is not aware of any pending or threatened
litigation or proceeding involving a director, officer, employee or agent of
the Company in which indemnification would be required or permitted. The
Company believes that its charter provisions and indemnification agreements
are necessary to attract and retain qualified persons as directors and
officers.
45
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into indemnification agreements with its directors
and officers. Such agreements require the Company to indemnify such
individuals to the fullest extent permitted by Delaware law. See "Management--
Limitation of Liability and Indemnification Matters."
Since the Company's inception in January 1991, the Company has issued, in
preferred stock financing transactions (collectively, the "Preferred Stock
Financings"), shares of Preferred Stock as follows: an aggregate of 749,999
shares of Series A Preferred Stock at $4.00 per share on November 27, 1991; an
aggregate of 119,790 shares of Series B Preferred Stock at $4.80 per share on
January 30, 1992; an aggregate of 818,215 shares of Series C Preferred Stock
at $4.80 per share on May 19, 1994; an aggregate of 689,892 shares of Series D
Preferred Stock at $5.20 per share on July 27, 1995 and October 11, 1995; an
aggregate of 4,214,329 shares of Series E Preferred Stock at $.80 per share on
March 18, 1996; and an aggregate of 120,967 shares of Series F Preferred Stock
at $12.40 per share on June 11, 1996.
Preferred Stock issued in the Preferred Stock Financings will convert into
Common Stock on a1-for-1 basis upon the closing of the sale of the shares of
Common Stock offered hereby, except that the 120,967 shares of Series F
Preferred Stock held by Intel will convert into 179,999 shares of Common Stock
assuming a $10.00 per share price for the shares sold in the offering. The
following table summarizes the shares of Preferred Stock purchased by
executive officers, directors and five percent stockholders of the Company and
persons and entities associated with them in the Private Placement
Transactions.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D SERIES E SERIES F
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
INVESTORS(1) STOCK STOCK STOCK STOCK STOCK STOCK
------------ --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Aperture Associates
L.P.................... -- 72,916 135,416 48,077 -- --
Institutional Venture
Partners(2)............ 425,862 -- 183,125 100,299 -- --
L. William Krause....... 23,275 -- 20,833 19,230 -- --
Merrill, Pickard,
Anderson
& Eyre(3).............. -- -- 333,333 54,899 -- --
Nazem & Company......... -- -- -- 362,012 -- --
Primax Electronics,
Ltd.(3)................ -- -- -- 19,230 4,214,329 --
Sequoia Capital......... -- 41,666 16,134 9,518 -- --
Technology Venture
Investors ............. 300,862 -- 129,374 70,859 -- --
Intel(4)................ -- -- -- -- -- 120,967
</TABLE>
- --------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal and Selling Stockholders."
(2) Mary Jane Elmore, a director of the Company, is a general partner of
Institutional Venture Management V, the general partner of Institutional
Venture Partners V.
(3) Raymond Liang, a director of the Company, serves as Chairman and Chief
Executive Officer of Primax, which owned approximately 48% of the
Company's Common Stock as of June 30, 1996.
(4) Under the terms of the Series F Preferred Stock Purchase Agreement, in the
event of any proposed transaction that would result in a change of control
or a sale of all or substantially all of the Company's assets, the Company
must provide written notice to Intel, and Intel has a right to propose a
competitive offer that the Board of Directors of the Company must consider
in good faith.
46
<PAGE>
On February 24, 1996, the Company, Storm Acquisition Corporation, a wholly-
owned subsidiary of the Company ("Sub"), Primax and Primax USA entered into a
Reorganization Agreement, which was consummated March 18, 1996. Raymond Liang,
a director of the Company, serves as Chairman and CEO of Primax, which held
approximately 48% of the Company's Common Stock as of June 30, 1996. As a
result, Sub was merged with and into Primax USA (the "Merger"), whereby all of
the outstanding shares of common stock of Primax USA was converted into Series
E Preferred Stock of Storm. As a result of the Merger, 1,250,000 shares of
Storm Series E Preferred Stock were issued for all outstanding shares of
Common Stock of Primax USA and 2,964,329 shares of Storm Series E Preferred
Stock were issued to Primax Taiwan for the transfer of its assets and
technology. As part of the merger, the following ancillary documents were
executed:
ASSET TRANSFER AGREEMENT: On February 24, 1996, the Company and Primax
Taiwan entered into an Asset Transfer Agreement, which was consummated
March 18, 1996, ("Asset Transfer Agreement") which provided for, among
other rights and obligations, Primax's assignment and license of certain
patents, technology and know-how which related to the development of A6
Products (image scanning products and technology which accept photos up to
a maximum of five inches in width, excluding hand scanners which are not
made to be attached to a feeder base). Primax also assigned to Storm an
undivided one-half interest in certain other technology rendering such
technology the joint property of the parties. Other than the Company's
agreement to issue 2,964,329 shares of Series E Preferred Stock at $0.80
per share to Primax, neither party has a payment obligation to the other
party under the Asset Transfer Agreement.
MANUFACTURING AGREEMENT: On February 24, 1996, the Company and Primax
entered into the Manufacturing Agreement, which provides that, among other
rights and obligations, Primax is the exclusive manufacturer of certain of
the Company's photo scanner products for a minimum 85% of its unit volume.
The Company has the right to obtain an alternative manufacturing source if
Primax is unable to provide competitive pricing, quality or availability.
INTERNATIONAL DISTRIBUTION AGREEMENTS: The Company entered into
international distribution agreements dated as of February 29, 1996 with
Primax and Primax International. The primary distinction between the
distribution agreements, which are substantially similar in all other
respects, is the territory covered by the agreements. Subject to certain
other terms and conditions, the Company granted to Primax and to Primax
Europe certain rights, exclusive in certain territories and non-exclusive
in others, to distribute the Company's A6 Products, which A6 Products will
likely be manufactured by Primax pursuant to the Manufacturing Agreement
(see above). Primax's and Primax International's distribution rights are
subject to certain quotas and upon their failure to satisfy such quotas,
their respective exclusive distribution licenses will convert to
nonexclusive licenses.
NORTH AMERICAN DISTRIBUTION AGREEMENT: The Company and Primax entered
into the North American Distribution Agreement dated as of February 29,
1996, pursuant to which Primax granted the Company the right to distribute
Primax's non-A6 Products. The Company's right is exclusive with respect to
all customers other than OEM customers in the United States and Canada and
nonexclusive with respect to OEM customers in the United States and Canada
and all customers in South America, Central America and Mexico. If the
Company fails to satisfy certain distribution quotas, its exclusive
distribution license will convert to a nonexclusive license and certain
restrictions in the Asset Transfer Agreement will lapse.
SALES REPRESENTATIVE AGREEMENT: The Company and Primax entered into a
Sales Representative Agreement dated as of February 29, 1996, appointing
the Company as its exclusive sales representative to OEM customers in the
United States and Canada for Primax's pointing devices (such as mice, game
pads, joysticks, track balls, touch pads and remote cursor devices). In
consideration for accepting orders from and providing service to Primax's
OEM customers, the Company was to have received commissions for all sales
of pointing devices. If the Company failed to satisfy certain sales quotas,
its exclusive appointment as sales representative for pointing device
products would have resulted in a nonexclusive representation agreement.
This agreement was terminated by the parties effective July 1, 1996.
47
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1996, and as adjusted
to reflect the sale of the shares offered by this Prospectus, (i) by each of
the Company's directors and each of the Named Executive Officers, (ii) by all
current directors and executive officers as a group, and (iii) by each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING(1) OWNED AFTER OFFERING(1)
--------------------------- SHARES ---------------------------
NAME NUMBER PERCENT OFFERED NUMBER PERCENT
---- -------------- ------------ ------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Primax Electronics, 3,855,559 48.1% 742,500 3,113,059 31.1%
Ltd....................
6F, N. 159 Kang Ning
St.
Shi Chi Town, Taipei
Hsien
Taiwan R.O.C.
Institutional Venture 720,536 9.0% -- 720,536 7.2%
Partners V(2)..........
Mary Jane Elmore
3000 Sand Hill Road
Menlo Park, CA 94025
Technology Venture 501,095 6.2% -- 501,095 5.0%
Investors IV(3)........
2480 Sand Hill Road,
Suite #101
Menlo Park, CA 94025
Dr. Adriaan Ligtenberg.. 423,833 5.3% -- 423,833 4.2%
L. William Krause(4).... 365,913 4.6% -- 365,913 3.7%
Barbara K. Windham ..... 72,150 * -- 72,150 *
Robert F. Preston ...... 56,250 * -- 56,250 *
Rick M. McConnell ...... 49,999 * -- 49,999 *
Joseph G. Finegold(5)... 37,500 * -- 37,500 *
Sherry A. Whiteley(6)... 37,500 * -- 37,500 *
Andrew S. Rappaport(7).. 33,557 * -- 33,557 *
Rick Cavin.............. 7,500 * -- 7,500 *
Richard C. 11,250 * -- 11,250 *
Alberding(8)...........
Raymond Liang(9)........ 3,882,309 48.4% 742,500 3,139,809 31.3%
All directors and
executive officers as a
group(11 persons)(10).. 5,690,797 69.8% 742,500 4,948,297 48.8%
Other Selling
Stockholders, each of
whom owns less than 1%
of the Company's
outstanding Common
Stock prior to this
offering............... 25,000 * 7,500 17,500 *
</TABLE>
- --------
*Less than 1%.
(1) Except pursuant to applicable community property laws or as indicated in
the footnotes to this table, to the Company's knowledge, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such
stockholder.
(2) Includes 12,056 shares held by Institutional Venture Management V and
697,230 shares held by Institutional Venture Partners V. Ms. Elmore, a
director of the Company, is a general partner of Institutional Venture
Management V, the general partner of Institutional Venture Partners V,
which retains certain voting power over such shares. Although Ms. Elmore
may be deemed to be the beneficial owner of such shares, she disclaims
all such beneficial ownership except to the extent of any pecuniary
interest therein which she may have. Also includes 11,250 shares subject
to options held by Ms. Elmore exercisable within 60 days of June 30, 1996
of which 10,312 shares are subject to repurchase by the Company.
48
<PAGE>
(3) Includes 445,706 shares held by Technology Venture Investors IV, 52,095
shares held by TVI Partners IV, L.P., 1,533 shares held by TVI Affiliates
IV, L.P. and 1,761 shares held by TVI Affiliates IV 1988, L.P.
(4) Includes 346,683 shares held as Trustee of the Krause Trust dated June
21, 1994, as amended, 13,461 shares held as Trustee for LWK Ventures
Money Purchase Pension Plan dated January 1, 1991, and 5,769 shares held
as Trustee for LWK Ventures Profit Sharing Plan dated January 1, 1991.
(5) Includes 37,500 shares subject to options exercisable within 60 days of
June 30, 1996 of which 37,500 shares are subject to repurchase by the
Company.
(6) Includes 37,500 shares subject to options exercisable within 60 days of
June 30, 1996 of which 37,500 shares are subject to repurchase by the
Company.
(7) Includes 28,750 shares subject to options exercisable within 60 days of
June 30, 1996 of which 11,822 shares are subject to repurchase by the
Company.
(8) Includes 11,250 shares subject to options exercisable within 60 days of
June 30, 1996 of which 10,312 shares are subject to repurchase by the
Company.
(9) Includes 3,855,559 shares held by Primax. Mr. Liang, a director of the
Company, is Chairman and Chief Executive Officer of Primax, which retains
certain voting power over such shares. Although Mr. Liang may be deemed
to be the beneficial owner of such shares, he disclaims all such
beneficial ownership except to the extent of any pecuniary interest
therein which he may have.
(10) Includes 126,250 shares subject to options exercisable within 60 days of
June 30, 1996 of which 107,446 shares are subject to repurchase by the
Company.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of the offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of Common Stock, par value $0.001
per share, and 500,000 shares of Preferred Stock, par value $0.001 per share.
COMMON STOCK
As of June 30, 1996, assuming the conversion of all shares of Preferred
Stock into Common Stock, there were 8,021,556 shares of Common Stock
outstanding held of record by approximately 99 stockholders.
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders of the Company. Subject to the preferences
that may be applicable to any outstanding Preferred Stock, the holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." In the event of liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior
liquidation rights of any outstanding Preferred Stock. The Common Stock has no
preemptive, redemption, conversion or other subscription rights. The
outstanding shares of Common Stock are, and the shares offered by the Company
in the offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
PREFERRED STOCK
Upon the closing of the offering, each outstanding share of Preferred Stock
will be converted into one share of Common Stock and automatically retired.
Thereafter, the Board of Directors will be authorized, without further
stockholder approval, to issue up to 500,000 shares of Preferred Stock and to
determine the powers, preferences and rights and the qualifications,
limitations or restrictions granted to or imposed upon any unissued shares of
undesignated Preferred Stock and to fix the number of shares constituting any
series and the designations of such series. The issuance of Preferred Stock
may have the effect of delaying or preventing a change in control of the
Company. The issuance of Preferred Stock could decrease the amount of earnings
and assets available for distribution to the holders of Common Stock or could
adversely affect the rights and powers, including voting rights, of the
holders of the Common Stock. In certain circumstances, such issuance could
have the effect of decreasing the market price of the Common Stock. As of the
closing of the offering, no shares of Preferred Stock will be outstanding and
the Company currently has no plans to issue any shares of Preferred Stock.
WARRANTS
In May 1992, the Company issued for cash a warrant to Dominion Ventures,
Inc. to purchase an aggregate of 3,135 shares of Series B Preferred Stock.
This warrant has an exercise price of $4.80 per share and no expiration
provision.
In connection with certain market research studies performed for the Company
in 1994, the Company issued three warrants to Griggs Anderson Research to
purchase an aggregate of 3,413 shares of Common Stock. The warrants have an
exercise price of $0.40 per share and expire in 1999.
50
<PAGE>
On May 22, 1996, in connection with a strategic marketing agreement, the
Company issued a warrant to Intel to purchase 28,000 shares of Common Stock.
On June 11, 1996, in connection with the Series F Preferred Stock financing,
Intel exercised its contractual rights to convert its original warrant into a
right to purchase 28,000 shares of Series F Preferred Stock at a price of
$12.40 per share. The warrant expires in 1999.
REGISTRATION RIGHTS
Following the closing of the offering, certain holders of shares of Common
Stock (the "Holders"), will be entitled to certain rights with respect to the
registration of such shares under the Securities Act of 1933, as amended (the
"Securities Act"). Under the terms of agreements between the Company and such
Holders, beginning three months after the effectiveness of the offering, the
Holders have the right to require the Company, on not more than two occasions,
to file a registration statement under the Securities Act in order to register
all or any part of their shares of Common Stock. The Company may in certain
circumstances defer such registrations and the Underwriters have the right,
subject to certain limitations, to limit the number of shares included in such
registrations. Further, the Holders may require the Company to register all or
a portion of their shares with registration rights on Form S-3, when such form
becomes available to the Company, subject to certain conditions and
limitations. In the event that the Company proposes to register any of its
securities under the Securities Act, either for its own account or the account
of other security holders, the Holders are also entitled to include their
shares of Common Stock in such registration, subject to certain marketing and
other limitations. In addition, the co-founders and certain officers,
directors and employees of the Company, may include their shares in such a
registration subject to additional limitations. The registration rights of the
Holders and the co-founders expire on the date seven years from the closing of
the offering. Generally, the Company is required to bear the expense of all
such registrations. The Company intends to file a registration statement under
the Securities Act as soon as possible after the effective date of the
offering covering the shares of Common Stock reserved for issuance under the
Option Plan, the Purchase Plan and the Directors Option Plan.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law.
In general, Section 203 of the Delaware Law prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder, subject to
certain exceptions such as the approval of the board of directors and of the
holders of at least two-thirds of the outstanding shares of voting stock not
owned by the interested stockholder. The existence of this provision would be
expected to have the effect of discouraging takeover attempts, including
attempts that might result in a premium over the market price for the shares
of Common Stock held by stockholders.
These and other provisions could have the effect of making it more difficult
for a third party to effect a change in the control of the Board of Directors
and therefore may discourage another person or entity from making a tender
offer for the Company's Common Stock, including offers at a premium over the
market price of the Common Stock, and might result in delays in changes in
control of management. In addition, these provisions could have the effect of
making it more difficult for proposals favored by the stockholders to be
presented for stockholder consideration.
The Company has also included in its Certificate of Incorporation provisions
to eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by the
Delaware General Corporation Law and to indemnify its directors and officers
to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law.
51
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Boston
EquiServe L.P.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
10,021,556 shares of Common Stock (assuming no exercise of outstanding options
after June 30, 1996). Of these shares, the 2,750,000 shares sold in this
offering will be freely transferable without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 of the Securities Act (an
"Affiliate"), which shares will be subjected to the resale limitations of Rule
144 adopted under the Securities Act. The remaining 7,271,556 shares
outstanding upon completion of this offering and held by existing shareholders
will be "Restricted Securities" as that term is defined under Rule 144 (the
"Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below. As a result of the contractual restrictions described below,
and the provisions of Rule 144, 144(k) and 701, additional shares will be
available for sale in the public market as follows: (i) no shares will be
available for immediate sale in the public market on the date of the
Prospectus, (ii) 2,960,057 currently outstanding shares (as well as 98,803
additional shares issuable upon the exercise of stock options granted under
the Option Plan that will be vested) will be eligible for sale upon expiration
of lock-up agreements 180 days after the date of this Prospectus and (iv)
4,311,499 currently outstanding shares will be eligible for sale upon
expiration of their respective two-year holding periods, subject in the case
of shares held by affiliates to compliance with certain volume restrictions.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least two years (and, with respect to non-affiliates of the Company, a
person who has beneficially owned Restricted Securities less than three
years), will be entitled to sell in any three-month period a number of shares
that does not exceed the greater of (i) one percent of the then outstanding
shares of the Company's Common Stock (approximately 100,215 shares immediately
after the offering) or (ii) the average weekly trading volume of the Company's
Common Stock in the Nasdaq Stock Market during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Such sales pursuant to Rule 144 are
subject to certain requirements relating to manner of sale, notice and
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed to have been an
affiliate of the Company at any time during the 90 days immediately preceding
the sale and who has beneficially owned Restricted Shares for at least three
years is entitled to sell such shares pursuant to Rule 144(k) without regard
to the limitations described above. The Securities and Exchange Commission has
recently proposed to reduce the two and three year holding periods under Rule
144 to one and two years, respectively. If enacted, such modification will
have a material effect on the timing of when certain shares of Common Stock
become eligible for resale.
In addition, commencing 180 days after the offering, the holders of
4,311,499 shares of outstanding Common Stock and 44,799 shares of Common Stock
issuable upon exercise of certain warrants will have rights under certain
circumstances to require the Company to register their shares for future sale.
See "Description of Capital Stock--Registration Rights of Certain Holders."
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirement, of Rule 144. Any employee, officer director or consultant to the
Company who purchased his or her shares pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701.
Rule 701 permits affiliates to
52
<PAGE>
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell such shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait until 90 days
after the date of this Prospectus before selling such shares.
Persons who hold approximately 7,271,556 shares of the Company's Common
Stock after completion of the offering, including the Selling Stockholders and
all officers, directors and existing stockholders of the Company, have agreed
with the Representatives and/or the Company that, for a period of 180 days
following the date of this Prospectus, they will not sell, offer to sell,
contract to sell, grant any options to purchase, make any short sale or
otherwise dispose of any shares of Common Stock of the Company, or any options
or warrants to purchase any shares of Common Stock of the Company, whether now
owned or hereinafter acquired, by such holders or with respect to which they
have beneficial ownership within the rules and regulations of the SEC, except
for the shares of Common Stock offered in connection with the offering and
shares purchased in the open market. The Company has also agreed not to sell,
offer to sell, contract to sell, grant any option to purchase or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or any rights to acquire Common
Stock for a period of 180 days following the date of this Prospectus without
the prior written consent of Goldman, Sachs & Co. on behalf of the
Underwriters, subject to certain limited exceptions. The lockup agreements may
be released at any time as to all or any portion of the shares subject to such
agreements at the sole discretion of Goldman, Sachs & Co. on behalf of the
Underwriters.
The Company intends to file a Registration Statement on Form S-8 to register
the shares of Common Stock issuable upon exercise of options granted under the
Option Plan, the Directors' Plan and the Purchase Plan. Following the filing
of the Form S-8, shares of Common Stock issued under the Option Plan,
Directors' Plan and Purchase Plan will be available for sale in the public
market upon vesting and exercise of such options, subject to lock-up
restrictions described above and the Rule 144 volume limitations applicable to
affiliates.
Prior to this offering, there has been no public market for the Common Stock
and there is no assurance a significant public market for the Common Stock
will develop or be sustained after this offering. Sales of a substantial
amount of Common Stock in the public market could adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise capital through the sale of its equity securities. See "Risk Factors."
53
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Gray Cary Ware & Freidenrich, a Professional Corporation, Palo
Alto, California. Certain legal matters relating to the offering will be
passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. A general partnership, of
which certain members of Gray Cary Ware & Freidenrich are partners, owns an
aggregate of 5,208 shares of common stock of the Company.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1993, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 and the financial statements of Primax Electronics (U.S.A.),
Inc. as of December 31, 1993, 1994 and 1995 and for each of the three years in
the period ended December 31, 1995 included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act of 1933, as amended, with respect to the Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and such Common Stock,
reference is made to the Registration Statement and the exhibits and schedules
filed as part thereof. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, if such contract or document is filed as an
exhibit, reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each statement being
qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Commission's principal office in Washington D.C., and copies of
all or any part thereof may be obtained from such office after payment of fees
prescribed by the Commission.
The Company intends to furnish its stockholders with annual reports
containing audited annual financial statements and quarterly reports
containing unaudited interim financial statements for the first three fiscal
quarters of each fiscal year of the Company.
54
<PAGE>
STORM TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STORM TECHNOLOGY, INC.:
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheet.............................................. F-3
Consolidated Statement of Operations.................................... F-4
Consolidated Statement of Stockholders' Equity (Deficit)................ F-5
Consolidated Statement of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Unaudited Pro Forma Combined Statement of Operations for the Year Ended
December 31, 1995 for Storm Technology, Inc. and Primax Electronics
(USA), Inc.:........................................................... F-20
Unaudited Pro Forma Combined Statement of Operations for the Six Months
Ended June 30, 1996 for Storm Technology, Inc. and Primax Electronics
(USA), Inc.:........................................................... F-21
PRIMAX ELECTRONICS (USA), INC.:
Report of Independent Accountants....................................... F-23
Balance Sheet........................................................... F-24
Statement of Operations................................................. F-25
Statement of Shareholders' Equity (Deficit)............................. F-26
Statement of Cash Flows................................................. F-27
Notes to Financial Statements........................................... F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Storm Technology, Inc.
In our opinion, the accompanying consolidated balance sheet at December 31,
1994 and 1995 and the related consolidated statements of operations,
stockholders' equity (deficit) and of cash flows for each of the three years
in the period ended December 31, 1995 present fairly, in all material
respects, the financial position of Storm Technology, Inc. and the results of
the operations and cash flows in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
San Jose, California
January 19, 1996
F-2
<PAGE>
STORM TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, JUNE 30, 1996
---------------- ---------------------
PRO FORMA
1994 1995 ACTUAL (NOTE 2)
------- ------- -------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 542 $ 1,865 $ 1,503 $ 1,503
Short-term investments................ 1,747 -- 1,000 1,000
Accounts receivable, net (Note 4)..... 231 2,676 4,259 4,259
Receivable from related party......... -- -- 453 453
Inventories........................... 31 1,212 2,420 2,420
Other current assets.................. 230 66 90 90
------- ------- -------- --------
Total current assets................ 2,781 5,819 9,725 9,725
Property and equipment, net (Note 4).... 245 160 322 322
Goodwill................................ -- -- 782 782
Other assets............................ -- -- 64 64
------- ------- -------- --------
Total assets...................... $ 3,026 $ 5,979 $ 10,893 $ 10,893
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable...................... $ 99 $ 342 $ 909 $ 909
Accrued liabilities (Note 4).......... 286 314 2,352 2,352
Payable to related party.............. -- 2,590 7,829 7,829
------- ------- -------- --------
Total current liabilities........... 385 3,246 11,090 11,090
------- ------- -------- --------
Long-term liability..................... 100 -- -- --
------- ------- -------- --------
Commitments (Note 8)
Stockholders' equity (deficit) (Note 6):
Convertible preferred stock, $0.001
par value, 10,000,000 shares
authorized; 1,688,004, 2,377,896 and
6,713,192 shares issued and
outstanding at December 31, 1994 and
1995 and June 30, 1996 (unaudited),
respectively; no shares issued or
outstanding at June 30, 1996 pro
forma (unaudited).................... 2 2 7 --
Common stock, $0.001 par value,
10,000,000 shares authorized,
879,481, 938,741 and 1,245,919 shares
issued and outstanding at December
31, 1994 and 1995 and June 30, 1996
(unaudited), respectively; 8,021,556
shares issued and outstanding at June
30, 1996 pro forma (unaudited)....... 1 1 1 8
Additional paid-in capital............ 7,632 11,220 16,391 16,391
Deferred compensation................. -- -- (217) (217)
Accumulated deficit................... (5,094) (8,490) (16,379) (16,379)
------- ------- -------- --------
Total stockholders' equity
(deficit).......................... 2,541 2,733 (197) (197)
------- ------- -------- --------
Total liabilities and
stockholders' equity (deficit)... $ 3,026 $ 5,979 $ 10,893 $ 10,893
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
STORM TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Product....................... $ 1,211 $ 655 $ 5,245 $ 1,542 $ 7,633
Royalty and other............. 1,772 2,545 549 461 388
------- ------- ------- -------- --------
Total revenues.............. 2,983 3,200 5,794 2,003 8,021
Cost of product revenues........ 276 178 3,735 1,074 5,697
------- ------- ------- -------- --------
Gross profit.................... 2,707 3,022 2,059 929 2,324
------- ------- ------- -------- --------
Operating expenses:
Research and development...... 1,845 2,102 1,494 749 1,125
Marketing and selling......... 1,604 1,981 3,384 1,389 3,419
General and administrative.... 625 628 633 341 702
In-process research and
development.................. -- 500 -- -- 5,000
------- ------- ------- -------- --------
Total operating expenses.... 4,074 5,211 5,511 2,479 10,246
------- ------- ------- -------- --------
Loss from operations............ (1,367) (2,189) (3,452) (1,550) (7,922)
Interest income, net............ 42 96 56 25 33
------- ------- ------- -------- --------
Net loss........................ $(1,325) $(2,093) $(3,396) $ (1,525) $ (7,889)
======= ======= ======= ======== ========
Pro forma net loss per common
and common equivalent share
(unaudited--Note 2)............ $ (0.45) $ (0.20) $ (0.98)
======= ======== ========
Pro forma weighted average
number of common and common
equivalent shares (unaudited--
Note 2)........................ 7,588 7,473 8,047
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
STORM TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ----------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
--------- ------ --------- ------ ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1992................... 869,789 $ 1 780,411 $ 1 $ 3,687 $ -- $ (1,676) $ 2,013
Issuance of common stock
under stock
option plan............ -- -- 98,311 -- 39 -- -- 39
Net loss................ -- -- -- -- -- -- (1,325) (1,325)
--------- ---- --------- ---- ------- ----- -------- -------
BALANCE AT DECEMBER 31,
1993................... 869,789 1 878,722 1 3,726 -- (3,001) 727
Issuance of common stock
under stock
option plan............ -- -- 21,749 -- 10 -- -- 10
Repurchase of common
stock.................. -- -- (20,990) -- (10) -- -- (10)
Issuance of Series C
convertible preferred
stock for cash, net of
issuance costs of $20.. 818,215 1 -- -- 3,906 -- -- 3,907
Net loss................ -- -- -- -- -- -- (2,093) (2,093)
--------- ---- --------- ---- ------- ----- -------- -------
BALANCE AT DECEMBER 31,
1994................... 1,688,004 2 879,481 1 7,632 -- (5,094) 2,541
Issuance of common stock
under stock
option plan............ -- -- 59,260 -- 24 -- -- 24
Issuance of Series D
convertible preferred
stock for cash, net of
issuance costs of $23.. 689,892 -- -- -- 3,564 -- -- 3,564
Net loss................ -- -- -- -- -- -- (3,396) (3,396)
--------- ---- --------- ---- ------- ----- -------- -------
BALANCE AT DECEMBER 31,
1995................... 2,377,896 2 938,741 1 11,220 -- (8,490) 2,733
Issuance of common stock
under stock option plan
(unaudited)............ -- -- 307,178 -- 123 -- -- 123
Issuance of Series E
convertible preferred
stock for acquired
business and
technology, net of
issuance costs of $128
(unaudited)............ 4,214,329 5 -- -- 3,238 -- -- 3,243
Issuance of Series F
convertible preferred
stock for cash, net of
issuance costs of $10
(unaudited)............ 120,967 -- -- -- 1,490 -- -- 1,490
Deferred stock
compensation related to
the issuance of certain
stock options
(unaudited)............ -- -- -- -- 233 (233) -- --
Other (unaudited)....... -- -- -- -- 87 16 -- 103
Net loss (unaudited).... -- -- -- -- -- -- (7,889) (7,889)
--------- ---- --------- ---- ------- ----- -------- -------
BALANCE AT JUNE 30, 1996
(UNAUDITED)............ 6,713,192 $ 7 1,245,919 $ 1 $16,391 $(217) $(16,379) $ (197)
========= ==== ========= ==== ======= ===== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
STORM TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net loss........................ $(1,325) $(2,093) $(3,396) $ (1,525) $ (7,889)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and
amortization................. 80 143 142 77 117
Write-off of purchased in-
process research and
development (Note 3)......... -- 500 -- -- 5,000
Other non-cash charges........ -- -- -- -- 35
Changes in assets and
liabilities:
Accounts receivable......... 287 (58) (2,445) (652) 389
Inventories................. (12) 7 (1,181) (500) 1,244
Other current assets........ (68) (139) 164 168 (24)
Other long-term assets...... -- -- -- -- (64)
Accounts payable............ 101 (125) 2,833 652 407
Accrued liabilities......... 1,091 (1,024) 28 (1) 36
Payable to related party.... -- -- -- 4 (412)
------- ------- ------- -------- --------
Net cash provided by (used
in) operating
activities............... 154 (2,789) (3,855) (1,777) (1,161)
------- ------- ------- -------- --------
Cash flows from investing
activities:
Purchase of property and
equipment.................... (187) (147) (57) (28) (182)
(Purchases) sales of short-
term investments............. (90) (451) 1,747 1,747 (900)
Other......................... -- (345) (100) (100) 268
------- ------- ------- -------- --------
Net cash (used in)
provided by investing
activities............... (277) (943) 1,590 1,619 (814)
------- ------- ------- -------- --------
Cash flows from financing
activities:
Proceeds from issuance of
convertible preferred stock,
net.......................... -- 3,907 3,564 -- 1,490
Proceeds from issuance of
common stock................. -- 10 24 7 123
Repurchase of common stock.... -- (10) -- -- --
------- ------- ------- -------- --------
Net cash provided by
financing activities..... -- 3,907 3,588 7 1,613
------- ------- ------- -------- --------
Net increase (decrease) in cash
and cash equivalents........... (123) 175 1,323 (151) (362)
Cash and cash equivalents at the
beginning of the period........ 490 367 542 542 1,865
------- ------- ------- -------- --------
Cash and cash equivalents at the
end of the period.............. $ 367 $ 542 $ 1,865 $ 391 $ 1,503
======= ======= ======= ======== ========
</TABLE>
Refer to Note 3 for disclosure of non-cash investing activities.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1--DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Storm Technology, Inc. (the "Company," formerly Storm Software, Inc.), was
incorporated in California on January 17, 1990. The Company is a leading
provider of digital photo solutions which enable consumers and small
businesses to input, store, organize, enhance and use photos easily on their
personal computers.
Unaudited
On March 18, 1996, the Company acquired all outstanding shares of Primax
Electronics (USA), Inc. ("Primax USA") and certain technologies from Primax
Electronics, Ltd. ("Primax Taiwan") in exchange for 4,214,329 shares of the
Company's Series E Preferred Stock. The accompanying financial statements
present the accounts of Storm Technology, Inc. for the three year periods
ended December 31, 1993, 1994 and 1995 and for the unaudited six month periods
ended June 30, 1995 and 1996. The consolidated financial statements for the
six month period ended June 30, 1996 include the results of Primax USA for the
period subsequent to the acquisition date through June 30, 1996. All
significant intercompany accounts and transactions have been eliminated.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of the Company's significant accounting policies:
Revenue recognition
Revenue from product sales to customers is generally recognized when the
product is shipped, provided collectibility is probable. Revenues from sales
to distributors and authorized resellers are subject to agreements allowing
price protection and certain rights of return. Accordingly, reserves for
estimated future returns and credits for price protection are provided for
upon revenue recognition. Such reserves are estimated based on historical
rates of returns and allowances, distributor inventory levels and other
factors.
Revenue from royalty fees under certain product royalty agreements is
generally recognized upon shipment of related products to customers.
Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less at the date of purchase to be cash
equivalents.
Short-term investments
The Company classifies short-term investments, consisting solely of U.S.
Government obligations maturing within one year, as available-for-sale.
Fair value of financial instruments
The carrying amount of the Company's financial instruments, including short-
term investments, accounts receivable, receivable from related party and
payable to related party, approximate fair values.
F-7
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of bank deposits, short-term
investments and accounts receivable. The Company places its cash primarily in
checking and money market accounts, certificates of deposits and U.S. treasury
bills. The Company's accounts receivable are derived from revenues earned from
customers located primarily in the U.S. The Company performs ongoing
evaluations of its customers' financial condition and maintains an allowance
for doubtful accounts based upon the expected collectibility.
The following table summarizes the revenues from customers in excess of 10%
of total revenues for each applicable period:
<TABLE>
<CAPTION>
SIX
YEAR ENDED MONTHS
DECEMBER 31, ENDED
---------------- JUNE 30,
1993 1994 1995 1996
---- ---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Radius Inc. ................................ 59% 39% -- --
Apple Computer, Inc. ....................... -- 41% -- --
Circuit City Stores, Inc. .................. -- -- 27% --
Best Buy Company, Inc. ..................... -- -- 11% 11%
Ingram Micro Inc. .......................... -- -- -- 15%
America Online Inc. ........................ -- -- -- 17%
</TABLE>
At December 31, 1993, Radius Inc. accounted for 53% of total accounts
receivable. At December 31, 1994, Radius Inc. and Apple Computer, Inc.
accounted for 67% and 0% of total accounts receivable, respectively. At
December 31, 1995, Circuit City Stores, Inc. and Best Buy Company, Inc.
accounted for 34% and 25% of total accounts receivable, respectively. At June
30, 1996, Best Buy Company, Inc., Ingram Micro Inc. and America Online Inc.
accounted for 8%, 11% and 9% of total accounts receivable, respectively
(unaudited).
Inventories
Inventories, which consist entirely of finished goods, are stated at the
lower of cost, determined using the first-in, first-out method, or market.
The Company currently buys most of its photo readers from one supplier.
Although there are a limited number of manufacturers of the photo readers,
management believes that other suppliers could provide similar photo readers
on comparable terms. A change in suppliers, however, could cause a possible
loss of sales, which may affect operating results adversely.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets
ranging from three to five years.
F-8
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Software development costs
Software development costs incurred prior to establishment of technological
feasibility are expensed as incurred. The Company defines establishment of
technological feasibility as the completion of a working model. Software
development costs incurred subsequent to the establishment of technological
feasibility through the period of general market availability of products will
be capitalized, if material. To date, all software development costs have been
expensed.
Goodwill (unaudited)
Goodwill represents cost in excess of net assets acquired from Primax Taiwan
on March 18, 1996 (see Note 3). The goodwill is being amortized over a period
of four years and amortization expense totaled $52 for the period ended June
30, 1996. The Company periodically reviews the value of its goodwill to
determine if an impairment has occurred. The Company measures the potential
impairment of recorded goodwill by comparing the undiscounted expected future
operating cash flows in relation to its net investment. Based on its review,
the Company does not believe that an impairment of its goodwill has occurred.
Advertising expense
Advertising is expensed as incurred and amounted to $12, $69, $423, $171 and
$314 for the years ended December 31, 1993, 1994 and 1995 and the six months
ended June 30, 1995 and 1996, respectively.
Income taxes
Income taxes are accounted for under the asset and liability approach. The
asset and liability approach requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities.
Stock-based compensation (unaudited)
In October 1995, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). The Company will be required to adopt SFAS 123 in the year
ending December 31, 1996. It is the Company's intention to continue to account
for employee stock options in accordance with Accounting Principles Board
Opinion No. 25 and to adopt the "disclosure only" alternative described in
SFAS 123.
Pro forma net loss per share (unaudited)
Pro forma net loss per share is computed using the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares consist of convertible preferred stock (using the if-
converted method) and stock options (using the treasury stock method). Common
equivalent shares are excluded from the computation if their effect is anti-
dilutive, except that, pursuant to a Securities and Exchange Commission Staff
Accounting Bulletin, shares of common stock, convertible preferred stock
(using the if-converted method) and common stock options and warrants (using
the treasury stock method and the assumed initial public offering price)
issued within 12 months prior to the Company's initial public offering have
been included in the computation as if they were outstanding for each period
presented.
Historical net loss per share has not been presented since such amounts are
not deemed to be meaningful due to the significant change in the Company's
capital structure which will occur in connection with the Offering.
F-9
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Pro forma balance sheet information (unaudited)
Upon the effective date of the proposed initial public offering of the
Company's common stock, each outstanding share of convertible preferred stock
will automatically convert into shares of common stock.
The pro forma balance sheet information at June 30, 1996 is adjusted to
reflect the conversion of the outstanding shares of convertible preferred
stock into 6,775,637 shares of common stock at June 30, 1996.
Interim financial information
The unaudited interim financial statements have been prepared on the same
basis as the Company's audited financial statements for the year ended
December 31, 1995. In management's opinion, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results for the six months ended June 30, 1995 and 1996 have been made. The
results for the six months ended June 30, 1996 are not necessarily indicative
of the results to be expected for the entire year ending December 31, 1996.
Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3--ACQUISITIONS:
In 1994, the Company acquired certain assets of CyberPuppy Software, Inc.
("CyberPuppy") for a total purchase price of $550, which included minimum
guaranteed royalties totaling $200. Of the purchase price, $500 was allocated
to in-process research and development, and charged to expense during 1994.
During 1995, the Company terminated their rights to the acquired intellectual
property and returned the remaining assets of the CyberPuppy business in
exchange for cancellation of the remaining minimum guaranteed royalties
commitment.
Unaudited
On March 18, 1996, the Company acquired all outstanding shares of Primax USA
and certain technologies from Primax Taiwan in exchange for 4,214,329 shares
of the Company's Series E Convertible Preferred Stock. The transaction was
accounted for under the purchase method of accounting. Approximately $5
million of the purchase price was allocated to in-process research and
development. The value assigned to in-process research and development was
determined by an independent appraiser. Because such technology was in-process
hardware research and development, the amount was immediately charged to
operations.
In conjunction with the acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Tangible assets.................................................. $ 5,287
In-process research and development.............................. 5,000
Goodwill......................................................... 834
Series E Preferred Stock issued, net............................. (3,243)
-------
Liabilities assumed................................................ $(7,878)
=======
</TABLE>
F-10
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The Company's consolidated financial statements for the six month period
ended June 30, 1996 include Primax USA for the period subsequent to the
acquisition date.
The following table presents the unaudited pro forma consolidated results of
operations for the six months ended June 30, 1995 and 1996 as if the
transaction completed in 1996 had been completed on January 1, 1995, with the
pro forma adjustments giving effect principally to the elimination of service
revenues recognized by Primax USA related to services performed for Storm and
the amortization of goodwill:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED
------------------ DECEMBER 31,
1995 1996 1995
-------- -------- ------------
<S> <C> <C> <C>
Total revenues.............................. $ 5,014 $10,125 $13,895
Net loss.................................... (2,169) (3,368) (4,746)
Pro forma net loss per common and common
equivalent share (see Note 2).............. $ (0.29) $ (0.42) $ (0.63)
</TABLE>
In connection with the acquisition, the Company also entered into a series
of distribution agreements with Primax Taiwan and Primax Electronics Europe
B.V. The agreements provide Primax Taiwan with an exclusive license to
manufacture and distribute certain products owned by the Company in both
domestic and international markets for a term of four years.
NOTE 4--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995 JUNE 30, 1996
----- ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable, net
consisted of:
Accounts receivable..... $ 298 $2,832 $5,157
Allowance for sales
returns and other
credits................ (64) (137) (602)
Allowance for doubtful
accounts............... (3) (19) (296)
----- ------ ------
$ 231 $2,676 $4,259
===== ====== ======
Property and equipment,
net consisted of:
Computer equipment...... $ 464 $ 521 $ 705
Furniture and fixtures.. 46 46 89
----- ------ ------
510 567 794
Less: accumulated
depreciation........... (265) (407) (472)
----- ------ ------
$ 245 $ 160 $ 322
===== ====== ======
Accrued liabilities
consisted of:
Accrued employee
benefits............... $ 85 $ 92 $ 218
Reserve for returns of
discontinued products.. -- -- 1,116
Marketing costs......... 70 132 545
Other................... 131 90 473
----- ------ ------
$ 286 $ 314 $2,352
===== ====== ======
</TABLE>
F-11
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 5--RELATED PARTY TRANSACTIONS (UNAUDITED):
During the year ended December 31, 1995 and the six months ended June 30,
1996, Storm purchased inventories from Primax Taiwan totaling $4,665 and
$5,476, respectively.
The receivable from related party at June 30, 1996 of $453 is due from
Primax Taiwan and consists of royalty and other income and receivables assumed
in connection with the acquisition of Primax USA. The payable to related party
in the amount of $2,590 at December 31, 1995 consists of the amounts payable
to Primax Taiwan for purchased inventories. At June 30, 1996, the payable to
related party of $7,829 includes approximately $5,000 of payable to Primax
Taiwan assumed from Primax USA.
NOTE 6--STOCKHOLDERS' EQUITY (DEFICIT):
Delaware reincorporation and reverse stock split (unaudited)
In March 1996, the Board approved reincorporation in the State of Delaware,
including a one for four reverse stock split of the outstanding shares of the
Company's common stock effected through the exchange ratio of the
reincorporation merger. The reincorporation must be approved by the
stockholders and a certificate of merger must be filed with the State of
Delaware to effect the reincorporation. Such certificate of merger has not yet
been submitted. All share and per share data have been retroactively adjusted
to reflect this reincorporation.
Convertible Preferred Stock
Convertible preferred stock as of December 31, 1995 consisted of the
following series:
<TABLE>
<CAPTION>
NON-
CUMULATIVE
LIQUIDATION DIVIDENDS
SERIES AUTHORIZED OUTSTANDING PREFERENCE PER SHARE
------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
A.............................. 750,000 749,999 $3,000 $0.32
B.............................. 122,927 119,790 575 0.40
C.............................. 818,217 818,215 3,927 0.40
D.............................. 689,897 689,892 3,587 0.40
</TABLE>
The aggregate authorized number of preferred shares is 10,000,000.
The holders of Common and Series A, B, C and D shares, have voting rights
equal to common stock on an as-if converted basis and are entitled to elect
three members of the Company's Board of Directors (the "Board"). The holders
of common stock, voting as a class, are entitled to elect one director to the
Board.
Holders of Series A, B, C and D shares are entitled to receive noncumulative
dividends at the rates shown above when and if declared by the Board, prior to
and in preference to any declaration or payment of any dividend on common
stock.
In the event of liquidation, the holders of Series A, B, C and D shares are
entitled to receive, prior to and in preference to any distribution to the
holders of common stock, the amounts shown above, plus any accrued but unpaid
dividends. After completion of this distribution, the holders of Series E
shares are entitled to receive, prior to and in preference to the holders of
common stock, the amount shown above, plus any accrued but unpaid dividends.
F-12
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
After completion of this distribution, each holder of the common shares,
with each holder of Series A, B, C and D shares, treated on an as-if converted
basis, shall receive an amount equal to $12.00 per share. If $12.00 per share
has been paid to each holder of preferred shares as provided above, the
holders of common stock are entitled to receive, in addition, an amount equal
to all declared but unpaid dividends. After the above distributions have been
made, the remaining assets shall be distributed among the holders of the
preferred and common shares, assuming full conversion.
Each Series A, B, C and D share is convertible into shares of common stock
on a one-for-one basis, with automatic conversion (i) upon the vote of 66 2/3%
of the holders of Series A, B, C and D shares outstanding at the time of such
vote; or (ii) upon the closing of an underwritten public offering in which the
aggregate offering price is not less than $7,500 and the per share price is
not less than $8.80 per share, subject to adjustment for dilution. At December
31, 1995, 2,381,041 shares of common stock were reserved for conversion of the
preferred stock.
The holders of Series A, B, C, and D shares have a right of first refusal to
purchase, pro rata, any new securities issued by the Company, so as to
maintain their percentage ownership of the common stock of the Company on an
as-converted basis. This right terminates upon the closing of a public
offering at a minimum price of $8.80 per share and aggregate minimum offering
proceeds of $7,500.
Series E Convertible Preferred Stock--(unaudited)
On March 18, 1996, the Company issued 4,214,329 shares of Series E
convertible preferred stock (the "Series E shares"). Each share of Series E
stock is convertible into one share of common stock. Holders of the Series E
shares, voting as a class, are entitled to elect three Directors to the Board.
The holders of Series E shares will be entitled to receive non-cumulative
dividends at a rate of $0.08 per share, when and if declared by the Board,
prior to and in preference to any declaration or payment of any dividend on
Common Stock, but subsequent to any declaration or payment of any dividend on
Series A, B, C and D preferred stock.
In the event of liquidation, the holders of Series E shares are entitled to
receive, prior to and in preference to any distribution to the holders of
Common Stock, but subsequent to any distribution to the holders of Series A,
B, C and D shares, $0.80 per share plus any accrued but unpaid dividends.
After completion of such distribution to the holders of Series E shares, each
holder of the common shares, with each holder of Series A, B, C, D and E
shares, treated on an as-if converted basis, shall receive an amount equal to
$12.00 per share.
The holders of Series E shares have the same rights of first refusal to
purchase any new securities issued by the Company, with the same termination
conditions as the holders of the Series A, B, C and D Shares.
Series F Convertible Preferred Stock--(unaudited)
On June 11, 1996, the Company issued 120,967 shares of Series F Convertible
Preferred Stock at $12.40 per share. Each holder of a Series F share is
entitled to similar voting and liquidation rights as holders of Series A, B, C
and D shares. Holders of Series F shares are entitled to receive non-
cumulative dividends at a rate of $0.40 per share when and if declared by the
Board, prior to and in preference to any declaration or payment of any
dividend on common stock.
F-13
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
In the event of liquidation, the holders of Series F shares are entitled to
receive $12.40 per share, plus any accrued but unpaid dividends, prior to and
in preference of any distribution to the holders of Series E shares and common
shares. Holders of Series F shares will also participate in the distribution
of any remaining assets after the liquidation preferences of holders of Series
A, B, C, D and E shares and common stock.
The holders of Series F shares join in the right of first refusal to
purchase any new securities issued by the Company, so as to maintain their
percentage ownership of the common stock of the Company on an as-if converted
basis. This right terminates upon the closing of a public offering.
Under the terms of the Series F Preferred Stock Purchase Agreement, the
Company is required to notify holders of Series F of any proposed transaction
that would result in a change of control or a sale of all or substantially all
of the Company's assets. The holders of Series F have a right to propose a
competitive offer that the Board must consider in good faith.
Warrants for Series B Convertible Preferred Stock
In May 1992, the Company issued warrants to purchase 3,135 shares of Series
B for $4.80 per share and no expiration provision. Such warrants are
outstanding at December 31, 1995 and June 30, 1996 (unaudited).
Warrants for Series F Convertible Preferred Stock (Unaudited)
On May 22, 1996, in connection with a strategic marketing agreement, the
Company issued a warrant to Intel to purchase 28,000 shares of Common Stock.
On June 11, 1996, in connection with the Series F Preferred Stock financing,
Intel exercised its contractual right to convert its original warrant into a
right to purchase 28,000 shares of Series F Preferred Stock at a price of
$12.40 per share.
Warrants for common stock
In 1994, the Company issued warrants to purchase 3,413 shares of common
stock for $0.40 per share. Such warrants are outstanding at December 31, 1995
and June 30, 1996 (unaudited) and expire in 1999.
Stock option plan
In November 1991, the Company adopted the 1991 Stock Option Plan (the
"Option Plan") that allows for the issuance of incentive and nonqualified
stock options to employees and consultants of the Company, and expires in
2001. The Option Plan, as amended, provides for the issuance of up to 513,634
incentive and nonqualified stock options as of December 31, 1995.
F-14
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table summarizes activity under the Option Plan:
<TABLE>
<CAPTION>
EXERCISE
SHARES OPTIONS PRICE PER
AVAILABLE OUTSTANDING SHARE
--------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992............ 77,729 225,660 $0.40
Additional shares authorized............ 156,250 --
Options granted......................... (129,179) 129,179 0.40
Options exercised....................... -- (98,311) 0.40
Options canceled........................ 55,655 (55,655) 0.40
-------- --------
BALANCE AT DECEMBER 31, 1993............ 160,455 200,873 0.40
Shares repurchased...................... 20,990 --
Options granted......................... (117,750) 117,750 0.40
Options exercised....................... -- (21,749) 0.40
Options canceled........................ 67,318 (67,318) 0.40
-------- --------
BALANCE AT DECEMBER 31, 1994............ 131,013 229,556 0.40
Options granted......................... (36,705) 36,705 0.40
Options exercised....................... -- (59,260) 0.40
Options canceled........................ 87,896 (87,896) 0.40
-------- --------
BALANCE AT DECEMBER 31, 1995............ 182,204 119,105 0.40
Additional shares authorized (unau-
dited)................................. 597,577 --
Options granted (unaudited)............. (537,067) 537,067 0.40-10.00
Options exercised (unaudited)........... -- (307,178) 0.40-5.00
Options canceled (unaudited)............ 15,077 (15,077) 0.40
-------- --------
BALANCE AT JUNE 30, 1996 (UNAUDITED).... 257,791 333,917 0.40-10.00
======== ========
</TABLE>
Options granted under the Option Plan are generally for periods not to
exceed ten years, and generally must be issued at prices not less than 100%
and 85% for incentive and nonqualified stock options, respectively, of the
fair market value of the stock as determined by the Board on the date of
grant. Options granted to stockholders who own greater than 10% of the
outstanding stock are for periods not to exceed five years, and must be issued
at prices not less than 110% of the fair market value of the stock on the date
of grant.
Initial options granted under the Option Plan generally vest 25% after the
first year and ratably each month over the remaining thirty six month period.
Options granted subsequent to the initial grant vest ratably over four years.
At December 31, 1995, 71,571 options to purchase shares were vested.
As of June 30, 1996, 249,120 shares (unaudited) of Common Stock, subject to
repurchase by the Company, have been issued upon exercise of options granted
under the Option Plan.
1996 Employee Stock Purchase Plan (unaudited)
In June 1996, the Board approved the 1996 Employee Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan permits eligible employees to purchase
Common Stock at a discount through accumulated payroll deductions. The price
at which shares are purchased under the Purchase Plan is equal to 85% of the
fair market value of a share of Common Stock on the first day of the offering
period or the last day of the purchase period, whichever is lower. A total of
75,000 shares of Common Stock have been reserved for issuance under the
Purchase Plan.
F-15
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
1996 Outside Directors Stock Option Plan (unaudited)
In June 1996, the Company commenced the 1996 Outside Directors Stock Option
Plan (the "Directors Plan"). The Directors Plan provides for the automatic
grant of nonstatutory stock options to directors of the Company who are not
employees of the Company or Primax Taiwan ("Outside Directors"). The exercise
price per share of options granted under the Directors Plan will be equal to
the fair market value of a share of Common Stock on the date of grant. Shares
subject to an option granted under the Directors Plan vest over two years and
options granted under the Directors Plan must be exercised within ten years
from the date of grant. On May 20, 1996, each Outside Director was granted an
option to purchase 11,250 shares of Common Stock at a price of $4.00 per
share. A total of 112,500 shares of Common Stock have been reserved for
issuance under the Director's Plan, including 33,750 options granted prior to
June 30, 1996.
NOTE 7--INCOME TAXES:
No provision for federal and state income taxes has been recorded as the
Company has incurred net operating losses through December 31, 1995. As of
December 31, 1995, the Company has net operating loss carryforwards of
approximately $5,100 for federal income tax purposes, which can be used to
reduce future taxable income. These net operating loss carryforwards begin to
expire in 2007.
The tax provision is reconciled to the amount computed using the federal
statutory rate as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
ENDED
DECEMBER 31, JUNE 30,
--------------------- --------------
1993 1994 1995 1995 1996
----- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Benefit at federal statutory tax....... $(464) $(733) $(1,189) $(534) $(2,761)
Net operating losses with no current
benefit............................... 464 733 1,189 534 2,761
----- ----- ------- ----- -------
Provision for income taxes............. $ -- $ -- $ -- $ -- $ --
===== ===== ======= ===== =======
</TABLE>
Deferred income tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Federal and state loss carryforwards..................... $ 1,568 $ 1,893
Reserves and accruals.................................... 248 180
Deferred tax asset valuation allowance................... (1,816) (2,073)
------- -------
Net deferred tax assets.................................... $ -- $ --
======= =======
</TABLE>
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability
of the deferred tax assets such that a full valuation allowance has been
recorded.
Under the Tax Reform Act of 1986, the annual benefit from net operating loss
carryforwards is restricted by cumulative ownership changes of 50 percent over
a three-year period, as defined. As a result of prior financings which
resulted in such an ownership change in November 1991, approximately $400 of
the Company's net operating loss carryforwards are limited to usage of
approximately $200 per year.
F-16
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
UNAUDITED
Further, the acquisition of Primax USA and certain technologies from Primax
Taiwan in March 1996 triggered another ownership change of greater than 50%
and the potential benefits from utilization of tax net operating loss
carryforwards generated from November 1991 through the date of the
acquisition, totaling approximately $5,100, will be impaired. The approximate
annual limitation on the utilization of those carryforwards may range from
$300 to $400, provided that this amount is reduced to the extent that the net
operating loss carryforwards generated through November 1991 are utilized.
Accordingly, the balance of net operating loss carryforwards at December 31,
1995 has been adjusted to reflect the limitation.
The Internal Revenue Service ("IRS") is examining Primax USA's federal
income tax returns. In January 1996, Primax USA received an IRS tax assessment
for the tax years ended December 31, 1991, 1992 and 1993. Primax Taiwan has
agreed to indemnify the Company with respect to this matter.
NOTE 8--COMMITMENTS:
Leases
The Company has entered into a three-year noncancelable operating lease for
office space and certain equipment leases which expire at various dates
through 1997. Future minimum noncancelable lease payments under the Company's
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996................................................................. $192
1997................................................................. 2
----
$194
====
</TABLE>
In connection with the acquisition of Primax USA, Storm assumed a
noncancelable operating lease for office space. The lease expires in June
2000. Monthly rental charges are approximately $20 (unaudited).
Rent expense for the years ended December 31, 1993, 1994 and 1995 was $171,
$303 and $315, respectively. Rent expense for the six months ended June 30,
1995 and 1996 was $168 and $201, respectively (unaudited).
Lines of credit--(unaudited)
On May 16, 1996, the Company entered into a loan and security agreement with
a bank, providing for a $3,500 revolving line of credit and a $6,500 accounts
receivable line of credit. Borrowings under the accounts receivable line of
credit are limited to the sum of 80% of eligible domestic non-distributor
accounts receivable and 70% of eligible domestic distributor accounts
receivable, which sum totaled approximately $3,400 at June 30, 1996.
The lines of credit bear interest at the bank's prime rate plus 0.75%, and
are secured by the Company's cash, cash equivalents, investments, accounts
receivable, inventories, property and equipment and all intellectual property.
All obligations under the revolving line of credit are guaranteed by Primax
Taiwan up to an amount of $3,500. The lines of credit contain certain
covenants limiting any dividend payments as well as maintenance of financial
ratios, future profitability and minimum tangible net worth. The lines of
credit expire on May 15, 1997.
F-17
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
License Agreement--(unaudited)
The Company has entered into a patent cross license agreement with a third
party which provides for a lump sum payment by the Company and potential
ongoing royalty payments after two years relating to an ancillary feature of
certain of the Company's products for which payments Primax has agreed to
reimburse the Company pursuant to indemnification obligations entered into in
connection with the sale of technology to the Company in March 1996. The
Company believes that this agreement will not have a material adverse effect
on the Company's business, operating results or financial condition.
F-18
<PAGE>
STORM TECHNOLOGY, INC.
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information gives
effect to the acquisition by Storm Technology, Inc. (formerly Storm Software,
Inc.) ("Storm" or the "Company") of Primax Electronics (USA), Inc. ("Primax
USA") and certain technologies from Primax Electronics, Ltd. ("Primax Taiwan")
in a transaction accounted for as a purchase. The Unaudited Pro Forma Combined
Statement of Operations is based on the individual statements of operations of
Storm and Primax USA appearing elsewhere in this Prospectus, and combines the
results of operations of Storm and Primax USA (acquired by Storm as of March
18, 1996) for the year ended December 31, 1995 and the six months ended June
30, 1996 as if the acquisition occurred on January 1, 1995.
The Unaudited Pro Forma Combined Financial Information gives effect only to
the adjustments set forth in the accompanying notes and does not reflect any
synergies anticipated by Storm management as a result of the acquisition of
Primax USA and the technologies. The Unaudited Pro Forma Combined Financial
Information is not necessarily indicative of the results of operations that
would have been achieved had the acquisition been completed as of the
beginning of the earliest period presented, nor is it necessarily indicative
of Storm's future results of operations.
The Unaudited Pro Forma Combined Financial Information should be read in
conjunction with the historical financial statements of Storm and Primax USA
included elsewhere in this Prospectus.
F-19
<PAGE>
STORM TECHNOLOGY, INC.
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRIMAX --------------------------
STORM(1) USA(2) ADJUSTMENTS(3) COMBINED(4)
-------- ------ -------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product........................ $ 5,245 $7,421 $ 12,666
Royalty and other.............. 549 1,040 $(360)(a) 1,229
------- ------ ----- --------
Total revenues............... 5,794 8,461 (360) 13,895
Cost of product revenues......... 3,735 5,201 -- 8,936
------- ------ ----- --------
Gross profit..................... 2,059 3,260 (360) 4,959
------- ------ ----- --------
Operating expenses:
Research and development....... 1,494 -- -- 1,494
Marketing and selling.......... 3,384 2,748 -- 6,132
General and administrative..... 633 1,182 208(b) 2,023
------- ------ ----- --------
Total operating expenses..... 5,511 3,930 208 9,649
------- ------ ----- --------
Loss from operations............. (3,452) (670) (568) (4,690)
Interest income (expense), net... 56 (112) -- (56)
------- ------ ----- --------
Net loss......................... $(3,396) $ (782) $(568) $ (4,746)
======= ====== ===== ========
Pro forma:
Net loss per common and common
equivalent share.............. $ (0.45) $ (0.63)
======= ========
Weighted average number of
common and common equivalent
shares(3)..................... 7,588(d) -- (e) 7,588
======= ===== ========
</TABLE>
- --------
(1) Represents historical results of operations of the Company for the year
ended December 31, 1995.
(2) Represents historical results of operations for Primax USA for the year
ended December 31, 1995.
(3) See Note 1 for description of adjustment references (a) through (e).
(4) Reflects the results of operations of the Company on a pro forma basis
assuming the acquisition had been completed on January 1, 1995. The
Company has discontinued the Primax USA product line acquired in the
Primax transaction. As a result, the revenues of Primax USA are not
indicative of the future revenues of the Company derived from the
operations or products of Primax USA.
F-20
<PAGE>
STORM TECHNOLOGY, INC.
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
PRIMAX
STORM(1) USA(2) ADJUSTMENTS(3) COMBINED(4)
-------- ------ -------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product........................ $ 7,633 $1,992 $ 9,625
Royalty and other.............. 388 177 $ (65)(a) 500
------- ------ ------ -------
Total revenues............... 8,021 2,169 (65) 10,125
Cost of product revenues......... 5,697 1,520 -- 7,217
------- ------ ------ -------
Gross profit..................... 2,324 649 (65) 2,908
------- ------ ------ -------
Operating expenses:
Research and development....... 1,125 -- -- 1,125
Marketing and selling.......... 3,419 660 -- 4,079
General and administrative..... 702 283 104 (b) 1,089
In-process research and
development................... 5,000 -- (5,000)(c) --
------- ------ ------ -------
Total operating expenses..... 10,246 943 (4,896) 6,293
------- ------ ------ -------
Loss from operations............. (7,922) (294) 4,831 (3,385)
Interest income (expense), net... 33 (16) -- 17
------- ------ ------ -------
Net loss......................... $(7,889) $ (310) $4,831 $(3,368)
======= ====== ====== =======
Pro forma:
Net loss per common and common
equivalent share.............. $ (0.98) $ (0.42)
======= =======
Weighted average number of
common and common equivalent
shares (3).................... 8,047(d) -- (e) 8,047
======= ====== =======
</TABLE>
- --------
(1) Represents historical results of operations of the Company for the six
months ended June 30, 1996.
(2) Represents historical results of operations for Primax USA for the period
from January 1 through March 18, 1996.
(3) See Note 1 for description of adjustment references (a) through (e).
(4) Reflects the results of operations of the Company on a pro forma basis
assuming the acquisition had been completed on January 1, 1996.
F-21
<PAGE>
STORM TECHNOLOGY, INC.
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1--BASIS OF PRESENTATION AND PRO FORMA ADJUSTMENTS:
The Unaudited Pro Forma Combined Statements of Operations have been prepared
to reflect the acquisition of Primax USA and certain technologies from Primax
Taiwan by Storm in exchange of 4,214,329 shares of the Company's Series E
Preferred Stock.
The following significant adjustments were applied to the historical
statements of operations of the Company and Primax USA to arrive at the Pro
Forma Combined Statements of Operations:
(a) The pro forma adjustments to royalty and other revenues represent the
elimination of service income recognized by Primax USA during the year
ended December 31, 1995 and the six months ended June 30, 1996 for customer
services provided to Storm on behalf of Primax Taiwan.
(b) The pro forma adjustment to general and administrative expense
reflects the amortization of goodwill resulting from the acquisition of
Primax USA. Goodwill is being amortized using the straight-line method over
four years resulting in adjustments of $208 and $104 for the year ended
December 31, 1995 and the six months ended June 30, 1996, respectively.
(c) The pro forma adjustment to in-process research and development
reflects the exclusion of the charge of $5,000 for in-process technology
that was obtained from Primax Taiwan.
(d) Pro forma net loss per share is computed using the weighted average
number of common and common equivalent shares outstanding during the
period. Common equivalent shares consist of convertible preferred stock
(using the if-converted method) and stock options (using the treasury stock
method). Common equivalent shares are excluded from the computation if
their effect is anti-dilutive, except that, pursuant to a Securities and
Exchange Commission Staff Accounting Bulletin, shares of common stock,
convertible preferred stock (using the if-converted method) and common
stock options and warrants (using the treasury stock method and the assumed
initial public offering price) issued within 12 months prior to the
Company's initial public offering have been included in the computation as
if they were outstanding for each period presented.
(e) The Company issued 4,214,329 shares of Series E Convertible Preferred
Stock to Primax Taiwan in connection with the acquisition of Primax USA and
certain technologies. A pro forma adjustment for the issuance of such
shares is not required as the shares are reflected as outstanding during
the period. (See (d) above.)
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Primax Electronics (USA), Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, shareholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Primax Electronics (USA),
Inc. (a subsidiary of Primax Electronics, Ltd.) at December 31, 1994 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
San Jose, California
February 29, 1996, except as to Note 7,
which is as of March 18, 1996
F-23
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1995
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash......................................................... $ 282 $ 144
Restricted cash (Note 4)..................................... 200 300
Accounts receivable, net of allowance for doubtful accounts
of $111 and $153............................................ 973 1,841
Receivable from Parent (Note 2).............................. 491 391
Inventories.................................................. 1,338 3,751
Prepaid expenses and other assets............................ 39 68
------ ------
Total current assets....................................... 3,323 6,495
------ ------
Property and equipment, net (Note 3)........................... 154 258
Other assets................................................... 9 59
------ ------
$3,486 $6,812
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Lines of credit (Note 4)..................................... $ 500 $1,575
Note payable to related party................................ 827 --
Payable to Parent (Note 2)................................... 1,180 4,976
Accounts payable............................................. 176 117
Accrued liabilities.......................................... 90 213
------ ------
Total current liabilities.................................. 2,773 6,881
------ ------
Commitments (Note 6)
Shareholders' equity (deficit):
Common stock, no par value, 4,000,000 shares authorized;
3,325,000 shares issued and outstanding..................... 1,801 1,801
Accumulated deficit.......................................... (1,088) (1,870)
------ ------
Total shareholders' equity (deficit)....................... 713 (69)
------ ------
$3,486 $6,812
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, THROUGH
------------------------ MARCH 17,
1993 1994 1995 1996
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product............................... $ 6,619 $ 4,787 $ 7,421 $1,992
Service income........................ 764 1,038 1,040 177
------- ------- ------- ------
Total revenues...................... 7,383 5,825 8,461 2,169
Cost of product sales................... 5,031 3,215 5,201 1,520
------- ------- ------- ------
Gross profit............................ 2,352 2,610 3,260 649
------- ------- ------- ------
Operating expenses:
Marketing and selling................. 1,145 1,445 2,748 660
General and administrative............ 1,058 1,440 1,182 283
------- ------- ------- ------
Total operating expenses............ 2,203 2,885 3,930 943
------- ------- ------- ------
Operating income (loss)................. 149 (275) (670) (294)
Interest expense, net................... 66 88 112 16
------- ------- ------- ------
Net income (loss) before provision for
income taxes........................... 83 (363) (782) (310)
Provision for income taxes (Note 5)..... 3 -- -- --
------- ------- ------- ------
Net income (loss)....................... $ 80 $ (363) $ (782) $ (310)
======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
----------------
ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
--------- ------ ----------- -----
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992............... 950,000 $ 851 $ (805) $ 46
Net income................................. -- -- 80 80
--------- ------ ------- -----
BALANCE AT DECEMBER 31, 1993............... 950,000 851 (725) 126
Issuance of common stock................... 2,375,000 950 -- 950
Net loss................................... -- -- (363) (363)
--------- ------ ------- -----
BALANCE AT DECEMBER 31, 1994............... 3,325,000 1,801 (1,088) 713
Net loss................................... -- -- (782) (782)
--------- ------ ------- -----
BALANCE AT DECEMBER 31, 1995............... 3,325,000 $1,801 $(1,870) $ (69)
========= ====== ======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
PERIOD FROM
JANUARY 1,
YEAR ENDED DECEMBER 31, THROUGH
--------------------------- MARCH 17,
1993 1994 1995 1996
------- ------- --------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ 80 $ (363) $ (782) $ (310)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation........................ 25 38 58 12
Provision for doubtful accounts..... 52 21 42 10
Increase in inventory reserve....... 51 33 62 21
Changes in assets and liabilities:
Accounts receivable................ (83) 139 (910) 40
Receivable from Parent............. (234) 48 100 (123)
Inventory.......................... 7 (715) (2,475) 643
Prepaid expenses and other assets.. (18) 17 (29) (85)
Accounts payable................... 100 68 (59) (23)
Payable to Parent.................. (608) 496 3,796 (44)
Accrued liabilities................ (2) (64) 123 116
Other assets....................... -- -- (50) --
------- ------- --------- -------
Net cash provided by (used in)
operating activities............ (630) (282) (124) 257
------- ------- --------- -------
Cash used in investing activities:
Payment for acquisition of property
and equipment....................... (93) (58) (162) (18)
(Increase) decrease in restricted
cash................................ -- -- (100) 200
------- ------- --------- -------
Net cash provided by (used in)
investing activities.............. (93) (58) (262) 182
------- ------- --------- -------
Cash flows from financing activities:
Proceeds from issuance of common
stock............................... -- 950 -- --
Contribution of capital.............. -- -- -- 1,260
(Repayments) borrowings under lines
of credit........................... (48) 75 1,075 (1,575)
Proceeds (repayments) of note payable
to related party.................... 824 (497) (827) --
------- ------- --------- -------
Net cash provided by (used in)
financing activities............ 776 528 248 (315)
------- ------- --------- -------
Net increase (decrease) in cash........ 53 188 (138) 124
Cash at beginning of period............ 41 94 282 144
------- ------- --------- -------
Cash at end of period.................. $ 94 $ 282 $ 144 $ 268
======= ======= ========= =======
Supplemental Cash Flow Disclosure:
Interest paid........................ $ 8 $ 91 $ 195 $ 28
======= ======= ========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Primax Electronics (USA), Inc. ("Primax USA") was incorporated in California
in November 1990 and merged with DVT, Inc. and P-MAX, Inc. in December 1990.
Primax USA is 97% owned by Primax Electronics, Ltd. (the Parent), a company
incorporated in the Republic of China. Primax USA distributes computer
peripheral products, most of which are manufactured by the Parent and
affiliates.
Management received assurance that the Parent and affiliated companies will
provide sufficient financing to enable Primax USA to continue operations
through 1996. Consequently, the accompanying financial statements are prepared
on the basis that Primax USA is a going concern.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Revenues from product sales, net of provisions for estimated returns, are
recognized upon product shipment. Service income is recognized as the services
are performed.
Restricted cash
Restricted cash consists of certificates of deposit with maturities greater
than 90 days held as collateral for lines of credit (see Note 4).
Inventories
Inventories consist of finished goods and are stated at the lower of cost
using the weighted average method or market value.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets,
which range from five to ten years. Leasehold improvements are amortized over
the life of the lease.
Concentration of credit risk
Financial instruments that potentially subject Primax USA to significant
concentrations of credit risk consist principally of bank deposits and
accounts receivable. Primax USA sells its products to distributors primarily
in North America and performs ongoing customer credit evaluations. Primax USA
maintains an allowance for doubtful accounts receivable based upon the
expected collectibility of all accounts receivable. To date, Primax USA has
not incurred any significant losses due to uncollectible accounts receivable.
F-28
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
The following table summarizes revenues from customers in excess of 10% of
the total revenues:
<TABLE>
<CAPTION>
(UNAUDITED)
FOR THE
PERIOD FROM
FOR THE YEAR ENDED JANUARY 1
DECEMBER 31, THROUGH
------------------------ MARCH 17,
1993 1994 1995 1996
------ ------ ------ -----------
<S> <C> <C> <C> <C>
Compaq Inc. ....................... 17% -- -- --
Inmac Corp. ....................... 15% -- -- --
Solectek Corporation............... 12% 14% -- --
Global Computer Supplies........... -- 13% 10% --
Ingram Micro....................... -- -- 16% 10%
Staples, Inc. .................... -- -- -- 11%
Woods Wire Products, Inc........... -- -- -- 18%
</TABLE>
At December 31, 1993, Compaq, Inc., Inmac, Inc. and Solectek Corporation
accounted for 20%, 19% and 15%, respectively, of total accounts receivable. At
December 31, 1994, Inmac, Inc., Solectek Corporation and Global Computer
Supplies accounted for 11%, 21% and 10%, respectively, of total accounts
receivable. At December 31, 1995, Ingram Micro accounted for 30% of total
accounts receivable. Staples accounted for 21% of accounts receivable at
December 31, 1995.
Income taxes
Primax USA accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). Under the asset and liability approach of FAS 109, the
expected future tax consequences of temporary differences between the book and
tax bases of assets and liabilities are recognized as deferred tax assets and
liabilities.
Fair value of investments
The carrying amount of the Primax USA's financial instruments, including
restricted cash, accounts receivable, lines of credit and note payable to
related party, approximate fair value.
Management estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-29
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
NOTE 2--RELATED PARTY TRANSACTIONS:
During 1993, 1994 and 1995, Primax USA purchased inventory from its Parent,
earned service income on sales by its Parent to customers in the United
States, and made net cash payments to its Parent. The following are schedules
detailing the transactions between the Primax USA and its Parent:
<TABLE>
<CAPTION>
(UNAUDITED)
JANUARY 1
THROUGH
MARCH 17,
1993 1994 1995 1996
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Payable at beginning of period... $ 1,292 $ 684 $ 1,180 $4,976
Purchases of inventory........... 5,434 3,724 7,338 853
Cash paid to Parent.............. (6,042) (3,228) (3,542) (897)
------- ------- ------- ------
Payable at end of period......... $ 684 $ 1,180 $ 4,976 $4,932
======= ======= ======= ======
<CAPTION>
(UNAUDITED)
JANUARY 1
THROUGH
MARCH 17,
1993 1994 1995 1996
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Receivable at beginning of
period.......................... $ 305 $ 539 $ 491 $ 391
Service income................... 764 1,038 1,040 177
Disbursements made on behalf of
Parent.......................... 430 457 561 160
Cash received from Parent........ (960) (1,543) (1,701) (214)
------- ------- ------- ------
Receivable at end of period...... $ 539 $ 491 $ 391 $ 514
======= ======= ======= ======
</TABLE>
At December 31, 1994, Primax USA had an unsecured note payable of $750
bearing interest at 5% per annum due to an affiliated company. Interest
payable on the note aggregated $77 at December 31, 1994. This note, including
accrued interest, was repaid in 1995.
During 1994, Primax USA issued 2,375,000 shares of Primax USA's Common Stock
to its Parent in exchange for cash of $950.
NOTE 3--PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
------ ------
<S> <C> <C>
Computers and equipment.................................... $ 162 $ 246
Furniture and fixtures..................................... 80 124
Leasehold improvements..................................... 3 37
----- ------
245 407
Less: accumulated depreciation and amortization............ (91) (149)
----- ------
$ 154 $ 258
===== ======
</TABLE>
F-30
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
NOTE 4--LINES OF CREDIT:
At December 31, 1994, Primax USA had a $250 line of credit with a bank
bearing interest at the bank's prime rate plus 1.25% (9.75% as of December 31,
1994) and secured by a $100 certificate of deposit and all of Primax USA's
accounts receivable, inventories and property and equipment. Borrowings under
the line aggregated $250 at December 31, 1994. The line of credit expired in
September 1995.
At December 31, 1994, Primax USA also had a $250 line of credit with another
bank bearing interest at the bank's prime rate plus 1.5% (10% at December 31,
1994) and secured by a $100 certificate of deposit. Borrowings under the line
aggregated $250 at December 31, 1994. The line of credit expired in September
1995.
At December 31, 1995, Primax USA had a $1,000 line of credit with a bank
bearing interest at the bank's prime rate plus 1.25% (10% as of December 31,
1995). The line of credit was secured by a $200 certificate of deposit, all of
Primax USA's accounts receivable, inventories and property and equipment, and
a promissory note from the parent company equivalent to 110% of the loan
amount. Borrowing under the line aggregated $975 at December 31, 1995. Under
the agreement, Primax USA is required to maintain a tangible net worth of
$300.
At December 31, 1995, Primax USA also had a $1,000 line of credit with
another bank bearing interest at the bank's prime rate plus 1.25% (10% as of
December 31, 1995). The line of credit is secured by a $100 certificate of
deposit, all of the Company's accounts receivable, inventories and property
and equipment. Borrowings under the line aggregated $600 at December 31, 1995.
This line of credit expired on January 13, 1996 and is currently under
renegotiation.
The weighted average interest rate on outstanding borrowings from the lines
of credit was 9.875% and 10% at December 31, 1994 and 1995, respectively.
NOTE 5--INCOME TAXES:
No provision for federal or state income taxes has been recorded in 1994 and
1995 as Primax USA has incurred net operating losses for each year ended
December 31, 1994 and 1995.
At December 31, 1995, Primax USA had net operating loss carryforwards
available to reduce future taxable income for federal and state income tax
purposes of approximately $969 and $364, respectively. Primax USA's net
operating loss carryforwards expire in different years through 2009. The
income tax benefit from the utilization of net operating loss carryforwards
may be limited in certain circumstances. These circumstances include, but are
not limited to, cumulative stock ownership changes of more than 50% over a
three-year period.
The tax provision is reconciled to the amount computed using the federal
statutory rate as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
Provision (benefit) at federal statutory tax.......... 28 (127) (266)
State taxes, net of federal benefit................... 3 -- --
Net operating losses with no current benefit.......... -- 127 266
Net operating losses utilized......................... (30) -- --
Other................................................. 2 -- --
---- ----- -----
Provision for income taxes............................ $ 3 $ -- $ --
==== ===== =====
</TABLE>
F-31
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
Deferred tax assets comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1995
------ ------
<S> <C> <C>
Net operating losses...................................... $ 169 $ 363
Reserves and accruals..................................... 163 259
------ ------
Gross deferred tax assets and liabilities................. 332 622
Deferred tax assets valuation allowance................... (332) (622)
------ ------
Net deferred tax assets................................... $ -- $ --
====== ======
</TABLE>
Primax USA has provided a valuation allowance because of the uncertainty
regarding realization of the deferred tax assets.
The Internal Revenue Service is examining Primax USA's federal income tax
returns. In January 1996 Primax USA received an IRS tax assessment for the tax
years ended December 31, 1991, 1992 and 1993. Management is defending the
assessment and believes that the ultimate outcome will not have a material
effect on Primax USA's financial position. The Parent will indemnify Primax
USA for costs incurred in relation to the IRS examination.
NOTE 6--COMMITMENTS:
Primax USA has a noncancelable operating lease agreement for its facility
located in Sunnyvale, California. The agreement, which has an initial
expiration date of April 30, 2000, includes an option to extend for five
years. Rental expense for the years ended December 31, 1993, 1994 and 1995 and
the period from January 1, 1996 through March 17, 1996 was $129, $127, $204
and $52 (unaudited), respectively.
Future minimum lease payments under noncancelable operating leases at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996................................................................. $229
1997................................................................. 229
1998................................................................. 229
1999................................................................. 229
2000................................................................. 76
----
$992
====
</TABLE>
NOTE 7--SUBSEQUENT EVENTS:
On March 18, 1996 Primax USA completed a merger whereby it was acquired by
Storm Acquisition Corporation, a wholly owned subsidiary of Storm Software,
Inc.
F-32
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman,
Sachs & Co. and Hambrecht & Quist LLC are acting as representatives, has
severally agreed to purchase from the Company and the Selling Stockholders,
the respective number of shares of Common Stock set forth opposite its name
below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ---------
<S> <C>
Goldman, Sachs & Co...............................................
Hambrecht & Quist LLC.............................................
----
Total...........................................................
====
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the representatives.
The Company has granted to the Underwriters an option exercisable for 30
calendar days after the date of this Prospectus to purchase up to an aggregate
of 412,500 additional shares of Common Stock to cover over-allotments, if any.
If the Underwriters exercise their over-allotment option, the Underwriters
have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
2,750,000 shares of Common Stock offered.
The Company, the Selling Stockholders and certain other stockholders of the
Company have agreed that, during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
this Prospectus, they will not offer, sell, contract to sell or otherwise
dispose of any securities of the Company (other than, with respect to the
Company, pursuant to employee stock option or purchase plans existing, or on
the conversion or exchange of convertible or exchangeable securities
outstanding, on the date of this Prospectus) that are substantially similar to
the shares of Common Stock or that are convertible or exchangeable into
securities substantially similar to the shares of Common Stock without the
prior written consent of the representatives, except for the shares of Common
Stock offered in connection with the offering or shares purchased in the open
market.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price will be negotiated among the Company, the
Selling Stockholders and the representatives. Among the factors to be
considered in determining the initial public offering price of the Common
Stock, in addition to prevailing market conditions, will be the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of
companies in related businesses.
U-1
<PAGE>
The Common Stock will be quoted on the Nasdaq National Market under the
symbol "EASY."
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
U-2
<PAGE>
[EASY PHOTO LOGO]
AWARD WINNING PRODUCTS
[picture of EasyPhoto Reader, EasyPhoto SmartPage and EasyPhoto Drive packaging]
Storm Technology, Inc. provides digital photo solutions that enable consumers to
input, store, organize, enhance and use photos easily on their personal
computers.
[pictures of various awards won by the Company]
This Prospectus includes tradenames of the Company and other companies.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
The Company.............................................................. 15
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Dilution................................................................. 16
Capitalization........................................................... 17
Selected Consolidated Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 27
Management............................................................... 40
Certain Transactions..................................................... 46
Principal and Selling Stockholders....................................... 48
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 52
Legal Matters............................................................ 54
Experts.................................................................. 54
Additional Information................................................... 54
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1996 (THE 25TH DAY AFTER THE DATE OF THIS PRO-
SPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,750,000 SHARES
STORM TECHNOLOGY, INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
------------
[STORM TECHNOLOGY LOGO APPEARS HERE]
------------
GOLDMAN, SACHS & CO.
HAMBRECHT & QUIST
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All amounts shown are estimates except
the Securities and Exchange Commission registration fee, the NASD filing fee
and the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
TO BE PAID BY
THE REGISTRANT
--------------
<S> <C>
Securities and Exchange Commission registration fee........ $ 17,607
NASD filing fee............................................ 5,606
Nasdaq National Market application fee..................... 50,000
Accounting fees and expenses............................... 200,000
Printing and engraving expenses............................ 150,000
Transfer agent and registrar fees.......................... 10,000
Blue Sky fees and expenses................................. 5,000
Legal fees and expenses.................................... 250,000
Miscellaneous expenses..................................... 111,787
--------
Total.................................................. $800,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant intends to change its state of incorporation from California
to Delaware prior to the effectiveness of this Registration Statement. The
following description assumes the completion of such reincorporation.
Section 145 of the Delaware General Corporation Law ("Delaware Law") permits
indemnification of officers, directors, and other corporate agents under
certain circumstances and subject to certain limitations. The Registrant's
Certificate of Incorporation and Bylaws provide that the Registrant shall
indemnify its directors, officers, employees and agents to the full extent
permitted by Delaware Law, including in circumstances in which indemnification
is otherwise discretionary under Delaware law. In addition, the Registrant has
entered into separate indemnification agreements with its directors and
officers which would require the Registrant, among other things, to indemnify
them against certain liabilities which may arise by reason of their status or
service (other than liabilities arising from willful misconduct of a culpable
nature) and to maintain directors' and officers' liability insurance, if
available on reasonable terms.
These indemnification provisions may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
(including reimbursement of expenses incurred) arising under the Securities
Act of 1933, as amended (the "Securities Act").
The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant and its officers and directors for certain liabilities
arising under the Securities Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 30, 1993, the Registrant has sold and issued the following
unregistered securities:
(1) In May 1994, the Company entered into a Stock Purchase Agreement
pursuant to which the Company sold an aggregate of 818,215 shares of Series C
Preferred Stock to accredited investors for an aggregate purchase price of
$3,927,447.60, or approximately $4.80 per share.
II-1
<PAGE>
(2) In July and October 1995, the Company entered into a Stock Purchase
Agreement pursuant to which the Company sold an aggregate of 689,892 shares of
its Series D Preferred Stock to accredited investors for an aggregate purchase
price of $3,587,465.70, or approximately $5.20 per share.
(3) In March 1996, the Company entered into a Stock Purchase Agreement
pursuant to which the Company sold 4,214,329 shares of its Series E Preferred
Stock to accredited investors for an aggregate purchase price of
$3,371,463.00, or approximately $0.80 per share.
(4) In June 1996, the Company entered into a Stock Purchase Agreement
pursuant to which the Company sold 120,967 shares of its Series F Preferred
Stock to an accredited investor for an aggregate purchase price of
$1,499,997.00, or approximately $12.40 per share.
(5) Between April 1994 and October 1994, in connection with certain market
research studies, the Company issued warrants to an accredited investor to
purchase an aggregate of 3,413 shares at an exercise price of $0.40. The
warrants expire in 1999.
(6) In June 1996, in connection with the Series F Preferred Stock financing,
Intel exercised its contractual rights to convert its original warrant into a
right to purchase 28,000 shares of Series F Preferred Stock at a price of
$12.40 per share. The warrant expires in 1999.
(7) From June 30, 1993 to September 30, 1996, the Registrant issued options
to purchase an aggregate of 789,456 shares of Common Stock under the Option
Plan and the Directors Plan at exercise prices ranging from $0.40 to $10, of
which options to purchase 474,099 shares have been exercised.
The sales and issuances of securities in the transactions described in
paragraphs (1) through (6) above were exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. The issuances of
securities described in paragraph (7) above were deemed to be exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to a compensatory benefit plan or a
written contract relating to compensation.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Form of Agreement and Plan of Merger between Storm Primax, Inc., a
California corporation ("Storm California"), and Storm Primax, Inc., a
Delaware corporation ("Storm Delaware").
3.1** Sixth Amended and Restated Articles of Incorporation of Storm
California.
3.2 Certificate of Incorporation of Storm Delaware.
3.3** Bylaws of Storm California.
3.4 Bylaws of Storm Delaware.
4.1 Form of Certificate for Common Stock.
5.1 Legal Opinion of Gray Cary Ware & Freidenrich, A Professional
Corporation, with respect to the Common Stock being registered.
10.1** Form of Indemnity Agreement for officers and directors.
10.2** The Registrant's Amended and Restated Stock Option Plan.
10.4 The Registrant's 1996 Outside Directors Stock Option Plan.
10.5 The Registrant's 1996 Employee Stock Purchase Plan.
10.6** Series A Preferred Stock Purchase Agreement dated November 27, 1991.
10.7** Series B Preferred Stock Purchase Agreement dated January 30, 1992.
10.8** Series C Preferred Stock Purchase Agreement dated May 19, 1994.
10.9** Series D Preferred Stock Purchase Agreement dated July 27, 1995.
10.10** Series F Preferred Stock Purchase Agreement dated June 11, 1996.
10.11** Fourth Amended and Restated Rights Agreement dated June 11, 1996, as
amended.
10.12** Agreement and Plan of Reorganization by and among Storm Software,
Inc., Storm Acquisition Corporation, Primax Electronics (U.S.A.) Inc.,
and Primax Electronics, Ltd. ("Primax") dated February 24, 1996.
10.13** Manufacturing and Purchase Agreement by and between Storm California
and Primax dated February 24, 1996.
10.14** Asset Transfer Agreement by and between Storm California and Primax
dated February 24, 1996.
10.15** International Distribution Agreement by and between Storm California
and Primax dated February 29, 1996.
10.16** International Distribution Agreement by and between Storm California
and Primax Electronics Europe B.V. dated February 29, 1996.
10.17** Distribution Agreement by and between Storm California and Primax
dated February 29, 1996.
10.18** Sales Representative Agreement by and between Storm California and
Primax dated February 29, 1996.
10.19+ Agreement by and between Intel Corporation and Storm California dated
May 22, 1996.
10.20** Warrant to purchase Stock of Storm California issued to Intel
Corporation dated May 16, 1996 (incorporated by reference to Exhibit D
to Exhibit 10.19).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.21** Warrant to purchase Series B Preferred Stock of Storm California
issued to Dominion Ventures, Inc. on May 15, 1992.
10.22** Warrant to purchase Common Stock of Storm California issued to Griggs
Anderson Research on April 1, 1994.
10.23** Warrant to purchase Common Stock of Storm California issued to Griggs
Anderson Research on June 1, 1994.
10.24** Warrant to purchase Common Stock of Storm California issued to Griggs
Anderson Research on October 17, 1994.
10.25+ Amendment No. 1 dated July 24, 1996 to the Agreement by and between
Storm California and Intel, dated May 22, 1996.
10.26 Bundling Agreement by and between Storm California and Netscape
Communications Corporation dated July 24, 1996.
10.27 Termination Agreement by and between Primax and Storm California dated
July 1, 1996.
10.28 Addendum One dated June 11, 1996 to the Manufacturing and Purchase
Agreement between Primax and Storm California.
10.29 Lease Agreement between BRE Properties, Inc. and Primax (USA).
10.30 Amendment One to the Distribution by and between Storm California and
Primax dated February 29, 1996.
11.1** Calculation of Loss Per Share.
23.1 Consent of Independent Accountants.
23.2 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation
(included in Exhibit 5.1).
24.1** Power of Attorney (included on the signature page of this Registration
Statement).
27** Financial Data Schedule.
</TABLE>
- --------
** Previously filed.
+ Confidential Treatment Requested--Omitted portions filed separately with
the Securities and Exchange Commission.
All other schedules are omitted because they are not required, are not
applicable or the information is included in the Financial Statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
Mountain View, State of California, on September 30, 1996.
/s/ Rick M. McConnell
By
----------------------------------
Rick M. McConnell
Chief Financial Officer and Vice
President of Finance and
Administration (Principal
Financial and Accounting Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on September 30, 1996 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
L. William Krause* Chief Executive Officer, President
- ----------------------------- and Director (Principal Executive
L. William Krause Officer)
/s/ Adriaan Ligtenberg Chief Technical Officer, Vice
- ----------------------------- President of Engineering and
Adriaan Ligtenberg Director
/s/ Rick M. McConnell Chief Financial Officer and Vice
- ----------------------------- President of Finance and
Rick M. McConnell Administration (Principal Financial
and Accounting Officer)
Richard C. Alberding* Director
- -----------------------------
Richard C. Alberding
Mary Jane Elmore* Director
- -----------------------------
Mary Jane Elmore
/s/ Raymond Liang Director
- -----------------------------
Raymond Liang
Andrew S. Rappaport* Director
- -----------------------------
Andrew S. Rappaport
/s/ Rick M. McConnell
*By _________________________________
Rick M. McConnell, Attorney-in-fact
</TABLE>
II-6
<PAGE>
STORM TECHNOLOGY, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR SALES RETURNS:
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING CHARGED AT THE END
OF PERIOD TO EXPENSES DEDUCTIONS OF PERIOD
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
1993.............................. -- -- -- --
1994.............................. -- $ 74 $ (10) $ 64
1995.............................. $ 64 496 (423) 137
Six months ended June 30, 1996.... 137 848 (383) 602
</TABLE>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<TABLE>
<CAPTION>
BALANCE AT ACQUIRED BALANCE
BEGINNING CHARGED THROUGH AT THE END
OF PERIOD TO EXPENSES PRIMAX USA DEDUCTIONS OF PERIOD
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1993.................... $ 3 $ 7 -- $ (5) $ 5
1994.................... 5 3 -- (5) 3
1995.................... 3 45 -- (29) 19
Six months ended June
30, 1996............... 19 204 $111 (38) 296
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Form of Agreement and Plan of Merger between Storm Primax, Inc., a
California corporation ("Storm California"), and Storm Primax, Inc., a
Delaware corporation ("Storm Delaware").
3.1** Sixth Amended and Restated Articles of Incorporation of Storm
California.
3.2 Certificate of Incorporation of Storm Delaware.
3.3** Bylaws of Storm California.
3.4 Bylaws of Storm Delaware.
4.1 Form of Certificate for Common Stock.
5.1 Legal Opinion of Gray Cary Ware & Freidenrich, A Professional
Corporation, with respect to the Common Stock being registered.
10.1** Form of Indemnity Agreement for officers and directors.
10.2** The Registrant's Amended and Restated Stock Option Plan.
10.4 The Registrant's 1996 Outside Directors Stock Option Plan.
10.5 The Registrant's 1996 Employee Stock Purchase Plan.
10.6** Series A Preferred Stock Purchase Agreement dated November 27, 1991.
10.7** Series B Preferred Stock Purchase Agreement dated January 30, 1992.
10.8** Series C Preferred Stock Purchase Agreement dated May 19, 1994.
10.9** Series D Preferred Stock Purchase Agreement dated July 27, 1995.
10.10** Series F Preferred Stock Purchase Agreement dated June 11, 1996.
10.11** Fourth Amended and Restated Rights Agreement dated June 11, 1996, as
amended.
10.12** Agreement and Plan of Reorganization by and among Storm Software,
Inc., Storm Acquisition Corporation, Primax Electronics (U.S.A.) Inc.,
and Primax Electronics, Ltd. ("Primax") dated February 24, 1996.
10.13** Manufacturing and Purchase Agreement by and between Storm California
and Primax dated February 24, 1996.
10.14** Asset Transfer Agreement by and between Storm California and Primax
dated February 24, 1996.
10.15** International Distribution Agreement by and between Storm California
and Primax dated February 29, 1996.
10.16** International Distribution Agreement by and between Storm California
and Primax Electronics Europe B.V. dated February 29, 1996.
10.17** Distribution Agreement by and between Storm California and Primax
dated February 29, 1996.
10.18** Sales Representative Agreement by and between Storm California and
Primax dated February 29, 1996.
10.19+ Agreement by and between Intel Corporation and Storm California dated
May 22, 1996.
10.20** Warrant to purchase Stock of Storm California issued to Intel
Corporation dated May 16, 1996 (incorporated by reference to Exhibit D
to Exhibit 10.19).
10.21** Warrant to purchase Series B Preferred Stock of Storm California
issued to Dominion Ventures, Inc. on May 15, 1992.
10.22** Warrant to purchase Common Stock of Storm California issued to Griggs
Anderson Research on April 1, 1994.
10.23** Warrant to purchase Common Stock of Storm California issued to Griggs
Anderson Research on June 1, 1994.
10.24** Warrant to purchase Common Stock of Storm California issued to Griggs
Anderson Research on October 17, 1994.
10.25+ Amendment No. 1 dated July 24, 1996 to the Agreement by and between
Storm California and Intel, dated May 22, 1996.
10.26 Bundling Agreement by and between Storm California and Netscape
Communications Corporation, dated July 24, 1996.
10.27 Termination Agreement by and between Primax and Storm California dated
July 1, 1996.
10.28 Addendum One dated June 11, 1996 to the Manufacturing and Purchase
Agreement between Primax and Storm California.
10.29 Lease Agreement between BRE Properties, Inc. and Primax (USA).
10.30 Amendment One to the Distribution Agreement by and between Storm
California and Primax dated February 29, 1996.
11.1** Calculation of Loss Per Share.
23.1 Consent of Independent Accountants.
23.2 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation
(included in Exhibit 5.1).
24.1** Power of Attorney (included on the signature page of this Registration
Statement).
27** Financial Data Schedule.
</TABLE>
- -------
** Previously filed.
+ Confidential Treatment Requested--Omitted portions filed separately with
the Securities and Exchange Commission.
<PAGE>
EXHIBIT 1.1
Storm Technology, Inc.
COMMON STOCK
(par value $.001 per share)
----------------------
UNDERWRITING AGREEMENT
----------------------
September __, 1996
Goldman, Sachs & Co.
Hambrecht & Quist LLC
As representatives of the several Underwriters
named in Schedule I hereto
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Storm Technology, Inc. a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
2,000,000 shares and, at the election of the Underwriters, up to 412,500
additional shares of Common Stock, par value $.001 per share ("Stock"), of the
Company and the stockholders of the Company named in Schedule II hereto (the
"Selling Stockholders") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of 750,000 shares of Stock.
The aggregate of 2,750,000 shares to be sold by the Company and the Selling
Stockholders is herein called the "Firm Shares" and the aggregate of 412,500
additional shares to be sold by the Company is herein called the "Optional
Shares". The Firm Shares and the Optional Shares that the Underwriters elect to
purchase pursuant to Section 2 hereof are herein collectively called the
"Shares".
1. (a) The Company and its largest stockholder, Primax Electronics, Ltd.
("Primax") jointly and severally represent and warrant to, and agree with, each
of the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-06911)
(the "Initial Registration Statement") in respect of the Shares has been
filed with the Securities and Exchange Commission (the "Commission"); such
Initial Registration Statement and any post-effective amendment thereto,
each in the form heretofore delivered to you, and, excluding exhibits
thereto, for each of the other Underwriters, have been declared effective
by the Commission in such form; no other document with respect to such
Initial Registration Statement has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of such Initial
Registration Statement has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission (any preliminary
prospectus included in such registration statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Securities Act of 1933, as amended (the "Act"), is
hereinafter called a "Preliminary Prospectus"; the various parts of such
Initial Registration Statement, including all exhibits thereto and
including the information contained in the form of final
<PAGE>
prospectus filed with the Commission pursuant to Rule 424(b) under the Act
in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A
under the Act to be part of the Initial Registration Statement at the time
it was declared effective, each as amended at the time it became effective,
are hereinafter collectively called the "Registration Statement"; and such
final prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, is hereinafter called the "Prospectus".
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein or by a Selling Stockholder
expressly for use in the preparation of the answers therein to Items 7 and
11(l) of Form S-1.
(iii) The Registration Statement conforms, and the Prospectus
and any further amendments or supplements to the Registration Statement or
the Prospectus will conform, in all material respects to the requirements
of the Act and the rules and regula tions of the Commission thereunder and
do not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto, and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the Company
by an Underwriter through Goldman, Sachs & Co. expressly for use therein;
(iv) Neither the Company nor any of its subsidiaries have
sustained since the date of the latest audited financial statements
included in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been
any change in the capital stock (other than pursuant to the exercise of
outstanding options or the grant of options under the Stock Plan as
described in the Prospectus having an exercise price greater than or equal
to the fair market value of the Company's Common Stock on the date of
grant) short-term debt or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company or any of its subsidiaries, otherwise than as set
forth or contemplated in the Prospectus;
2
<PAGE>
(v) The Company and its subsidiaries do not own any real
property, and any real property and buildings held under lease by the
Company and its subsidiaries are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries;
(vi) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus, and has been duly qualified as
a foreign corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(vii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully paid
and non-assessable and conform to the description of the Stock contained in
the Prospectus and all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or claims;
(viii) The unissued Shares to be issued and sold by the Company
to the Underwriters hereunder have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein, will
be duly and validly issued and fully paid and non-assessable and will
conform to the description of the Stock contained in the Prospectus;
(ix) The issue and sale of the Shares to be sold by the Company
and the compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein contemplated will
not conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or Bylaws of the Company or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries or any of their properties; and
no consent, approval, authorization, order, registration or qualification
of or with any such court or governmental agency or body is required for
the issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration under
the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters;
3
<PAGE>
(x) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or Bylaws or in default in
the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument to which it is a
party or by which it or any of its properties may be bound;
(xi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock and under the caption
"Underwriting", insofar as they purport to describe the provisions of the
laws and documents referred to therein, are accurate, complete and fair;
(xii) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property of the Company or any
of its subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate
have a material adverse effect on the current or future consolidated
financial position, stockholders' equity or results of operations of the
Company or any of its subsidiaries; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(xiii) The Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company" or an
entity "controlled" by an "investment company", as such terms are defined
in the Investment Company Act of 1940, as amended (the "Investment Company
Act");
(xiv) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate
located in Cuba within the meaning of Section 517.075, Florida Statutes;
and
(xv) Price Waterhouse LLP, who have certified certain financial
statements of the Company or any of its subsidiaries, are independent
public accountants as required by the Act and the rules and regulations of
the Commission thereunder.
(xvi) The execution and delivery of the Agreement and Plan of
Merger dated as of February 24, 1996 (the "Merger Agreement") between Storm
Technology, Inc., a California corporation (the "California Corporation"),
and the Company, effecting the reincorporation of the California
Corporation under the laws of the State of Delaware, was duly authorized by
all necessary corporate action on the part of each of the California
Corporation and the Company, and all governmental and third party consents
or approvals necessary to effect the reincorporation have been obtained.
Each of the California Corporation and the Company had all corporate power
and authority to execute and deliver the Merger Agreement, to file the
Merger Agreement with the Secretary of State of California and the
Secretary of State of Delaware and to consummate the reincorporation
contemplated by the Merger Agreement, and the Merger Agreement at the time
of execution and filing constituted a valid and binding obligation of each
of the California Corporation and the Company, enforceable in accordance
with its terms. The Merger Agreement and the actions contemplated thereby
comply in all material respects with applicable law.
4
<PAGE>
(xvii) The Company owns or possesses, or can acquire on
commercially reasonable terms, adequate licenses or other rights to use all
patents, trademarks, service marks, trade names, copyrights, mask work
rights, technology, software, know-how and trade secrets necessary to
conduct the business now or proposed to be conducted by the Company as
described in the Prospectus, and except as disclosed in the Prospectus, the
Company has not received any notice of infringement of or conflict with
(and knows of no such infringement of or conflict with) asserted rights of
others with respect to any patents, trademarks, service marks, trade names,
copyrights, mask work rights, technology, know-how or trade secrets which
would result in any material adverse effect upon the Company; and, except
as disclosed in the Prospectus, the discoveries, inventions, products,
services or processes of the Company referred to in the Prospectus do not,
infringe or conflict with any right or patent of any third party, or any
discovery, invention, product or process which is the subject of a patent
application filed by any third party;
(xviii) The Company has obtained any permits, consents and
authorizations required to be obtained by it under applicable federal,
state, local and foreign laws or regulations in order to conduct its
business as described in the Prospectus, including, but not limited to,
those under laws or regulations relating to the protection of the
environment or concerning the handling, storage, disposal or discharge of
toxic materials (collectively, "Environmental Laws"), and any such permits,
consents and authorizations remain in full force and effect. The Company is
in compliance with the Environmental Laws in all material respects, and
there is no pending or, to the Company's knowledge, threatened, action or
proceeding against the Company alleging violations of the Environmental
Laws;
(xix) The costs and liabilities, if any, associated with
Environmental Laws on the business, operations and properties of the
Company (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) would not, singly or in the aggregate, have a material adverse
effect on the Company, taken as a whole;
(xx) There is no legal or beneficial owner of any securities
of the Company who has any rights, not effectively satisfied or waived, to
require registration of any shares of capital stock of the Company in
connection with the filing of the Registration Statement;
(xxi) The Shares have been authorized for listing on the National
Association of Securities Dealers Automated Quotation system National
Market ("NASDAQ") upon official notice of issuance;
(xxii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions
are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and
5
<PAGE>
(iv) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences;
(xxiii) The Company (i) has notified each holder of a currently
outstanding option issued under each of the Amended and Restated Stock
Option Plan (the "Stock Plan") and each person who has acquired shares of
Common Stock pursuant to the exercise of any option or stock purchase right
granted under the Stock Plan that pursuant to the terms of the Stock Plan,
none of the shares issuable upon exercise of such options or the shares
previously acquired under the Stock Plan may be sold or otherwise
transferred or disposed of for a period of 180 days after the date of the
initial public offering of the Shares, (ii) has notified each stockholder
who is a party to the Amended and Restated Rights Agreement dated June 11,
1996 that pursuant to such Agreement the stockholder has agreed not to sell
or otherwise transfer or dispose of any Common Stock for a period of 180
days after the effective date of the initial public offering, (iii) has
imposed a stop-transfer instruction with the Company's transfer agent in
order to enforce the foregoing lock-up provisions and (iv) has requested
each holder of the Company's Preferred Stock and each employee stockholder
to agree to a 180 day lock-up period;
(b) Each Selling Stockholder, severally and not jointly, represents and
warrants to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders
necessary for the execution and delivery by such Selling Stockholder of
this Agreement and the Power of Attorney and the Custody Agreement
hereinafter referred to, and for the sale and delivery of the Shares to be
sold by such Selling Stockholder hereunder, have been obtained; and such
Selling Stockholder has full right, power and authority to enter into this
Agreement, the Power-of-Attorney and the Custody Agreement and to sell,
assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling
Stockholder hereunder and the compliance by such Selling Stockholder with
all of the provisions of this Agreement, the Power of Attorney and the
Custody Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any statute, indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which such Selling Stockholder is a party
or by which such Selling Stockholder is bound or to which any of the
property or assets of such Selling Stockholder is subject, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or Bylaws of such Selling Stockholder or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over such Selling Stockholder or the property of such
Selling Stockholder;
(iii) Such Selling Stockholder has, and immediately prior to
each Time of Delivery (as defined in Section 4 hereof) such Selling
Stockholder will have, good and valid title to the Shares to be sold by
such Selling Stockholder hereunder, free and clear of all liens,
encumbrances, equities or claims; and, upon delivery of such Shares and
payment therefor pursuant hereto, good and valid title to such Shares, free
and clear of all liens, encumbrances, equities or claims, will pass to the
several Underwriters;
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(iv) During the period beginning from the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus, not to offer, sell contract to sell or otherwise dispose of,
except as provided hereunder, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that represent
the right to receive, Stock or any such substantially similar securities
(other than pursuant to employee stock option plans existing on, or upon
the conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Agreement), without your prior written
consent;
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares;
(vi) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto are made in reliance upon and in conformity
with any written information furnished to the Company by such Selling
Stockholder expressly for use therein, such Preliminary Prospectus and the
Registration Statement did, and the Prospectus and any further amendments
or supplements to the Registration Statement and the Prospectus, when they
become effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the Act and the
rules and regulations of the Commission thereunder and will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or at
the First Time of Delivery (as hereinafter defined) a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof);
(viii) Certificates in negotiable form representing all of the
Shares to be sold by such Selling Stockholder hereunder have been placed in
custody under a Custody Agreement, in the form heretofore furnished to you
(the "Custody Agreement"), duly executed and delivered by such Selling
Stockholder to _________________, as custodian (the "Custodian"), and such
Selling Stockholder has duly executed and delivered a Power of Attorney, in
the form heretofore furnished to you (the "Power of Attorney"), appointing
the persons indicated in Schedule II hereto, and each of them, as such
Selling Stockholder's attorneys-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement and the International
Underwriting Agreement on behalf of such Selling Stockholder, to determine
the purchase price to be paid by the Underwriters and the International
Underwriters to the Selling Stockholder as provided in Section 2 hereof, to
authorize the delivery of the Shares to be sold by such Selling Stockholder
hereunder and otherwise to act on behalf of such Selling Stockholder in
connection with the transactions contemplated by this Agreement and the
Custody Agreement; and
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(ix) The Shares represented by the certificates held in custody
for such Selling Stockholder under the Custody Agreement are subject to the
interests of the Underwriters hereunder; the arrangements made by such
Selling Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that
extent irrevocable; the obligations of the Selling Stockholder hereunder
shall not be terminated by operation of law, whether by the death or
incapacity of any individual Selling Stockholder or, in the case of an
estate or trust, by the death or incapacity of any executor or trustee or
the termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by
the occurrence of any other event; if any individual Selling Stockholder or
any such executor or trustee should die or become incapacitated, or if any
such estate or trust should be terminated, or if any such partnership or
corporation should be dissolved, or if any other such event should occur,
before the delivery of the Shares hereunder, certificates representing the
Shares shall be delivered by or on behalf of the Selling Stockholder in
accordance with the terms and conditions of this Agreement and of the
Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to
the Powers of Attorney shall be as valid as if such death, incapacity,
termination, dissolution or other event had not occurred, regardless of
whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall
have received notice of such death, incapacity, termination, dissolution or
other event.
2. Subject to the terms and conditions herein set forth, the Company and
the Selling Stockholders agree, severally and not jointly, to sell to each of
the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company and the Selling Stockholders, at a
purchase price per share of $_____, the number of Firm Shares (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying the
aggregate number of Shares to be sold by the Company and the Selling
Stockholders as set forth opposite its name in Schedule II hereto by a fraction,
the numerator of which is the aggregate number of Firm Shares to be purchased by
such Underwriter as set forth opposite the name of such Underwriter in Schedule
I hereto and the denominator of which is the aggregate number of Firm Shares to
be purchased by all of the Underwriters from the Company and the Selling
Stockholders hereunder and, in the event and to the extent that the Underwriters
shall exercise the election to purchase Optional Shares as provided below, the
Company agrees to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company at the purchase
price per share set forth in clause (a) of this Section 2, that portion of the
number of Optional Shares as to which such election shall have been exercised
(to be adjusted by you so as to eliminate fractional shares) determined by
multiplying such number of Optional Shares by a fraction the numerator of which
is the maximum number of Optional Shares which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule I hereto
and the denominator of which is the maximum number of Optional Shares that all
of the Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 412,500 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares shall be made in proportion to the maximum number of Optional
Shares to be sold by the Company as set forth in Schedule II hereto. Any such
election to purchase Optional Shares may be exercised only by written notice
from you to the Company given within a period of 30 calendar days after the date
of this Agreement and setting forth the aggregate number of Optional Shares to
be purchased and the date on which such Optional Shares are to be delivered, as
determined by you, but in no event
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earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Company otherwise agree in writing, earlier than two or later
than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company and the Selling Stockholders shall be delivered by or on
behalf of the Company and the Selling Stockholders to Goldman, Sachs & Co., for
the account of such Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor by certified or official bank check
or checks, payable to the order of the Company and the Custodian, as their
interests may appear, in New York Clearing House (next day) funds. The Company
will cause the certificates representing the Shares to be made available for
checking and packaging at least twenty-four hours prior to the Time of Delivery
(as defined below) with respect thereto at the office of Goldman, Sachs & Co.,
85 Broad Street, New York, New York 10004 (the "Designated Office"). The time
and date of such delivery and payment shall be 9:30 a.m., New York City time, on
__________, 1996 or such other time and date as Goldman, Sachs & Co., the
Company may agree upon in writing. The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City
time, on __________, 1996 or such other time and date as Goldman, Sachs & Co.
and the Company may agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., New York City time, on the date specified by Goldman, Sachs &
Co. in the written notice given by Goldman, Sachs & Co. of the Underwriters'
election to purchase such Optional Shares, or such other time and date as
Goldman, Sachs & Co., the Company may agree upon in writing. Such time and date
for delivery of the Firm Shares is herein called the "First Time of Delivery",
such time and date for delivery of the Optional Shares, if not the First Time of
Delivery, is herein called the "Second Time of Delivery", and each such time and
date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof will be delivered at the offices of
Gray Cary Ware & Friedenrich, 400 Hamilton Avenue, Palo Alto, California 94301
(the "Closing Location"), and the Shares will be delivered at the Designated
Office, all at such Time of Delivery. A meeting will be held at the Closing
Location at _____ p.m., New York City time, on the New York Business Day next
preceding such Time of Delivery, at which meeting the final drafts of the
documents to be delivered pursuant to the preceding sentence will be available
for review by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York are generally
authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier time
as may be required by Rule 430A(a)(3) under the Act; to make no further
amendment or any supplement to the Registration Statement or Prospectus after
any Time of Delivery which shall be disapproved by you promptly after
reasonable notice thereof; to advise you, promptly after it receives notice
thereof, of the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus
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or any amended Prospectus has been filed and to furnish you with copies
thereof; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information;
and, in the event of the issuance of any stop order or of any order preventing
or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York business
day next succeeding the date of this Agreement, and from time to time, to
furnish the Underwriters with copies of the Prospectus in such quantities as
you may from time to time reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering or
sale of the Shares and if at such time any events shall have occurred as a
result of which the Prospectus as then amended or supplemented would include
an untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is delivered,
not misleading, or, if for any other reason it shall be necessary during such
period to amend or supplement the Prospectus in order to comply with the Act,
to notify you and upon your request to prepare and furnish without charge to
each Underwriter and to any dealer in securities as many copies as you may
from time to time reasonably request of an amended Prospectus or a supplement
to the Prospectus which will correct such statement or omission or effect such
compliance, and in case any Underwriter is required to deliver a prospectus in
connection with sales of any of the Shares at any time nine months or more
after the time of issue of the Prospectus, upon your request but at the
expense of such Underwriter, to prepare and deliver to such Underwriter as
many copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c) under
the Act), an earnings statement of the Company and its subsidiaries (which
need not be audited) complying with Section 11(a) of the Act and the rules and
regulations of the Commission thereunder (including, at the option of the
Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any securities of the Company that are substantially similar to the
Shares, including but not limited to any securities that are convertible into
or exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock option
plans existing on, or upon the
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conversion or exchange of convertible or exchangeable securities outstanding
as of, the date of this Agreement), without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company and
its consolidated subsidiaries certified by independent public accountants)
and, as soon as practicable after the end of each of the first three quarters
of each fiscal year (beginning with the fiscal quarter ending after the
effective date of the Registration Statement), consolidated summary financial
information of the Company and its consolidated subsidiaries for such quarter
in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver
to you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is listed;
and (ii) such additional information concerning the business and financial
condition of the Company as you may from time to time reasonably request (such
financial statements to be on a consolidated basis to the extent the accounts
of the Company and its consolidated subsidiaries are consolidated in reports
furnished to its stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds"; and
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National
Market System ("NASDAQ"); and
(j) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act.
6. The Company and the Selling Stockholders covenant and agree with one
another and with the several Underwriters that the Company will pay or cause to
be paid the following: (a) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the registration of the Shares under
the Act and all other expenses in connection with the preparation, printing and
filing of the Registration Statement, any Preliminary Prospectus and the
Prospectus and amendments and supplements thereto and the mailing and delivering
of copies thereof to the Underwriters and dealers; (b) the cost of printing or
producing any Agreement among Underwriters, this Agreement, the Blue Sky
Memorandum, closing documents (including any compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares; (c) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(d) all fees and expenses in connection with listing the Shares on the NASDAQ;
the filing fees incident to, and the fees and disbursements of counsel for the
Underwriters in connection with, securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the Shares;
(e) the cost of preparing stock certificates; (f) the cost and charges of any
transfer agent or registrar and (g) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section; (h) any fees and expenses of counsel for the
Selling Stockholders, (i) the Stockholder's pro rata share of the fees and
expenses of the Attorneys-in-Fact and
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the Custodian, and (j) all expenses and taxes incident to the sale and delivery
of the Shares to be sold by the Selling Stockholders to the Underwriters
hereunder. It is understood, further, that the Company shall bear, and the
Selling Stockholders shall not be required to pay or to reimburse the Company
for, the cost of any other matters not directly relating to the sale and
purchase of the Shares pursuant to this Agreement, and that, except as provided
in this Section, and Sections 8 and 11 hereof, the Underwriters will pay all of
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; and
all requests for additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction;
(b) Wilson Sonsini Goodrich & Rosati, a Professional Corporation,
counsel for the Underwriters, shall have furnished to you such opinion or
opinions, dated such Time of Delivery, with respect to the matters covered in
paragraphs (i), (ii), (vii), (xi) and (xiii) of subsection (c) below as well
as such other related matters as you may reasonably request, and such counsel
shall have received such papers and information as they may reasonably request
to enable them to pass upon such matters;
(c) Gray Cary Ware & Friedenrich, a Professional Corporation, counsel
for the Company, shall have furnished to you their written opinion, dated such
Time of Delivery, in form and substance satisfactory to you, to the effect
that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the Delaware,
with full corporate power and authority to own its properties and conduct
its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery have
been duly and validly authorized and issued and are fully paid and non-
assessable; and the Shares conform to the description of the Stock
contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject
to no material liability or disability by reason of failure to be so
qualified in any such jurisdiction (such counsel being entitled to rely in
respect of the
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opinion in this clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the Company, provided that
such counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(iv) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation; and all of the issued shares of capital
stock of each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in respect of the
opinion in this clause upon opinions of local counsel and in respect of
matters of fact upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions and
certificates;
(v) To the knowledge of such counsel, the Company and its
subsidiaries do not own any real property and any real property and
buildings held under lease by the Company and its subsidiaries are held by
it under valid, subsisting and enforceable leases with such exceptions as
are not material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries (in
giving the opinion in this clause, such counsel may state that no
examination of record titles for the purpose of such opinion has been made,
and that they are relying upon a general review of the titles of the
Company and its subsidiaries ), upon opinions of local counsel and
abstracts, reports and policies of title companies rendered or issued at or
subsequent to the time of acquisition of such property by the Company or
its subsidiaries, upon opinions of counsel to the lessors of such property
and, in respect of matters of fact, upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall state that
they believe that both you and they are justified in relying upon such
opinions, abstracts, reports, policies and certificates;
(vi) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental proceedings
pending to which the Company or its subsidiaries is a party or of which any
property of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The issue and sale of the Shares being delivered at such
Time of Delivery to be sold by the Company and the compliance by the
Company with all of the provisions of this Agreement and the consummation
of the transactions herein contemplated will not conflict with or result in
a breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
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agreement or other agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or Bylaws of the Company or any statute or any order, rule or
regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or any
of their properties;
(ix) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(x) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or Bylaws or, to the best of
such counsel's knowledge, in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, or lease or agreement
or other instrument known to such counsel to which it is a party or by
which it or any of its properties may be bound;
(xi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, and under the caption
"Underwriting", insofar as they purport to describe the provisions of the
laws and documents referred to therein, are accurate and complete
summaries;
(xii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act; and
(xiii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion) comply
as to form in all material respects with the requirements of the Act and
the rules and regulations thereunder; although they do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (x) of this Section 7(c), they
have no reason to believe that, as of its effective date, the Registration
Statement or any further amend ment thereto made by the Company prior to
such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
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the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial statements
and related schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules therein, as to
which such counsel need express no opinion) contains an untrue statement of
a material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and they do not know of any amendment to the
Registration Statement required to be filed or of any contracts or other
documents of a character required to be filed as an exhibit to the
Registration Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or incorporated by
reference or described as required;
(xiv) The execution and delivery of the Agreement and Plan of
Merger dated as of February 24, 1996 (the "Merger Agreement") between Storm
Technology, Inc., a California corporation (the "California Corporation"),
and the Company, effecting the reincorporation of the California
Corporation under the laws of the State of Delaware, was duly authorized by
all necessary corporate action on the part of each of the California
Corporation and the Company, and all governmental and third party consents
and approvals necessary to effect the reincorporation have been obtained.
Each of the California Corporation and the Company had all corporate power
and authority to execute and deliver the Merger Agreement, to file the
Merger Agreement with the Secretary of State of California and the
Secretary of State of Delaware and to consummate the reincorporation
contemplated by the Merger Agreement, and the Merger Agreement at the time
of execution and filing constituted a valid and binding obligation of each
of the California Corporation and the Company, enforceable in accordance
with its terms. The Merger Agreement and the actions contemplated thereby
comply in all material respects with applicable law.
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than California, Delaware and
the federal laws of the United States.
(d) The counsel for the Selling Stockholders, as indicated in Schedule II
hereto, shall have furnished to you their written opinion with respect to
the Selling Stockholders, dated such First Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) A Power-of-Attorney and a Custody Agreement have been duly
executed and delivered by the Selling Stockholders and constitute valid and
binding agreements of the Selling Stockholders in accordance with their
terms;
(ii) This Agreement has been duly executed and delivered by or on
behalf of the Selling Stockholders; and the sale of the Shares to be sold
by the Selling Stockholders hereunder and the compliance by the Selling
Stockholders with all of the provisions of this Agreement, the Power-of-
Attorney and the Custody Agreement and the consummation of the transactions
herein and therein contemplated will not conflict with or result in a
breach or violation of any terms or provisions of, or constitute a default
under, any statute, indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument known to such counsel to which any Selling
Stockholder is a party or by which any Selling Stockholder is bound or to
which any of the property or assets of any Selling Stockholder is subject,
nor will such action result in any violation
15
<PAGE>
of the provisions of the Certificate of Incorporation or Bylaws of any
Selling Stockholder or any order, rule or regulation known to such counsel
of any court or governmental agency or body having jurisdiction over any
Selling Stockholder or the property of any Selling Stockholder;
(iii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the Shares
to be sold by the Selling Stockholders hereunder;
(iv) Immediately prior to the First Time of Delivery, the Selling
Stockholders had good and valid title to the Shares to be sold at the First
Time of Delivery by the Selling Stockholders under this Agreement, free and
clear of all liens, encumbrances, equities or claims, and full right, power
and authority to sell, assign, transfer and deliver the Shares to be sold
by the Selling Stockholders hereunder; and
(v) Good and valid title to such Shares, free and clear of all
liens, encumbrances, equities or claims, has been transferred to each of
the several Underwriters who have purchased such Shares in good faith and
without notice of any such lien, encumbrance, equity or claim or any other
adverse claim within the meaning of the Uniform Commercial Code.
In rendering the opinion in paragraph (iv), such counsel may rely upon a
certificate of the Selling Stockholders in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
the Selling Stockholders, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such certificate;
(e) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent to
the date of this Agreement and also at each Time of Delivery, Price Waterhouse
LLP shall have furnished to you a letter or letters, dated the respective
dates of delivery thereof, in form and substance satisfactory to you, to the
effect set forth in Annex I hereto;
(f) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included
in the Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus, and (ii) since
the respective dates as of which information is given in the Prospectus there
shall not have been any change in the capital stock (other than pursuant to
the exercise of outstanding options or the grant of options under the Stock
Plan as described in the Prospectus having a market value of the Company's
Common Stock on the date of grant) or long-term debt of the Company or any of
its subsidiaries or any change, or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company or any of its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus,
the effect of which, in any such case described in clause (i) or (ii), is in
the judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the terms
and in the manner contemplated in the Prospectus;
16
<PAGE>
(g) On or after the date hereof there shall not have occurred any
of the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on the NASDAQ; (ii) a
suspension or material limitation in trading in the Company's securities on
the NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal, New York or California State authorities; or (iv)
the outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the effect
of any such event specified in this clause (iv) in the judgment of the
Representatives makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated in the Prospectus;
(h) The Shares at such Time of Delivery shall have been duly listed
for quotation on the NASDAQ National Market;
(i) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each executive officer and director of
the Company and holder of Preferred Stock of the Company, substantially to the
effect set forth in Subsection 1(b)(iv) hereof in form and substance
satisfactory to you; and
(j) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Stockholders, respectively,
satisfactory to you as to the accuracy of the representations and warranties
of the Company and the Selling Stockholders, respectively, herein at and as of
such Time of Delivery, as to the performance by the Company and the Selling
Stockholders of all of their respective obligations hereunder to be performed
at or prior to such Time of Delivery, and as to such other matters as you may
reasonably request, and the Company shall have furnished or caused to be
furnished certificates as to the matters set forth in subsections (a) and (f)
of this Section.
(k) Keker & Van Nest L.L.P., patent counsel for the Company, shall
have furnished to you their written opinion, dated such Time of Delivery, in
form and substance satisfactory to you and your counsel, with respect to
intellectual property matters.
8. (a) The Company, Primax and each Selling Stockholder, jointly and
severally, will indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that (i)
the Company and the Selling Stockholders shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein and (ii) the liability of
a Selling Stockholder (other than Primax) pursuant to this provision shall be
limited to the gross proceeds (prior to deduction of underwriting discounts and
expenses) to the Selling Stockholder from the sale of Shares by such Selling
Stockholder.
(b) Each Underwriter will indemnify and hold harmless the Company,
Primax and the Selling Stockholders against any losses, claims, damages or
liabilities to which the Company or the
17
<PAGE>
Selling Stockholders may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through Goldman, Sachs & Co. expressly for use therein; and will reimburse the
Company and the Selling Stockholders for any legal or other expenses reasonably
incurred by the Company or the Selling Stockholders in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. No indemnifying party shall, without
the written consent of the indemnified party, effect the settlement or
compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders on the
one hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and the Selling Stockholders on the one hand
and the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling
18
<PAGE>
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Stockholders bear to
the total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Selling Stockholders on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Selling Stockholders and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwith standing the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under
this Section 8 shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 8
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company and to each person, if any, who controls the
Company or the Selling Stockholders within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after
such default by any Underwriter you do not arrange for the purchase of such
Shares, then the Company and the Selling Stockholders shall be entitled to a
further period of thirty-six hours within which to procure another party or
other parties satisfactory to you to purchase such Shares on such terms. In the
event that, within the respective prescribed periods, you notify the Company and
the Selling Stockholders that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholders notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholders shall have the right to postpone a Time of Delivery for a period of
not more than seven days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus which in your opinion
may thereby be made necessary. The term "Underwriter" as used in this Agreement
shall include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to such
Shares.
19
<PAGE>
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of all the Shares to be purchased at such Time of Delivery,
then the Company and the Selling Stockholders shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you, the Company and
the Selling Stockholders as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased exceeds one-eleventh of the
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Company and the Selling Stockholders shall not exercise the right
described in subsection (b) above to require non-defaulting Underwriters to
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the Company or the
Selling Stockholders, except for the expenses to be borne by the Company and the
Selling Stockholders and the Underwriters as provided in Section 6 hereof and
the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or the Selling Stockholders, or any officer or
director or controlling person of the Company, or any controlling person of the
Selling Stockholders, and shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Company and the Selling Stockholders as provided herein, the Company and the
Selling Stockholders pro rata (based on the number of Shares to be sold by the
Company and the Selling Stockholders hereunder) will reimburse the Underwriters
through you for all out-of-pocket expenses approved in writing by you, including
fees and disbursements of counsel, reasonably incurred by the Underwriters in
making preparations for the purchase, sale and delivery of the Shares not so
delivered, but the Company and the Selling Stockholders shall then be under no
further liability to any Underwriter in respect of the Shares not so delivered
except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives; and in all dealings with the Selling Stockholders hereunder,
you and the Company shall be entitled to act and rely upon any statement,
request, notice or agreement on behalf of the Selling Stockholders made or given
by any or all of the Attorneys-in-Fact for the Selling Stockholders.
20
<PAGE>
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; if to the Selling Stockholders shall be delivered or sent by mail,
telex or facsimile transmission to counsel for the Selling Stockholders at its
address set forth in Schedule II hereto; and if to the Company shall be
delivered or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(d) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire or telex
constituting such Questionnaire, which address will be supplied to the Company
or the Selling Stockholders by you on request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company and each person who controls the Company, the Selling Stockholders or
any Underwriter, and their respective heirs, executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us six counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company and
the Selling Stockholders. It is understood that your acceptance of this letter
on behalf of each of the Underwriters is pursuant to the authority set forth in
a form of Agreement among Underwriters, the form of which shall be submitted to
the Company and the Selling Stockholders for examination, upon request, but
without warranty on your part as to the authority of the signers thereof.
21
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
the Selling Stockholders represents by so doing that he has been duly appointed
as Attorney-in-Fact by the Selling Stockholders pursuant to a validly existing
and binding Power-of-Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
Storm Technology, Inc.
By:
------------------------------
Name:
Title:
Primax Electronics, Ltd.
(as parent of its minority-owned subsidiary,
Storm Technology, Inc. and as
Selling Stockholder)
By:
------------------------------
Name:
Title:
Accepted as of the date hereof: [Names of Selling Stockholders]
Goldman, Sachs & Co. By:
Hambrecht & Quist LLC ------------------------------
Name:
Title:
By: As Attorney-in-Fact acting on behalf
------------------------------ of the Selling Stockholders named
(Goldman, Sachs & Co.) in Schedule II to this Agreement
On behalf of each of the Underwriters
22
<PAGE>
SCHEDULE I
Number of
Optional
Shares to be
Total Number Purchased if
of Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- --------------
Goldman, Sachs & Co.......................
Hambrecht & Quist LLC.....................
Total...............................
--------- -------
2,750,000 412,500
========= =======
<PAGE>
SCHEDULE II
Number of
Optional
Shares to be
Total Number Purchased if
of Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- --------------
The Company................................ 2,000,000 412,500
The Selling Stockholders:
Primax Electronics, Ltd................. 742,500 0
[List each other Selling Stockholder]... 0
Total................................
---------- -------
2,750,000 412,500
========= =======
<PAGE>
ANNEX I
[FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
FOR REGISTRATION STATEMENTS ON FORM S-1]
Pursuant to Section 7(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus and on the basis of specified procedures including inquiries of
officials of the Company who have responsibility for financial and
accounting matters regarding whether the unaudited condensed consolidated
financial statements referred to in paragraph (vi)(A)(i) below comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations, nothing came to
their attention that caused them to believe that the unaudited condensed
consolidated financial statements do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where applicable)
in the audited consolidated financial statements for such five fiscal
years.
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited
<PAGE>
financial statements and other information referred to below, a reading of
the latest available interim financial statements of the Company,
inspection of the minute books of the Company since the date of the latest
audited financial statements included in the Prospectus, inquiries of
officials of the Company responsible for financial and accounting matters
and such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial statements
from which such data and items were derived, and any such unaudited
data and items were not determined on a basis substantially consistent
with the basis for the corresponding amounts in the audited
consolidated financial statements included in the Prospectus;
(C) the unaudited financial statements which were not
included in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included in
the Prospectus and referred to in Clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock upon
exercise of options and stock appreciation rights, upon earn-outs of
performance shares and upon conversions of convertible securities, in
each case which were outstanding on the date of the latest financial
statements included in the Prospectus) or any increase in the
consolidated long-term debt of the Company, or any decreases in
consolidated net current assets or stockholders' equity or other items
specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter; and
2
<PAGE>
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in Clause (E) there were any decreases in consolidated net revenues
or operating profit or the total or per share amounts of consolidated
net income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and have found them to be in
agreement.
3
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered into
as of September ___, 1996 by and between Storm Primax, Inc. a California
corporation ("Storm California"), and Storm Primax Delaware, a Delaware
corporation ("Storm Delaware").
WITNESSETH:
WHEREAS, Storm Delaware is a corporation duly organized and existing under
the laws of the State of Delaware;
WHEREAS, Storm California is a corporation duly organized and existing
under the laws of the State of California;
WHEREAS, on the date of this Merger Agreement, Storm Delaware has authority
to issue 1,000 shares of Common Stock, par value $0.001 per share (the "Storm
Delaware Common Stock"), of which 100 shares are issued and outstanding and
owned by Storm California;
WHEREAS, on the date of this Merger Agreement, Storm California has
authority to issue 40,000,000 shares of Common Stock (the "Storm California
Common Stock"), of which 4,983,756 shares are issued and outstanding, and
40,000,000 shares of Preferred Stock (the "Storm California Preferred Stock"),
of which 26,852,815 shares are issued and outstanding;
WHEREAS, the respective Boards of Directors for Storm Delaware and Storm
California have determined that, for the purpose of effecting the
reincorporation of Storm California in the State of Delaware, it is advisable
and to the advantage of said two corporations and their shareholders that Storm
California merge with and into Storm Delaware upon the terms and conditions
herein provided; and
WHEREAS, the respective Boards of Directors of Storm Delaware and Storm
California, the stockholders of Storm California, and the sole stockholder of
Storm Delaware have adopted and approved this Merger Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Storm California and Storm Delaware hereby agree to merge as
follows:
1. Merger. Storm California shall be merged with and into Storm Delaware,
------
and Storm Delaware shall survive the merger ("Merger"), effective upon the date
when this Merger Agreement is made effective in accordance with applicable law
(the "Effective Date").
2. Governing Documents. The Certificate of Incorporation of Storm
-------------------
Delaware shall be amended to read in full as follows:
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FIRST: The name of the Corporation is Storm Technology, Inc. (hereinafter
- ----- sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
- ------ State of Delaware is Incorporating Services, Ltd., 15 East North
Street, in the City of Dover, County of Kent. The name of the
registered agent at that address is Incorporating Services, Ltd.
THIRD: 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 Delaware.
FOURTH:
- ------
A. Classes of Stock. The Corporation is authorized to issue
----------------
two classes of stock to be designated, respectively, "Preferred
Stock" and "Common Stock." The total number of shares of all classes
of stock which the Corporation is authorized to issue is Thirty Six
Million Four Hundred Fifty Seven Thousand seventeen (36,457,017).
The total number of shares of Preferred Stock the Corporation shall
have authority to issue is Seven Million One Hundred Five Thousand
Nine Hundred Eighty-Four (7,105,984), $0.001 par value per share,
and the total number of shares of Common Stock the Corporation shall
have authority to issue is Thirty Million (30,000,000), $0.001 par
value per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by this Certificate of Incorporation may
be issued from time to time in series. The first series of Preferred
Stock shall be designated "Series A Preferred Stock," which series
shall consist of 749,999 shares. The second series of Preferred
Stock shall be designated "Series B Preferred Stock," which series
shall consist of 114,582 shares. The third series of Preferred Stock
shall be designated "Series C Preferred Stock," which series shall
consist of 818,215 shares. The fourth series of Preferred Stock
shall be designated "Series D Preferred Stock," which series shall
consist of 689,892 shares. The fifth series of Preferred Stock shall
be designated "Series E" Preferred Stock," which series shall
consist of 4,084,329. The sixth series of Preferred Stock shall be
designated "Series F Preferred Stock," which series shall consist of
148,967. The relative rights, preferences, privileges and
restrictions granted to or imposed upon the shares of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Series E
Preferred Stock and the Series F Preferred Stock are as follows:
1. Dividend Provisions
-------------------
(a) The holders of the then outstanding Series A Preferred
Stock shall be entitled to receive in any fiscal year, pari passu with the then
outstanding
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Series B, Series C, Series D, Series E and Series F Preferred Stock, when, as
and if, declared by the Board of Directors, out of any assets at the time
legally available therefor, dividends in cash at the rate per annum of $0.32 per
share payable in preference and priority to any payment of any cash dividend on
Common Stock. The holders of the then outstanding Series B Preferred Stock shall
be entitled to receive in any fiscal year, pari passu with the then outstanding
Series A, Series C, Series D, Series E and Series F Preferred Stock when, as and
if, declared by the Board of Directors, out of any assets at the time legally
available therefor, dividends in cash at the rate per annum of $0.40 per share,
payable in preference and priority to any payment of any cash dividend on Common
Stock. The holders of the then outstanding Series C Preferred Stock shall be
entitled to receive in any fiscal year, pari passu with the then outstanding
Series A, Series B, Series D, Series E and Series F Preferred Stock when, as and
if, declared by the Board of Directors, out of any assets at the time legally
available therefor, dividends in cash at the rate per annum of $0.40 per share,
payable in preference and priority to any payment of any cash dividend on Common
Stock. The holders of the then outstanding Series D Preferred Stock shall be
entitled to receive in any fiscal year, pari passu with the then outstanding
Series A, Series B, Series C, Series E and Series F Preferred Stock and when, as
and if, declared by the Board of Directors, out of any assets at the time
legally available therefor, dividends in cash at the rate per annum of $0.40 per
share, payable in preference and priority to any payment of any cash dividend on
Common Stock. The holders of the then outstanding Series E Preferred Stock shall
be entitled to receive in any fiscal year, pari passu with the then outstanding
Series A, Series B, Series C, Series D and Series F Preferred Stock when, as and
if, declared by the Board of Directors, out of any assets at the time legally
available therefore, dividends in cash at the rate per annum of $0.08 per share
payable in preference and priority to any payment of any cash dividend on Common
Stock. The holders of the then outstanding Series F Preferred Stock shall be
entitled to receive in any fiscal year, pari passu with the then outstanding
Series A, Series B, Series C, Series D and Series E Preferred Stock, when as and
if, declared by the Board of Directors, out of any assets at the time legally
available therefore dividends in cash at the rate per annum of $0.40 per share
payable in preference and priority to any payment of any cash dividend on Common
Stock. The right to such cash dividends on the Preferred Stock shall not be
cumulative, and no right shall accrue to holders of the Preferred Stock by
reason of the fact that dividends on such shares are not declared in any prior
year. No dividends shall be paid on any Common Stock unless an equal dividend is
paid with respect to all outstanding shares of Preferred Stock in an amount for
each such share of Preferred Stock equal to the aggregate amount of such
dividends for all Common Stock into which each such share of Preferred Stock
could then be converted.
(b) Each holder of Series A, Series B, Series C, Series D,
Series E and Series F Preferred Stock shall be deemed to have consented, for
purposes of Sections 502, 503 and 506 of the General Corporation Law of the
State of California, to distributions made by the Corporation in connection with
the repurchase of Common Stock issued to or held by employees, directors or
consultants upon termination of their employment or services pursuant to
agreements providing for such repurchase.
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<PAGE>
2. Preference on Liquidation.
-------------------------
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, distributions to the shareholders of the Corporation shall
be made in the following manner:
(i) The holders of the Series A, Series B, Series C,
Series D and Series F Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of Series E Preferred Stock or to the holders of the
Common Stock by reason of their ownership of such stock, (A) the amount of $4.00
per share for each share of Series A Preferred Stock, the amount of $4.80 per
share for each share of Series B Preferred Stock, the amount of $4.80 per share
for each share of Series C Preferred Stock, the amount of $5.20 per share for
each share of Series D Preferred Stock, the amount of $12.40 per share for each
share of Series F Preferred Stock, then held by them, adjusted for any stock
split, combination, consolidation, or stock distributions or stock dividends
with respect to such shares, and (B) an amount equal to all declared but unpaid
dividends on the Series A, Series B, Series C, Series D and Series F Preferred
Stock as provided in Section 1 above. If the assets and funds thus distributed
among the holders of the Series A, Series B, Series C, Series D and Series F
Preferred Stock shall be insufficient to permit the payment to such holders of
the full aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series A, Series B, Series C, Series D and Series F
Preferred Stock in proportion to their aggregate preferential amount. After
payment has been made to the holders of the Series A, Series B, Series C, Series
D and Series F Preferred Stock of the full preferential amounts to which they
shall be entitled, if any, as aforesaid, the holders of the Series E Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the Corporation to the holders of the
Common Stock by reason of their ownership of such stock, (A) the amount of $0.80
per share for each share of Series E Preferred Stock, then held by them,
adjusted for any stock split, combination, consolidation, or stock distributions
or stock dividends with respect to such shares, and (B) an amount equal to all
declared but unpaid dividends on the Series E Preferred Stock as provided in
Section 1 above.
(ii) After payment has been made to the holders of the
Preferred Stock of the full preferential amounts to which they shall be
entitled, if any, as aforesaid, the holders of the Common Stock and the
Preferred Stock shall be entitled to receive, out of the remaining assets, based
on the number of shares of Common Stock then held, with each share of Preferred
Stock treated as the number of shares of Common Stock into which such share of
Preferred Stock is then convertible, the amount of $12.00 per share
(appropriately adjusted for stock dividends, stock splits, reverse stock splits
and similar events). If $12.00 per share has been paid to the holders of
Preferred Stock as provided by this Section 2(a)(ii), then each share of Common
Stock shall be entitled to receive, in addition, an amount equal to all declared
but unpaid dividends, if any, on the respective shares of Common Stock then held
by them. If, upon the occurrence of any liquidation, dissolution or winding up
of the Corporation, the assets
4
<PAGE>
and property legally available to be distributed among the holders of the Common
Stock and Preferred Stock shall be insufficient to permit the payment to such
holders of the full preferential amount aforesaid, then the entire assets and
property of the Corporation legally available for distribution shall be
distributed ratably among such holders, based on the number of shares of Common
Stock then held by each such holder, with each share of Preferred Stock treated
as the number of shares of Common Stock into which such share of Preferred Stock
is then convertible.
(iii) After payment has been made to the holders of the
Common Stock and Preferred Stock of the full preferential amounts to which they
shall be entitled, if any, as aforesaid, the holders of the Common Stock shall
be entitled to share ratably in all remaining assets to be distributed, based
upon the number of shares of Common Stock then held by such holders.
(b) A consolidation or merger of the Corporation with or into
any other corporation or corporations (other than a wholly-owned subsidiary), or
the sale, transfer or other disposition of all or substantially all of the
assets of the Corporation or the consummation of any transaction or series of
related transactions which results in the corporation's shareholders immediately
prior to such transaction not holding at least 50% of the voting power of the
surviving or continuing entity shall be deemed a liquidation, dissolution or
winding up within the meaning of this Section 2.
(c) In the event the Corporation shall propose to take any
action of the type described in subsection (a) or (b) of this Section 2, the
Corporation shall, within ten (10) days after the date the Board of Directors
approves such action or twenty (20) days prior to any shareholders' meeting
called to approve such action, whichever is earlier, give each holder of shares
of the Preferred Stock written notice of the proposed action. Such written
notice shall describe the material terms and conditions of such proposed action,
including a description of the stock, cash and property to be received by the
holders of shares of the Preferred Stock upon consummation of the proposed
action and the proposed date of delivery thereof. If any material change in the
facts set forth in the notice shall occur, the Corporation shall promptly give
written notice to each holder of shares of the Preferred Stock of such material
change.
(d) The Corporation shall not consummate any proposed action
of the type described in subsection (a) or (b) of this Section 2 before the
expiration of thirty (30) days after the mailing of the initial written notice
or ten (10) days after the mailing of any subsequent written notice, whichever
is later; provided, however, that any such 30-day or 10-day period may be
shortened upon the written consent of the holders of a majority of the
outstanding shares of the Preferred Stock.
(e) If the Corporation shall propose to take any action of the
type described in subsection (a) or (b) of this Section 2 which will involve the
distribution of assets other than cash, the Corporation shall promptly engage
independent competent appraisers to determine the value of the assets to be
distributed to the holders of shares of the Preferred Stock and the Common
Stock. The Corporation shall, upon receipt of
5
<PAGE>
such appraiser's valuation, give prompt written notice of the appraiser's
valuation to each holder of shares of the Preferred Stock.
3. Voting Rights.
-------------
(a) Each holder of shares of Preferred Stock shall be entitled
to the number of votes equal to the number of shares of Common Stock into which
such shares of Preferred Stock could be converted on the record date for the
vote or consent of shareholders and shall have voting rights and powers equal to
the voting rights and powers of the Common Stock. The holder of each share of
Preferred Stock shall be entitled to notice of any shareholders' meeting in
accordance with the Bylaws of the Corporation and, except as provided in
paragraph (b) below, shall vote with holders of the Common Stock upon any matter
submitted to a vote of shareholders, except those matters required by law to be
submitted to a class vote. Fractional votes by the holders of Preferred Stock
shall not, however, be permitted and any fractional voting rights resulting from
the above formula (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number.
(b) The holders of shares of Common Stock and Series A, Series
B, Series C, Series D and Series F Preferred Stock shall be entitled, voting as
a separate class, to elect three members of the Board of Directors of the
Corporation. The holders of shares of Series E Preferred Stock shall be
entitled, voting as a separate class, to elect three members of the Board of
Directors of the Corporation. The holders of shares of Common Stock and
Preferred Stock shall be entitled, voting together, to elect the remaining
member of the Board of Directors of the Corporation which is fixed at seven (7)
members. In the case of any vacancy in the office of a director elected by the
holders of a particular class of stock, the vacancy may be filled only by the
vote of the holders of such class of stock. Any director who shall have been
elected by the holders of a particular class of stock may be removed without
cause by, and only by, the applicable vote of the holders of shares of such
class of stock. The provisions of this paragraph 3(b) shall expire and be of no
further force or effect immediately upon conversion of the outstanding shares of
Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock.
4. Conversion Rights. The holders of Series A, Series B, Series
-----------------
C, Series D, Series E and Series F Preferred Stock shall have conversion rights
as follows:
(a) Each share of Series A, Series B, Series C, Series D,
Series E and Series F Preferred Stock shall be convertible, at the option of the
holder thereof, at any time at the principal office of the Corporation or any
transfer agent for such shares, into fully paid and nonassessable shares of
Common Stock of the Corporation. The number of shares of Common Stock into which
each share of Series A Preferred Stock may be converted shall be determined by
dividing $4.00 for the Series A Preferred Stock by the Series A Conversion Price
determined as hereinafter provided in effect at the time of the conversion. The
Series A Conversion Price per share at which shares of Common Stock shall be
initially issuable upon conversion of any shares of Series A Preferred Stock
6
<PAGE>
shall be $4.00 for the Series A Preferred Stock, subject to adjustment as
provided herein. The number of shares of Common Stock into which each share of
Series B Preferred Stock may be converted shall be determined by dividing $4.80
for the Series B Preferred Stock by the Series B Conversion Price determined as
hereinafter provided in effect at the time of the conversion. The Series B
Conversion Price per share at which shares of Common Stock shall be initially
issuable upon conversion on any shares of Series B Preferred Stock shall be
$4.80 for the Series B Preferred Stock, subject to adjustment as provided
herein. The number of shares of Common Stock into which each share of Series C
Preferred Stock may be converted shall be determined by dividing $4.80 for the
Series C Preferred Stock by the Series C Conversion Price determined as
hereinafter provided in effect at the time of the conversion. The Series C
Conversion Price per share at which shares of Common Stock shall be initially
issuable upon conversion on any shares of Series C Preferred Stock shall be
$4.80 for the Series C Preferred Stock, subject to adjustment as provided
herein. The number of shares of Common Stock into which each share of Series D
Preferred Stock may be converted shall be determined by dividing $5.20 for the
Series D Preferred Stock by the Series D Conversion Price determined as
hereinafter provided in effect at the time of the conversion. The Series D
Conversion Price per share at which shares of Common Stock shall be initially
issuable upon conversion on any shares of Series D Preferred Stock shall be
$5.20 for the Series D Preferred Stock, subject to adjustment as provided
herein. The number of shares of Common Stock into which each share of Series E
Preferred Stock may be converted shall be determined by dividing $0.80 for the
Series E Preferred Stock by the Series E Conversion Price determined as
hereinafter provided in effect at the time of the conversion. The Series E
Conversion Price per share at which shares of Common Stock shall be initially
issuable upon conversion on any shares of Series E Preferred Stock shall be
$0.80 for the Series E Preferred Stock, subject to adjustment as provided
herein. The number of shares of Common Stock into which each share of Series F
Preferred Stock may be converted shall be determined by dividing $12.40 for the
Series F Preferred Stock by the Series F Conversion Price determined as
hereinafter provided in effect at the time of conversion. The Series F
Conversion Price per share at which shares of Common Stock shall be initially
issuable upon conversion on any shares of Series F Preferred Stock shall be the
lower of (i) $12.40 and (ii) the price per share at which the corporation sells
shares its initial public offering divided by $4.80, subject to adjustment as
provided herein.
(b) Each share of Preferred Stock shall be converted into Common Stock
automatically in the manner provided herein upon the earlier to occur of (i) the
time the consent of at least 66-2/3% of the outstanding Preferred Stock to such
conversion is obtained, or (ii) the closing of the sale of the Corporation's
securities pursuant to a firm commitment underwritten public offering from which
the Corporation receives gross proceeds of not less than $7,500,000 at a
purchase price of not less than $7.80 per share (as adjusted for stock splits,
stock dividends, reorganizations and the like).
(c) Before any holder of Preferred Stock shall be entitled to convert
the same into Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed in blank or accompanied by proper
instruments of
7
<PAGE>
transfer, at the principal office of the Corporation or of any transfer agent
for the Preferred Stock, and shall give written notice to the Corporation at
such office that such holder elects to convert the same and shall state in
writing therein the name or names in which such holder wishes the certificate or
certificates for Common Stock to be issued. As soon as practicable thereafter,
the Corporation shall issue and deliver at such office to such holder's nominee
or nominees, certificates for the number of whole shares of Common Stock to
which such holder shall be entitled. No fractional shares of Common Stock shall
be issued by the Corporation and all such fractional shares shall be
disregarded. In lieu thereof, the Corporation shall pay in cash the fair market
value of such fractional share as determined by the Board of Directors of the
Corporation. Such conversion shall be deemed to have been made as of the date of
such surrender of the Preferred Stock to be converted, and the person or persons
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such Common Stock on
said date.
(d) In case the Corporation shall at any time (i) subdivide the
outstanding Common Stock, or (ii) issue a stock dividend on its outstanding
Common Stock, the number of shares of Common Stock issuable upon conversion of
the Preferred Stock immediately prior to such subdivision or the issuance of
such stock dividend shall be proportionately increased by the same ratio as the
subdivision or dividend (with appropriate adjustments in the Conversion Price of
each series of Preferred Stock). In case the Corporation shall at any time
combine its outstanding Common Stock, the number of shares of Common Stock
issuable upon conversion of the Preferred Stock immediately prior to such
combination shall be proportionately decreased by the same ratio as the
combination (with appropriate adjustments in the Conversion Price of each series
of the Preferred Stock). All such adjustments described herein shall be
effective at the close of business on the date of such subdivision, stock
dividend or combination, as the case may be.
(e) In case of any capital reorganization (other than in connection
with a merger or other reorganization in which the Corporation is not the
continuing or surviving entity) or any reclassification of the Common Stock of
the Corporation, the Preferred Stock shall thereafter be convertible into that
number of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Corporation deliverable upon
conversion of the shares of Preferred Stock immediately prior to such
reorganization or recapitalization would have been entitled upon such
reorganization, or reclassification. In any such case, appropriate adjustment
(as determined by the Board of Directors) shall be made in the application of
the provisions herein set forth with respect to the rights and interests
thereafter of the holders of Preferred Stock, such that the provisions set forth
herein shall thereafter be applicable, as nearly as reasonably may be, in
relation to any share of stock or other property thereafter deliverable upon the
conversion.
(f) Upon each issuance by the Corporation of any Additional Stock (as
defined below) after the date upon which any shares of the Series F Preferred
Stock were first issued (the "Purchase Date"), (1) without consideration or for
a consideration per share less than the Conversion Price for the Series C
Preferred Stock
8
<PAGE>
in effect immediately prior to the issuance of such Additional Stock, the
Conversion Price for Series C Preferred Stock in effect immediately prior to
each such issuance shall forthwith be adjusted to equal the per share
consideration received by the Corporation for such issuance, but in no event
shall such Conversion Price be adjusted to less than $4.00 or (2) without
consideration or for a consideration per share less than the Conversion Price
for the Series D Preferred Stock in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price for Series D Preferred Stock in
effect immediately prior to each such issuance shall forthwith be adjusted to
equal the per share consideration received by the Corporation for such issuance,
but in no event shall such Conversion Price be adjusted to less than $4.00 or
(3) without consideration or for a consideration per share less than the
Conversion Price for the Series F Preferred Stock in effect immediately prior to
the issuance of such Additional Stock, the Conversion Price for Series F
Preferred Stock in effect immediately prior to each such issuance shall
forthwith be adjusted to equal the per share consideration received by the
Corporation for such issuance, but in no event shall such Conversion Price be
adjusted to less than $4.00 (provided that for the purposes this section the
Conversion Price for Series F Preferred Stock shall initially be set at $12.40).
For the purposes of this Section 4(f), the following provisions shall be
applicable:
(i) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other reasonable expenses
allowed, paid or incurred by the Corporation for any underwriting or otherwise
in connection with the issuance and sale thereof.
(ii) In the case of the issuance of Common Stock for a consideration
in whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair value thereof as determined by the Board of Directors
irrespective of any accounting treatment.
(iii) In the case of the issuance (on or after the Purchase Date) of
options to purchase or rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock or options to purchase
or rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this subsection 4(f)(iii):
(A) The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
4(f)(i) and 4(f)(ii)), if any, received by the Corporation upon the issuance of
such options or rights plus the minimum exercise price provided in such options
or rights (without taking into account potential antidilution adjustments) for
the Common Stock covered thereby.
9
<PAGE>
(B) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without limitation,
the passage of time, but without taking into account potential antidilution
adjustments) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such
options or rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for any such securities and
related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account potential
anti dilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subsections 4(f)(i) and 4(f)(ii)).
(C) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Corporation upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of the
Series C and Series D Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.
(D) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price of the Series C and Series D Preferred Stock, to the extent in
any way affected by or computed using such options, rights or securities or
options or rights related to such securities shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities that remain in effect) actually issued upon the exercise
of such options or rights, upon the conversion or exchange of such securities or
upon the exercise of the options or rights related to such securities.
(E) The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to this subsection 4(f) shall be
appropriately adjusted to reflect any change, termination or expiration of the
type described in either subsection 4(f)(iii)(C) and (D).
(iv) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to subsection 4(f)(iii)) by the
Corporation after the applicable Purchase Date other than:
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<PAGE>
(A) all shares of Common Stock issued and outstanding on the
date this document is filed with the California Secretary of State;
(B) all shares of Common Stock issued on conversion of Series A
Preferred, Series B Preferred, Series C Preferred, Series D, and Series E and
Series F Preferred Stock;
(C) all shares of Common Stock issued or issuable to officers,
directors, consultants or employees of the Corporation at any time after the
date of incorporation of the Corporation pursuant to a stock option plan or
restricted stock plan unanimously approved by the Corporation's Board of
Directors so long as the total number of shares of Common Stock so issued or
issuable (and not repurchased at cost by the Corporation in connection with the
termination of employment) does not exceed 1,111,210;
(D) all securities issued or issuable in connection with
capital assets, leases or borrowings that are unanimously approved by the
Corporation's Board of Directors; and
(E) all shares of Series F Preferred Stock.
(g) In case:
(i) the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend, or any
other distribution, payable otherwise than in cash; or
(ii) the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to subscribe for or purchase any
shares of stock of any class or to receive any other rights; or
(iii) the Corporation shall effect a capital reorganization of
the Corporation, reclassification of the capital stock of the Corporation (other
than a subdivision or combination of its outstanding Common Stock),
consolidation or merger of the Corporation (other than a merger or other
reorganization in which the Corporation is not the continuing or surviving
entity); then, and in any such case, the Corporation shall cause to be mailed to
the holders of its outstanding Preferred Stock, at least twenty (20) days prior
to the date hereinafter specified, a notice stating the date on which a record
is to be taken for the purpose of such dividend, distribution or rights, or such
action is to be taken in connection with such reorganization, reclassification,
merger or consolidation.
(h) The Corporation shall at all times reserve and keep available, out
of its authorized but unissued Common Stock, solely for the purpose of effecting
the conversion of the Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all Preferred Stock from time to time
outstanding.
11
<PAGE>
The Corporation shall from time to time (subject to obtaining necessary director
and shareholder action), in accordance with the laws of the State of California,
increase the authorized amount of its Common Stock if at any time the authorized
number of shares of Common Stock remaining unissued shall not be sufficient to
permit the conversion of all of the shares of Preferred Stock at the time
outstanding.
5. Changes.
-------
(a) So long as any shares of Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval by vote or written
consent, in the manner provided by law, of the holders of at least two-thirds of
the total number of shares of Preferred Stock outstanding, voting together as a
separate class: (1) alter or change any of the powers, preferences, privileges
or rights of the Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock; (2) increase the authorized number of shares of Preferred
Stock; (3) amend the provisions of this Section 5; (4) undertake or effect any
consolidation or merger of the Corporation with or into another corporation
(except into or with a wholly-owned subsidiary) or any acquisition by or the
conveyance of all or substantially all of the assets of the Corporation to
another person or effectuate any transaction or series of related transactions
which results in the corporation's shareholders immediately prior to such
transaction not holding at least 50% of the voting power of the surviving or
continuing entity; (5) create any new class or series of shares having
preferences prior to or being on a parity with the Series A, Series B, Series C,
Series D, Series E or Series F Preferred Stock as to dividends or liquidation;
(6) repurchase any shares of outstanding Common Stock except upon termination of
employment or pursuant to an employee stock plan or agreement duly approved by
the Corporation's Board of Directors; (7) declare or pay any dividends on the
Corporation's Common Stock or (8) amend the Corporation's Bylaws to change the
provision regarding directors that provides for a number of directors different
than seven (7).
(b) So long as any shares of Series E Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval by vote or
written consent, in the manner provided by law, of the holders of at least a
majority of the total number of shares of Series E Preferred Stock outstanding,
voting together as a separate class, undertake or effect any consolidation or
merger of the Corporation with or into another corporation (except into or with
a wholly-owned subsidiary) or any acquisition by or the conveyance of all or
substantially all of the assets of the Corporation to another person or
effectuate any transaction or series of related transactions which results in
the corporation's shareholders immediately prior to such transaction not holding
at least 50% of the voting power of the surviving or continuing entity and
pursuant to which the consideration per share to be paid to the shareholders of
the Corporation is less than $8.00.
12
<PAGE>
FIFTH: The following provisions are inserted for the management of the business
- -----
and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation
and of its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by statute or by
this Certificate of Incorporation or the Bylaws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all
such acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
C. On and after the closing date of the first sale of the Corporation's
Common Stock pursuant to a firmly underwritten registered public
offering (the "IPO"), any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing by such stockholders. Prior
to such sale, unless otherwise provided by law, any action which may
otherwise be taken at any meeting of the stockholders may be taken
without a meeting and without prior notice, if a written consent
describing such actions is signed by the holders of outstanding shares
having not less than the minimum number of votes which would be
necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
D. Special meetings of stockholders of the Corporation may be called only
(1) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not
there exist any vacancies in previously authorized directorships at the
time any such resolution is presented to the Board for adoption) or (2)
by the holders of not less than ten percent (10%) of all of the shares
entitled to cast votes at the meeting.
SIXTH:
- -----
A. The number of directors shall initially be set at seven (7) and,
thereafter, shall be fixed from time to time exclusively by the Board
of Directors pursuant to a resolution adopted by a majority of the
total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). Subject to the
rights of the holders of any series of Preferred Stock then
outstanding, a vacancy resulting from the removal of a director by the
stockholders as provided in Article SIXTH, Section C below may be
filled at a special meeting of the stockholders held for that purpose.
13
<PAGE>
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation or other cause
(other than removal from office by a vote of the stockholders) may be
filled only by a majority vote of the directors then in office, though
less than a quorum, and directors so chosen shall hold office for a
term expiring at the next annual meeting of stockholders at which the
term of office to which they have been elected expires, and until their
respective successors are elected, except in the case of the death,
resignation, or removal of any director. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of
any incumbent director.
C. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any directors, or the entire Board of Directors, may
be removed from office at any time, with or without cause, but only by
the affirmative vote of the holders of at least a majority of the
voting power of all of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of
directors, voting together as a single class. Vacancies in the Board of
Directors resulting from such removal may be filled by a majority of
the directors then in office, though less than a quorum, or by the
stockholders as provided in Article SIXTH, Section A above. Directors
so chosen shall hold office for a term expiring at the next annual
meeting of stockholders at which the term of office to which they have
been elected expires, and until their respective successors are
elected, except in the case of the death, resignation, or removal of
any director.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or repeal
- -------
By-Laws of the Corporation. Any adoption, amendment or repeal of By-
Laws of the Corporation by the Board of Directors shall require the
approval of a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for adoption,
amendment or repeal is presented to the Board). The stockholders shall
also have power to adopt, amend or repeal the By-Laws of the
Corporation. Any adoption, amendment or repeal of By-Laws of the
Corporation by the stockholders shall require, in addition to any vote
of the holders of any class or series of stock of the Corporation
required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the voting power of all of the then outstanding
shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single
class.
EIGHTH: A director of the Corporation shall not be personally liable to the
- ------
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach
of the
14
<PAGE>
director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involved intentional
misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from
which the director derived an improper personal benefit.
If the Delaware General Corporation Law is hereafter amended to
authorize the further elimination or limitation of the liability of a
director, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article
EIGHTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
NINTH: The Corporation reserves the right to amend or repeal any provision
- -----
contained in this Certificate of Incorporation in the manner prescribed
by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided,
--------
however, that, notwithstanding any other provision of this Certificate
-------
of Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any vote of the holders of
any class or series of the stock of this Corporation required by law or
by this Certificate of Incorporation, the affirmative vote of the
holders of at least 66-2/3% of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a
single class, shall be required to amend or repeal this Article NINTH,
Article FIFTH, Article SIXTH, Article SEVENTH or Article EIGHTH.
The Certificate of Incorporation of Storm Delaware, as amended herein, shall
continue to be the Certificate of Incorporation of Storm Delaware as the
surviving Corporation without change or amendment until further amended in
accordance with the provisions thereof and applicable laws. The By-Laws of Storm
Delaware, in effect on the Effective Date, shall continue to be the By-Laws of
Storm Delaware as the surviving Corporation without change or amendment until
further amended in accordance with the provisions thereof and applicable laws.
1. Directors and Officers. The directors and officers of Storm
----------------------
California shall become the directors and officers of Storm Delaware upon the
Effective Date and the members of the audit committee, compensation committee
and pricing committee of Storm California shall become the members of such
committees for Storm Delaware.
15
<PAGE>
2. Succession. On the Effective Date, Storm Delaware shall succeed to
----------
Storm California in the manner of and as more fully set forth in Section 259 of
the General Corporation Law of the State of Delaware.
3. Further Assurances. From time to time, as and when required by
------------------
Storm Delaware or by its successors and assigns, there shall be executed and
delivered on behalf of Storm California such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other action,
as shall be appropriate or necessary in order to vest, perfect or confirm, of
record or otherwise, in Storm Delaware the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of Storm California, and otherwise to carry out the purposes of
this Merger Agreement and the officers and directors of Storm Delaware are fully
authorized in the name and on behalf of Storm California or otherwise to take
any and all such action and to execute and deliver any and all such deeds and
other instruments.
4. Stock of Storm California.
-------------------------
a. Common Stock. Upon the Effective Date, by virtue of the
------------
Merger and without any action on the part of the holder thereof, three shares of
Storm California Common Stock outstanding immediately prior thereto shall be
changed and converted into one fully paid and nonassessable share of Storm
Delaware Common Stock.
b. Preferred Stock. Upon the Effective Date, by virtue of the
---------------
Merger and without any action on the part of the holder thereof, three shares of
each series of Storm California Preferred Stock outstanding immediately prior
thereto shall be changed and converted into one fully paid and nonassessable
share of Storm Delaware Preferred Stock of an equivalent series.
c. Fractional Shares. No fractional shares which a Storm
-----------------
Delaware stockholder would otherwise be entitled to receive by reason of the
exchange of Storm California stock for Storm Delaware stock shall be issued.
5. Stock Certificates. On and after the Effective Date, all of the
------------------
outstanding certificates which prior to that time represented shares of Storm
California stock shall be deemed for all purposes to evidence ownership of and
to represent the shares of Storm Delaware stock into which the shares of Storm
California stock represented by such certificates have been converted as herein
provided. The registered owner on the books and records of Storm Delaware or its
transfer agent of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or otherwise accounted for
to Storm Delaware or its transfer agent, have and be entitled to exercise any
voting and other rights with respect to and to receive any dividend and other
distributions upon the shares of Storm Delaware stock evidenced by such
outstanding certificate as above provided.
16
<PAGE>
6. Options and Warrants. Upon the Effective Date, each outstanding
--------------------
option, warrant or other right to purchase shares of Storm California stock,
including those options granted under the Amended and Restated Stock Option Plan
(the "Option Plan") of Storm California, shall be converted into and become an
option, warrant, or right to purchase the same number of shares of Storm
Delaware stock, at a price per share equal to the exercise price of the option,
warrant or right to purchase Storm California stock, and upon the same terms and
subject to the same conditions as set forth in the Option Plan and other
agreements entered into by Storm California pertaining to such options,
warrants, or rights. A number of shares of Storm Delaware stock shall be
reserved for purposes of such options, warrants, and rights equal to the number
of shares of Storm California stock so reserved as of the Effective Date. As of
the Effective Date, Storm Delaware shall assume all obligations of Storm
California under agreements pertaining to such options, warrants, and rights,
including the Option Plan, and the outstanding options, warrants, or other
rights, or portions thereof, granted pursuant thereto.
7. Other Employee Benefit Plans. As of the Effective Date, Storm
----------------------------
Delaware hereby assumes all obligations of Storm California under any and all
employee benefit plans in effect as of said date or with respect to which
employee rights or accrued benefits are outstanding as of said date.
8. Outstanding Common Stock of Storm Delaware. Forthwith upon the
------------------------------------------
Effective Date, the One Hundred (100) shares of Storm Delaware Common Stock
presently issued and outstanding in the name of Storm California shall be
canceled and retired and resume the status of authorized and unissued shares of
Storm Delaware Common Stock, and no shares of Storm Delaware Common Stock or
other securities of Storm Delaware shall be issued in respect thereof.
9. Covenants of Storm Delaware. Storm Delaware covenants and agrees
---------------------------
that it will, on or before the Effective Date:
a. Qualify to do business as a foreign corporation in the State
of California, and in all other states in which Storm California is so qualified
and in which the failure so to qualify would have a material adverse impact on
the business or financial condition of Storm Delaware. In connection therewith,
Storm Delaware shall irrevocably appoint an agent for service of process as
required under the provisions of Section 2105 of the California Corporations
Code and under applicable provisions of state law in other states in which
qualification is required hereunder.
b. File any and all documents with the California Franchise Tax
Board necessary to the assumption by Storm Delaware of all of the franchise tax
liabilities of Storm California.
10. Amendment. At any time before or after approval and adoption by
---------
the stockholders of Storm California, this Merger Agreement may be amended in
any manner as may be determined in the judgment of the respective Boards of
Directors of Storm Delaware and Storm California to be necessary, desirable or
expedient in order to
17
<PAGE>
clarify the intention of the parties hereto or to effect or facilitate the
purposes and intent of this Merger Agreement.
11. Abandonment. At any time before the Effective Date, this Merger
-----------
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either Storm California or Storm Delaware or both, notwithstanding
approval of this Merger Agreement by the sole stockholder of Storm Delaware and
the stockholders of Storm California.
12. Counterparts. In order to facilitate the filing and recording of
------------
this Merger Agreement, the same may be executed in any number of counterparts,
each of which shall be deemed to be an original.
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by resolution of the Board of Directors of Storm California and Storm Delaware,
is hereby executed on behalf of each of said two corporations by their
respective officers thereunto duly authorized.
STORM PRIMAX DELAWARE CORPORATION, a
Delaware corporation
By:
-------------------------------------
L. William Krause, President
By:
-------------------------------------
Rick McConnell, Assistant Secretary
STORM PRIMAX, INC. a California corporation
By:
------------------------------------
L. William Krause, President
By:
-----------------------------------
Rick McConnell, Assistant Secretary
18
<PAGE>
CERTIFICATE OF SECRETARY
OF
STORM CORPORATION DELAWARE
(a Delaware corporation)
I, Rick McConnell, the Assistant Secretary of Storm Primax Delaware
Corporation, a Delaware corporation (the "Corporation"), hereby certify that the
Agreement and Plan of Merger to which this Certificate is attached was duly
signed on behalf of the Corporation by its Secretary under the corporate seal of
the Corporation and was duly approved and adopted by a unanimous vote of the
outstanding stock entitled to vote thereon by written consent of the sole
stockholder of the Corporation dated September ___, 1996.
Executed effective on the ________ day of September, 1996.
-------------------------------------
Rick McConnell, Assistant Secretary
19
<PAGE>
CERTIFICATE OF APPROVAL OF
AGREEMENT AND PLAN OF MERGER OF
STORM PRIMAX, INC.
(a California corporation)
L. William Krause and Rick McConnell, certify that:
1. They are the duly elected and acting President and Assistant
Secretary, respectively of Storm Primax, Inc., a California corporation (the
"Corporation").
2. This Certificate is attached to the Agreement and Plan of Merger dated
as of September ___, 1996, providing for the merger of the Corporation with and
into a Delaware corporation.
3. The Agreement and Plan of Merger in the form attached hereto (the
"Merger Agreement") was approved by the Board of Directors of the Corporation at
a meeting duly noticed and held on June 5, 1996.
4. The total number of outstanding shares of the Corporation entitled to
vote on the merger was 4,982,522 shares of Common Stock, 3,000,000 shares of
Series A Preferred Stock, 479,167 shares of Series B Preferred Stock, 3,272,873
shares of Series C Preferred Stock, 2,759,589 shares of Series D Preferred
Stock, 16,857,316 shares of Series E Preferred Stock and 483,870 shares of
Series F Preferred Stock.
5. The principal terms of the Merger Agreement were approved by an
affirmative vote which exceeded the vote required, such vote being a majority of
the outstanding shares of the Corporation, a majority of the total number of
outstanding shares of Common Stock and a majority of the outstanding shares of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock, voting together as a single class.
Dated: September ____, 1996.
-------------------------------------
L. William Krause, President
-------------------------------------
Rick McConnell, Assistant Secretary
20
<PAGE>
The undersigned, L. William Krause, President and Rick McConnell, Assistant
Secretary of Storm Primax, Inc., a California corporation, 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 their knowledge.
Executed at Sunnyvale, California, on September ___, 1996.
-----------------------------------
L. William Krause, President
-----------------------------------
Rick McConnell, Assistant Secretary
21
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
STORM PRIMAX DELAWARE CORPORATION
FIRST: The name of this corporation is Storm Primax Delaware Corporation
-----
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is Incorporating Services, Ltd., 15 East North Street, in the
City of Dover, County of Kent. The name of the registered agent at that address
is Incorporating Services, Ltd.
THIRD: 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 Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
------
have authority to issue is One Thousand (1,000) shares of Common Stock, par
value $0.001 per share (the "Common Stock").
FIFTH: The name and mailing address of the incorporator is:
-----
Andrea Charvet
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
SIXTH: The business and affairs of the Corporation shall be managed by or
-----
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the directors are hereby
empowered to exercise all such powers and do all such
1
<PAGE>
acts and things as may be exercised or done by the Corporation. Election of
directors need not be by written ballot unless the Bylaws so provide.
SEVENTH: The Board of Directors is authorized to make, adopt, amend, alter
-------
or repeal the Bylaws of the Corporation. The stockholders shall also have power
to make, adopt, amend, alter or repeal the Bylaws of the Corporation.
EIGHTH: This Corporation reserves the right to amend or repeal any of the
------
provisions contained in this Certificate of Incorporation in any manner now or
hereafter permitted by law, and the rights of the stockholders of this
Corporation are granted subject to this reservation.
NINTH: To the fullest extent permitted by the Delaware General Corporation
-----
Law, a director of this Corporation shall not be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of the foregoing provisions of this
Article NINTH by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereto set my hand this 29th day of May, 1996.
------------------------------------------
Andrea Charvet, Incorporator
2
<PAGE>
EXHIBIT 3.4
BY-LAWS
OF
STORM PRIMAX DELAWARE CORPORATION
<PAGE>
I N D E X
Section Page
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting.................................... 1
Section 1.2 Special Meetings.................................. 1
Section 1.3 Notice of Meetings................................ 1
Section 1.4 Quorum............................................ 1
Section 1.5 Conduct of the Stockholders' Meeting.............. 2
Section 1.6 Conduct of Business............................... 2
Section 1.7 Notice of Stockholder Business.................... 3
Section 1.8 Proxies and Voting................................ 3
Section 1.9 Stock List........................................ 4
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office......................... 4
Section 2.2 Vacancies and Newly Created Directorships......... 4
Section 2.3 Removal........................................... 4
Section 2.4 Regular Meetings.................................. 5
Section 2.5 Special Meetings.................................. 5
Section 2.6 Quorum............................................ 5
Section 2.7 Participation in Meetings by Conference Telephone. 5
Section 2.8 Conduct of Business............................... 5
Section 2.9 Powers............................................ 5
Section 2.10 Compensation of Directors......................... 6
Section 2.11 Nomination of Director Candidates................. 6
ARTICLE III
COMMITTEES
Section 3.1 Committees of the Board of Directors.............. 7
Section 3.2 Conduct of Business............................... 8
ARTICLE IV
OFFICERS
Section 4.1 Generally......................................... 8
Section 4.2 Chairman of the Board............................. 8
Section 4.3 President......................................... 8
Section 4.4 Vice President.................................... 8
Section 4.5 Treasurer......................................... 8
Section 4.6 Secretary......................................... 9
Section 4.7 Delegation of Authority........................... 9
Section 4.8 Remov............................................. 9
Section 4.9 Action With Respect to Securities of Other
Corporations................................... 9
i
<PAGE>
ARTICLE V
STOCK
Section 5.1 Certificates of Stock............................. 9
Section 5.2 Transfers of Stock................................ 9
Section 5.3 Record Date....................................... 10
Section 5.4 Lost, Stolen or Destroyed Certificates............ 10
Section 5.5 Regulations....................................... 10
ARTICLE VI
NOTICES
Section 6.1 Notices........................................... 10
Section 6.2 Waivers........................................... 10
ARTICLE VII
MISCELLANEOUS
Section 7.1 Facsimile Signatures.............................. 10
Section 7.2 Corporate Seal.................................... 11
Section 7.3 Reliance Upon Books, Reports and Records.......... 11
Section 7.4 Fiscal Year....................................... 11
Section 7.5 Time Periods...................................... 11
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1 Right to Indemnification.......................... 11
Section 8.2 Right of Claimant to Bring Suit................... 12
Section 8.3 Non-Exclusivity of Rights......................... 12
Section 8.4 Indemnification Contracts......................... 13
Section 8.5 Insurance......................................... 13
Section 8.6 Effect of Amendment............................... 13
ARTICLE IX
AMENDMENTS
Section 9.1 Amendment of By-Laws.............................. 13
ii
<PAGE>
STORM PRIMAX DELAWARE CORPORATION
A DELAWARE CORPORATION
BY-LAWS
ARTICLE I
---------
STOCKHOLDERS
------------
Section 1.1 Annual Meeting. An annual meeting of the stockholders, for
----------- --------------
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 1.2 Special Meetings. Special meetings of the stockholders, for
----------- ----------------
any purpose or purposes prescribed in the notice of the meeting, may be called
only (i) by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exists any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption) or (ii) by the
holders of not less than 10% of all shares entitled to cast votes at the
meeting, voting together as a single class and shall be held at such place, on
such date, and at such time as they shall fix. Business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice.
Section 1.3 Notice of Meetings. Written notice of the place, date, and
----------- ------------------
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
1
<PAGE>
Section 1.4 Quorum. At any meeting of the stockholders, the holders of a
----------- ------
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes,
unless or except to the extent that the presence of a larger number may be
required by law.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
Section 1.5 Conduct of the Stockholders' Meeting. At every meeting of
----------- ------------------------------------
the stockholders, the Chairman, if there is such an officer, or if not, the
President of the Corporation, or in his absence the Vice President
designated by the President, or in the absence of such designation any Vice
President, or in the absence of the President or any Vice President, a
chairman chosen by the majority of the voting shares represented in person
or by proxy, shall act as Chairman. The Secretary of the Corporation or a
person designated by the Chairman shall act as Secretary of the meeting.
Unless otherwise approved by the Chairman, attendance at the stockholders'
meeting is restricted to stockholders of record, persons authorized in
accordance with Section 8 of these by-laws to act by proxy, and officers of
the Corporation.
Section 1.6 Conduct of Business. The Chairman shall call the meeting to
----------- -------------------
order, establish the agenda, and conduct the business of the meeting in
accordance therewith or, at the Chairman's discretion, it may be conducted
otherwise in accordance with the wishes of the stockholders in attendance. The
date and time of the opening and closing of the polls for each matter upon which
the stockholders will vote at the meeting shall be announced at the meeting.
The Chairman shall also conduct the meeting in an orderly manner, rule on
the precedence of and procedure on, motions and other procedural matters, and
exercise discretion with respect to such procedural matters with fairness and
good faith toward all those entitled to take part. The Chairman may impose
reasonable limits on the amount of time taken up at the meeting on discussion in
general or on remarks by any one stockholder. Should any person in attendance
become unruly or obstruct the meeting proceedings, the Chairman shall have the
power to have such person removed from participation. Notwithstanding anything
in the by-laws to the contrary, no business shall be conducted at a meeting
except in accordance with the procedures set forth in this Section 1.6 and
Section 1.7, below. The Chairman of a meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 1.6 and
Section 1.7, and if he should so determine, he shall so declare
2
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to the meeting and any such business not properly brought before the meeting
shall not be transacted.
Section 1.7 Notice of Stockholder Business. At an annual or special
----------- ------------------------------
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before a
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b)
properly brought before the meeting by or at the direction of the Board of
Directors, (c) properly brought before an annual meeting by a stockholder, or
(d) properly brought before a special meeting by a stockholder, but if, and only
if, the notice of a special meeting provides for business to be brought before
the meeting by stockholders. For business to be properly brought before a
meeting by a stockholder, the stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a stockholder
proposal to be presented at an annual meeting shall be received at the
Corporation's principal executive offices not less than 120 calendar days in
advance of the date that the Corporation's (or the Corporation's predecessor's)
proxy statement was released to stockholders in connection with the previous
year's annual meeting of stockholders, except that if no annual meeting was held
in the previous year or the date of the annual meeting has been changed by more
than 30 calendar days from the date contemplated at the time of the previous
year's proxy statement, or in the event of a special meeting, notice by the
stockholder to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual or special meeting (a) a brief description of the
business desired to be brought before the annual or special meeting and the
reasons for conducting such business at the special meeting, (b) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business.
Section 1.8 Proxies and Voting. At any meeting of the stockholders,
----------- ------------------
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing or by a transmission permitted by law filed in
accordance with the procedure established for the meeting. No stockholder may
authorize more than one proxy for his shares.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his or her name on the record date for the meeting,
except as otherwise provided herein or required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballots, each of which
shall state
3
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the name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting. Every vote taken by
ballots shall be counted by an inspector or inspectors appointed by the chairman
of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
Section 1.9 Stock List. A complete list of stockholders entitled to vote
----------- ----------
at any meeting of stockholders, arranged in alphabetical order for each class
of stock and showing the address of each such stockholder and the number of
shares registered in his or her name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
Section 2.1 Number and Term of Office. The number of directors shall
----------- -------------------------
initially be _______ (__) and, thereafter, shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). A vacancy resulting from
the removal of a director by the stockholders as provided in Article II, Section
2.3 below may be filled at special meeting of the stockholders held for that
purpose. All directors shall hold office until the expiration of the term for
which elected and until their respective successors are elected, except in the
case of the death, resignation or removal of any director.
Section 2.2 Vacancies and Newly Created Directorships. Subject to the
----------- -----------------------------------------
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification or other cause (other than removal
from office by a vote of the stockholders) may be filled only by a majority vote
of the directors then in office, though less than a quorum, and directors so
chosen shall hold office for a term expiring at the next annual meeting of
stockholders. No decrease in the number of
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directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Section 2.3 Removal. Subject to the rights of holders of any series of
----------- -------
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least a majority of the voting
power of all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting from such removal
may be filled by a majority of the directors then in office, though less than a
quorum, or by the stockholders as provided in Article II, Section 2.1 above.
Directors so chosen shall hold office until the new annual meeting of
stockholders.
Section 2.4 Regular Meetings. Regular meetings of the Board of Directors
----------- ----------------
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the Board of Directors and publicized
among all directors. A notice of each regular meeting shall not be required.
Section 2.5 Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by one-third of the directors then in office (rounded up to the
nearest whole number) or by the chief executive officer and shall be held at
such place, on such date, and at such time as they or he or she shall fix.
Notice of the place, date, and time of each such special meeting shall be given
each director by whom it is not waived by mailing written notice not fewer than
five (5) days before the meeting or by telegraphing or personally delivering the
same not fewer than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 2.6 Quorum. At any meeting of the Board of Directors, a majority
----------- ------
of the total number of authorized directors shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 2.7 Participation in Meetings by Conference Telephone. Members
----------- -------------------------------------------------
of the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 2.8 Conduct of Business. At any meeting of the Board of
----------- -------------------
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the vote
of a majority of the directors present, except as otherwise provided herein or
requited by law. Action may be taken by the Board of Directors without a
meeting if all members thereof
5
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consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors.
Section 2.9 Powers. The Board of Directors may, except as otherwise
----------- ------
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in connection
therewith;
(4) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(5) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with
these by-laws, for the management of the Corporation's business and affairs.
Section 2.10 Compensation of Directors. Directors, as such, may receive,
------------ -------------------------
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
their services as members of committees of the Board of Directors.
Section 2.11 Nomination of Director Candidates. Subject to the rights of
------------ ---------------------------------
holders of any class or series of Preferred Stock then outstanding, nominations
for the election of Directors may be made by the Board of Directors or a proxy
committee appointed by the Board of Directors or by any stockholder entitled to
vote in the election of Directors generally. However, any stockholder entitled
to vote in the election of Directors generally may nominate one or more persons
for election as Directors at a meeting only if timely notice of such
stockholder's intent to make such nomination or nominations has been given in
writing to the Secretary of the Corporation. To be timely, a stockholder
nomination for a director to be elected at an annual meeting shall be received
at the Corporation's principal executive offices not less than 120 calendar days
in advance of the date that the Corporation's (or the Corporation's
Predecessor's) Proxy statement was released to stockholders in connection with
the previous year's annual meeting of stockholders, except that if no annual
meeting was held in the previous year or the date of the annual meeting has
6
<PAGE>
been changed by more than 30 calendar days from the date contemplated at the
time of the previous year's proxy statement, or in the event of a nomination for
director to be elected at a special meeting, notice by the stockholders to be
timely must be received not later than the close of business on the tenth day
following the day on which such notice of the date of the special meeting was
mailed or such public disclosure was made. Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
for the election of Directors on the date of such notice and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would be required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission, had the nominee been nominated, or intended to be nominated, by the
Board of Directors; and (e) the consent of each nominee to serve as a director
of the Corporation if so elected.
In the event that a person is validly designated as a nominee in accordance
with this Section 2.11 and shall thereafter become unable or unwilling to stand
for election to the Board of Directors, the Board of Directors or the
stockholder who proposed such nominee, as the case may be, may designate a
substitute nominee upon delivery, not fewer than five days prior to the date of
the meeting for the election of such nominee, of a written notice to the
Secretary setting forth such information regarding such substitute nominee as
would have been required to be delivered to the Secretary pursuant to this
Section 2.11 had such substitute nominee been initially proposed as a nominee.
Such notice shall include a signed consent to serve as a director of the
Corporation, if elected, of each such substitute nominee.
If the chairman of the meeting for the election of Directors determines
that a nomination of any candidate for election as a Director at such meeting
was not made in accordance with the applicable provisions of this Section 2.11,
such nomination shall be void; provided, however, that nothing in this Section
2.11 shall be deemed to limit any voting rights upon the occurrence of dividend
arrearages provided to holders of Preferred Stock pursuant to the Preferred
Stock designation for any series of Preferred Stock.
ARTICLE III
-----------
COMMITTEES
----------
Section 3.1 Committees of the Board of Directors. The Board of
----------- ------------------------------------
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and shall,
for those committees and any others
7
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provided for herein, elect a director or directors to serve as the member or
members, designating, if it desires, other directors as alternate members who
may replace any absent or disqualified member at any meeting of the committee.
Any committee so designated may exercise the power and authority of the Board of
Directors to declare a dividend, to authorize the issuance of stock or to adopt
a certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his place, the member or members of the committee present at the
meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 3.2 Conduct of Business. Each committee may determine the
----------- -------------------
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; one-
third of the authorized members shall constitute a quorum unless the committee
shall consist of one or two members, in which event one member shall constitute
a quorum; and all matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of such committee.
ARTICLE IV
----------
OFFICERS
--------
Section 4.1 Generally. The officers of the Corporation shall consist of
----------- ---------
a President, one or more Vice Presidents, a Secretary and a Treasurer. The
Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board and such other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. The Chairman of the Board, if there shall be such an officer, and the
President shall each be members of the Board of Directors. Any number of offices
may he held by the same person.
Section 4.2 Chairman of the Board. The Chairman of the Board, if there
----------- ---------------------
shall be such an officer, shall, if present, preside at all meetings of the
Board of Directors, and exercise and perform such other powers and duties as may
be from time to time assigned to him by the Board of Directors or prescribed by
these by-laws.
Section 4.3 President. The President shall be the chief executive
----------- ---------
officer of the Corporation. Subject to the provisions of these by-laws and to
the direction of the
8
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Board of Directors, he or she shall have the responsibility for the general
management and control of the business and affairs of the Corporation and shall
perform all duties and have all powers which are commonly incident to the office
of chief executive or which are delegated to him or her by the Board of
Directors. He or she shall have power to sign all stock certificates, contracts
and other instruments of the Corporation which are authorized and shall have
general supervision and direction of all of the other officers, employees and
agents of the Corporation.
Section 4.4 Vice President. Each Vice President shall have such powers
----------- --------------
and duties as may be delegated to him or her by the Board of Directors. One
Vice President shall be designated by the Board to perform the duties and
exercise the powers of the President in the event of the President's absence or
disability.
Section 4.5 Treasurer. Unless otherwise designated by the Board of
----------- ---------
Directors, the Chief Financial Officer of the Corporation shall be the
Treasurer. The Treasurer shall have the responsibility for maintaining the
financial records of the Corporation and shall have custody of all monies and
securities of the Corporation. He or she shall make such disbursements of the
funds of the Corporation as are authorized and shall render from time to time an
account of all such transactions and of the financial condition of the
Corporation. The Treasurer shall also perform such other duties as the Board of
Directors may from time to time prescribe.
Section 4.6 Secretary. The Secretary shall issue all authorized notices
----------- ---------
for, and shall keep, or cause to be kept, minutes of all meetings of the
stockholders, the Board of Directors, and all committees of the Board of
Directors. He or she shall have charge of the corporate books and shall perform
such other duties as the Board of Directors may from time to time prescribe.
Section 4.7 Delegation of Authority. The Board of Directors may from
----------- -----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.8 Removal. Any officer of the Corporation may be removed at
----------- -------
any time, with or without cause, by the Board of Directors.
Section 4.9 Action With Respect to Securities of Other Corporations.
----------- -------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
9
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ARTICLE V
---------
STOCK
-----
Section 5.1 Certificates of Stock. Each stockholder shall be entitled to
----------- ---------------------
a certificate signed by, or in the name of the Corporation by, the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer, certifying the number of shares owned by
him or her. Any of or all the signatures on the certificate may be facsimile.
Section 5.2 Transfers of Stock. Transfers of stock shall be made only
----------- ------------------
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 4
of Article V of these by-laws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
Section 5.3 Record Date. The Board of Directors may fix a record date,
----------- -----------
which shall not be more than sixty (60) nor fewer than ten (10) days before the
date of any meeting of stockholders, nor more than sixty (60) days prior to the
time for the other action hereinafter described, as of which there shall be
determined the stockholders who are entitled: to notice of or to vote at any
meeting of stockholders or any adjournment thereof; to receive payment of any
dividend or other distribution or allotment of any rights; or to exercise any
rights with respect to any change, conversion or exchange of stock or with
respect to any other lawful action.
Section 5.4 Lost, Stolen or Destroyed Certificates. In the event of the
----------- --------------------------------------
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5.5 Regulations. The issue, transfer, conversion and
----------- -----------
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
----------
NOTICES
-------
Section 6.1 Notices. Except as otherwise specifically provided herein or
----------- -------
required by law, all notices required to be given to any stockholder, director,
officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by prepaid
telegram, mailgram, telecopy or commercial courier service. Any such notice
shall be addressed to such stockholder, director, officer, employee or agent at
his or her last known address as the same
10
<PAGE>
appears on the books of the Corporation. The time when such notice shall be
deemed to be given shall be the time such notice is received by such
stockholder, director, officer, employee or agent, or by any person accepting
such notice on behalf of such person, if hand delivered, or the time such notice
is dispatched, if delivered through the mails or be telegram or mailgram.
Section 6.2 Waivers. A written waiver of any notice, signed by a
----------- -------
stockholder, director, officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, director, officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
Section 7.1 Facsimile Signatures. In addition to the provisions for use
----------- --------------------
of facsimile signatures elsewhere specifically authorized in these by-laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 7.2 Corporate Seal. The Board of Directors may provide a
----------- --------------
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the
Treasurer or by an Assistant Secretary or Assistant Treasurer.
Section 7.3 Reliance Upon Books, Reports and Records. Each director,
----------- ----------------------------------------
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
Section 7.4 Fiscal Year. The fiscal year of the Corporation shall be as
----------- -----------
fixed by the Board of Directors.
Section 7.5 Time Periods. In applying any provision of these by-laws
----------- ------------
which require that an act be done or not done a specified number of days prior
to an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
11
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ARTICLE VIII
------------
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
Section 8.1 Right to Indemnification. Each person who was or is made a
----------- ------------------------
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer or employee of another corporation, or of a Partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by Delaware Law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said Law permitted the Corporation
to provide prior to such amendment) against all expenses, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties,
amounts paid or to be paid in settlement and amounts expended in seeking
indemnification granted to such person under applicable law, this By-Law or any
agreement with the Corporation) reasonably incurred or suffered by such person
in connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer or employee and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
-------- -------
that, except as provided in Section 8.2 of this Article VIII, the Corporation
shall indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if (a) such
indemnification is expressly required to be made by law, (b) the action, suit or
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation, (c) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
Delaware General Corporation Law, or (d) the action, suit or proceeding (or part
thereof) is brought to establish or enforce a right to indemnification under an
indemnity agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law. Such right shall be a
contract right and shall include the right to be paid by the Corporation
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, unless the Delaware General Corporation
-------- -------
Law then so prohibits, the payment of such expenses incurred by a director or
officer of the Corporation in his or her capacity as a director or officer (and
not in any other capacity in which service was or is tendered by such person
while a director or officer, including, without limitation, service to an
employee benefit plan) in advance of the final disposition of such proceeding,
shall be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
should be determined ultimately that such director or officer is not entitled to
be indemnified under this Section or otherwise.
12
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Section 8.2 Right of Claimant to Bring Suit. If a claim under Section 1
----------- -------------------------------
of this Article VIII is not paid in full by the Corporation within ninety (90)
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if such suit is not frivolous or brought in bad
faith, the claimant shall be entitled to be paid also the expense of prosecuting
such claim. The burden of proving such claim shall be on the claimant. It
shall be a defense to any such action (other then an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to this
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
Section 8.3 Non-Exclusivity of Rights. The rights conferred on any
----------- -------------------------
person in Sections 1 and 2 shall not be exclusive of any other right which such
persons may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 8.4 Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determinates, greater than, those provided for in this
Article VIII.
Section 8.5 Insurance. The Corporation shall maintain insurance to the
----------- ---------
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law.
Section 8.6 Effect of Amendment. Any amendment, repeal or modification
----------- -------------------
of any provision of this Article VIII by the stockholders and the directors of
the Corporation shall not adversely affect any right or protection of a director
or officer of the Corporation existing at the time of such amendment, repeal or
modification.
13
<PAGE>
ARTICLE IX
----------
AMENDMENTS
----------
Section 9.1 Amendment of By-Laws. The Board of Directors is expressly
----------- --------------------
empowered to adopt, amend or repeal by-laws of the Corporation. Any adoption,
amendment or repeal of by-laws of the Corporation by the Board of Directors
shall require the approval of a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for adoption, amendment or
repeal is presented to the Board). The stockholders shall also have power to
adopt, amend or repeal the by-laws of the Corporation. Any adoption, amendment
or repeal of by-laws of the Corporation by the stockholders shall require, in
addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
14
<PAGE>
CERTIFICATE OF SECRETARY
------------------------
I hereby certify that I am the duly elected and acting Secretary of Storm
Primax Delaware Corporation, a Delaware corporation (the "Corporation"), and
that the foregoing by-laws, comprising fifteen (15) pages, constitute the by-
laws of the Corporation as duly adopted on _______, 1996, at a meeting of the
Board of Directors of the Corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name on _______________,
1996.
-------------------------
--------------
<PAGE>
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
[DECORATED CIRCULAR [DECORATED CIRCULAR
DESIGN APPEARS HERE] DESIGN APPEARS HERE]
-------------------- -------------------
Number Shares
ST
STORM TECHNOLOGY, INC.
-------------------- -------------------
THIS CERTIFICATE IS TRANSFERABLE
IN BOSTON, MA OR NEW YORK, NY
SEE REVERSE FOR
CERTAIN DEFINITIONS AND
A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS IN SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK $.001 PAR
VALUE PER SHARE, OF
STORM TECHNOLOGY, INC.
transferable on the books of the Corporation by the holder hereof in person
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned and registered
by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signature of its duly authorized officers.
Dated:
/s/[SIGNATURE APPEARS [SEAL OF STORM /s/ [SIGNATURE APPEARS
HERE] TECHNOLOGY APPEARS] HERE]
SECRETARY PRESIDENT
AND CHIEF OPERATING OFFICER
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT AND REGISTRANT
BY: /s/ [SIGNATURE APPEARS HERE]
AUTHORIZED SIGNATURE
<PAGE>
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inspection on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the _______ Custodian _______
entireties (Cust) (Minor)
JT TEN - as joint tenants under Uniform Gifts to Minors
with right of Act
survivorship and _________________
and not as tenants (State)
in common UNIF TRF MIN ACT - _________________
(Cust)
(until age)_________________
____________________________
(Minor)
under Uniform Transfers to
Minors Act
____________________________
(State)
Additional abbreviations may also be used though not in the above list
FOR VALUE RECEIVED, __________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[___________________________________]
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
_______________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_______________________________
x ________________________________________________
x ________________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
NOTICE: CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By____________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY ANY ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAMS), PURSUANT
TO S.E.C. RULE.17AD-15
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF GRAY CARY WARE & FREIDENRICH]
September 12, 1996
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: STORM TECHNOLOGY, INC. (FORMERLY STORM PRIMAX, INC.)
REGISTRATION STATEMENT ON FORM S-1 (FILE NO. 333-06911)
Ladies & Gentlemen:
As counsel to Storm Technology, Inc., a Delaware corporation (the
"Company"), we are rendering this opinion in connection with a proposed issuance
and sale by the Company of up to 3,162,500 shares of its common stock, par value
$0.001 ("Common Stock") pursuant to the Company's Registration Statement on Form
S-1 filed with the Securities and Exchange Commission on or about May 26, 1996
(the "Registration Statement"), as amended.
We have examined all instruments, documents, and records which we deemed
relevant and necessary for the basis of our opinion hereinafter expressed. In
such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the 3,162,500 shares
of Common Stock to be issued and sold by the Company (of which up to 412,500
shares are to be issued to cover over-allotments, if any) will be, upon
effectiveness of the Registration Statement, duly authorized shares of Common
Stock and, when issued against payment of the purchase price therefor, will be
validly issued, fully paid and nonassessable.
<PAGE>
Securities and Exchange Commission
September 12, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever it appears in the
Registration Statement, including the Prospectus constituting a part thereof, as
originally filed or as subsequently amended.
Respectfully submitted,
/s/ Gray Cary Ware & Friedenrich
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
<PAGE>
EXHIBIT 10.4
STORM PRIMAX, INC.
1996 OUTSIDE DIRECTORS STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
---------------------------------------
1.1 ESTABLISHMENT. The Storm Primax, Inc. 1996 Outside Directors
Stock Option Plan (the "PLAN") is hereby established effective as of May 20,
1996 (the "EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Participating Company Group and its stockholders by providing an incentive
to attract and retain highly qualified persons to serve as Outside Directors of
the Company and by creating additional incentive for Outside Directors to
promote the growth and profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed.
2. DEFINITIONS AND CONSTRUCTION.
----------------------------
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly appointed
to administer the Plan and having such powers as shall be specified by the
Board. Unless the powers of the Committee have been specifically limited, the
Committee shall have all of the powers of the Board granted herein, including,
without limitation, the power to amend or terminate the Plan at any time,
subject to the terms of the Plan and any applicable limitations imposed by law.
(d) "COMPANY" means Storm Primax, Inc., a California
corporation, or any successor corporation thereto.
1
<PAGE>
(e) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(f) "DIRECTOR" means a member of the Board or the board of
directors of any other Participating Company.
(g) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(i) "FAIR MARKET VALUE" means, as of any date, if there is
then a public market for the Stock, the closing price of the Stock (or the mean
of the closing bid and asked prices of the Stock if the Stock is so reported
instead) as reported on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System, the NASDAQ National Market System or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on NASDAQ, the NASDAQ National Market System or other
national or regional securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the Stock
was so traded prior to the relevant date. If there is then no public market for
the Stock, the Fair Market Value on any relevant date shall be as determined by
the Board without regard to any restriction other than a restriction which, by
its terms, will never lapse.
(j) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan.
(k) "OPTIONEE" means a person who has been granted one or
more Options.
(l) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee setting forth the terms, conditions and restrictions of
the Option granted to the Optionee.
(m) "OUTSIDE DIRECTOR" means a Director of the Company who is
neither an Employee nor an employee of Primax Electronics, Ltd.
(n) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code .
2
<PAGE>
(o) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(p) "PARTICIPATING COMPANY GROUP" means, at any point in
time, all corporations collectively which are then Participating Companies.
(q) "RULE 16B-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or regulation.
(r) "SERVICE" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be deemed
to have terminated either upon an actual termination of Service or upon the
corporation for which the Optionee performs Service ceasing to be a
Participating Company.
(s) "STOCK" means the common stock of the Company, as
adjusted from time to time in accordance with Section 4.2.
(t) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
use of the term "or" shall include the conjunctive as well as the disjunctive.
3. ADMINISTRATION.
--------------
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board, including any duly appointed Committee of the Board. All questions of
interpretation of the Plan or of any Option shall be determined by the Board,
and such determinations shall be final and binding upon all persons having an
interest in the Plan or such Option. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election which is the responsibility
of or which is allocated to the Company herein, provided the officer has
apparent authority with respect to such matter, right, obligation, determination
or election.
3.2 LIMITATIONS ON AUTHORITY OF THE BOARD. Notwithstanding any
other provision herein to the contrary, the Board shall have no authority,
discretion,
3
<PAGE>
or power to select the Outside Directors who will receive Options, to set the
exercise price of the Options, to determine the number of shares of Stock to be
subject to an Option or the time at which an Option shall be granted, to
establish the duration of an Option, or to alter any other terms or conditions
specified in the Plan, except in the sense of administering the Plan subject to
the provisions of the Plan.
4. SHARES SUBJECT TO PLAN.
----------------------
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be four hundred fifty thousand (450,000) and
shall consist of authorized but unissued shares or reacquired shares of Stock or
any combination thereof. If an outstanding Option for any reason expires or is
terminated or canceled or shares of Stock acquired, subject to repurchase, upon
the exercise of an Option are repurchased by the Company, the shares of Stock
allocable to the unexercised portion of such Option, or such repurchased shares
of Stock, shall again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan, to the "Initial Option" and "Annual Option" (as defined in
Section 6.1), and to any outstanding Options, and in the exercise price of any
outstanding Options. If a majority of the shares which are of the same class as
the shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to an "Ownership Change
Event" as defined in Section 8.1) shares of another corporation (the "NEW
SHARES"), the Board may unilaterally amend the outstanding Options to provide
that such Options are exercisable for New Shares. In the event of any such
amendment, the number of shares subject to, and the exercise price of, the
outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its sole discretion. Notwithstanding the foregoing,
any fractional share resulting from an adjustment pursuant to this Section 4.2
shall be rounded down to the nearest whole number, and in no event may the
exercise price of any Option be decreased to an amount less than the par value,
if any, of the stock subject to the Option.
5. ELIGIBILITY AND TYPE OF OPTIONS.
-------------------------------
5.1 PERSONS ELIGIBLE FOR OPTIONS. An Option shall be granted only
to a person who, at the time of grant, is an Outside Director.
5.2 OPTIONS AUTHORIZED. Options shall be nonstatutory stock
options; that is, options which are not treated as incentive stock options
within the meaning of Section 422(b) of the Code.
4
<PAGE>
6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option
-------------------------------
Agreements specifying the number of shares of Stock covered thereby, in such
form as the Board shall from time to time establish. Option Agreements may
incorporate all or any of the terms of the Plan by reference and shall comply
with and be subject to the following terms and conditions:
6.1 AUTOMATIC GRANT OF OPTIONS. Subject to execution by an Outside
Director of the appropriate Option Agreement, Options shall be granted
automatically and without further action of the Board, as follows:
(a) INITIAL OPTION. Each person who (i) is an Outside
Director on the Effective Date, or (ii) first becomes an Outside Director after
the Effective Date shall be granted an Option to purchase forty-five thousand
(45,000) shares of Stock on the Effective Date or the date he or she first
becomes an Outside Director, respectively (an "INITIAL OPTION"). Notwithstanding
anything herein to the contrary, an Initial Option shall not be granted to a
Director of the Company who previously did not qualify as an Outside Director
but subsequently becomes an Outside Director as a result of the termination of
his or her status as an Employee.
(b) ANNUAL OPTION. Each Outside Director (including any
Director of the Company who previously did not qualify as an Outside Director
but who subsequently becomes an Outside Director) shall be granted, on the date
immediately following the date of each annual meeting of the stockholders of the
Company (an "ANNUAL MEETING") following which such person remains an Outside
Director, an Option to purchase twenty-four thousand (24,000) shares of Stock
(an "ANNUAL OPTION"). Notwithstanding the foregoing, an Outside Director who has
not served continuously as a Director of the Company for at least six (6) months
as of the date immediately following such Annual Meeting shall not receive an
Annual Option on such date.
(c) RIGHT TO DECLINE OPTION. Notwithstanding the foregoing,
any person may elect not to receive an Option by delivering written notice of
such election to the Board no later than the day prior to the date such Option
would otherwise be granted. A person so declining an Option shall receive no
payment or other consideration in lieu of such declined Option. A person who has
declined an Option may revoke such election by delivering written notice of such
revocation to the Board no later than the day prior to the date such Option
would be granted pursuant to Section 6.1(a) or (b), as the case may be.
6.2 DISCRETION TO VARY OPTION SIZE. Notwithstanding any provision
of the Plan to the contrary, the Board may, in its sole discretion, increase or
decrease the number of shares of Stock that would otherwise be subject to one or
more Initial Options or Annual Options to be granted pursuant to Section 6.1 if,
at the time of such exercise of discretion, (a) the "disinterested
administration" provisions contained in paragraph (c)(2)(i) of Rule 16b-3 are no
longer applicable to any employee benefit plan maintained by a Participating
Company and (b) the exercise of such discretion would not otherwise preclude any
transaction in an
5
<PAGE>
equity security of the Company by an officer or Director of a Participating
Company from being exempt from Section 16(b) of the Exchange Act pursuant to
Rule 16b-3.
6.3 EXERCISE PRICE. The exercise price per share of Stock subject
to an Option shall be the Fair Market Value of a share of Stock on the date the
Option is granted.
6.4 EXERCISE PERIOD. Each Option shall terminate and cease to be
exercisable on the date ten (10) years after the date of grant of the Option
unless earlier terminated pursuant to the terms of the Plan or the Option
Agreement.
6.5 RIGHT TO EXERCISE OPTIONS. Except as otherwise provided in the
Plan or in the Option Agreement, an Option shall (a) first become exercisable on
the date on which the Option was granted (the "INITIAL VESTING DATE"); and (ii)
be exercisable on and after the Initial Vesting Date and prior to the
termination thereof in an amount equal to the number of shares of Stock
initially subject to the Option multiplied by the Vested Ratio as set forth
below, less the number of shares previously acquired upon exercise thereof. The
Vested Ratio described in the preceding sentence shall be determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, 1/24
provided the Optionee's Service
is continuous from the date of
Option grant until the
Initial Vesting Date
Plus
----
For each full month of 1/24
of the Optionee's continuous
Service from the Initial Vesting
Date until the Vested
Ratio equals 1/1, an additional
</TABLE>
6.6 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check, or
cash equivalent, (ii) by tender to the Company of shares of Stock owned by the
Optionee having a Fair Market Value not less than the exercise price, (iii) by
the assignment of the proceeds of a sale or loan with respect to some or all of
the
6
<PAGE>
shares being acquired upon the exercise of the Option (including, without
limitation, through an exercise complying with the provisions of Regulation T as
promulgated from time to time by the Board of Governors of the Federal Reserve
System) (a "CASHLESS EXERCISE"), or (iv) by any combination thereof.
(b) TENDER OF STOCK. Notwithstanding the foregoing, an Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock.
Unless otherwise provided by the Board, an Option may not be exercised by tender
to the Company of shares of Stock unless such shares either have been owned by
the Optionee for more than six (6) months or were not acquired, directly or
indirectly, from the Company.
(c) CASHLESS EXERCISE. The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to establish,
decline to approve or terminate any program or procedures for the exercise of
Options by means of a Cashless Exercise.
6.7 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value equal to all or any part of the federal,
state, local and foreign taxes, if any, required by law to be withheld by the
Participating Company Group with respect to such Option or the shares acquired
upon exercise thereof. Alternatively or in addition, in its sole discretion,
the Company shall have the right to require the Optionee to make adequate
provision for any such tax withholding obligations of the Participating Company
Group arising in connection with the Option or the shares acquired upon exercise
thereof. The Company shall have no obligation to deliver shares of Stock until
the Participating Company Group's tax withholding obligations have been
satisfied.
7. STANDARD FORM OF OPTION AGREEMENT.
---------------------------------
7.1 INITIAL OPTION. Unless otherwise provided for by the Board at
the time an Initial Option is granted, each Initial Option shall comply with and
be subject to the terms and conditions set forth in the form of Nonstatutory
Stock Option Agreement for Outside Directors (Initial Option) adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
7.2 ANNUAL OPTION. Unless otherwise provided for by the Board at
the time an Annual Option is granted, each Annual Option shall comply with and
be subject to the terms and conditions set forth in the form of Nonstatutory
Stock Option Agreement for Outside Directors (Annual Option) adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
7
<PAGE>
7.3 AUTHORITY TO VARY TERMS. Subject to the limitations set forth
in Section 3.2, the Board shall have the authority from time to time to vary the
terms of any of the standard forms of Option Agreement described in this Section
7 either in connection with the grant or amendment of an individual Option or in
connection with the authorization of a new standard form or forms; provided,
however, that the terms and conditions of any such new, revised or amended
standard form or forms of Option Agreement are not inconsistent with the terms
of the Plan. Such authority shall include, but not by way of limitation, the
authority to grant Options which are immediately exercisable subject to the
Company's right to repurchase any unvested shares of Stock acquired by the
Optionee upon the exercise of an Option in the event such Optionee's Service is
terminated for any reason. In no event, however, shall the Board be permitted to
vary the terms of any standard form of Option Agreement if such change would
cause the Plan to cease to qualify as a formula plan pursuant to Rule 16b-3 at
any such time as any class of equity security of the Company is registered
pursuant to Section 12 of the Exchange Act.
8. TRANSFER OF CONTROL.
-------------------
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting
8
<PAGE>
stock of one or more corporations which, as a result of the Transaction, own the
Company or the Transferee Corporation(s), as the case may be, either directly or
through one or more subsidiary corporations. The Board shall have the right to
determine whether multiple sales or exchanges of the voting stock of the Company
or multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTIONS. In the event of a
Transfer of Control, any unexercisable or unvested portion of the outstanding
Options shall be immediately exercisable and vested in full as of the date ten
(10) days prior to the date of the Transfer of Control. The exercise or vesting
of any Option that was permissible solely by reason of this Section 8.2 shall be
conditioned upon the consummation of the Transfer of Control. In addition, the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may
either assume the Company's rights and obligations under outstanding Options or
substitute for outstanding Options substantially equivalent options for the
Acquiring Corporation's stock. Any Options which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control.
Notwithstanding the foregoing, shares acquired upon exercise of an Option prior
to the Transfer of Control and any consideration received pursuant to the
Transfer of Control with respect to such shares shall continue to be subject to
all applicable provisions of the Option Agreement evidencing such Option except
as otherwise provided in such Option Agreement. Furthermore, notwithstanding
the foregoing, if the corporation the stock of which is subject to the
outstanding Options immediately prior to an Ownership Change Event described in
Section 8.1(a)(i) constituting a Transfer of Control is the surviving or
continuing corporation and immediately after such Ownership Change Event less
than fifty percent (50%) of the total combined voting power of its voting stock
is held by another corporation or by other corporations that are members of an
affiliated group within the meaning of Section 1504(a) of the Code without
regard to the provisions of Section 1504(b) of the Code, the outstanding Options
shall not terminate.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee,
-----------------------------
an Option shall be exercisable only by the Optionee or the Optionee's guardian
or legal representative. No Option shall be assignable or transferable by the
Optionee, except by will or by the laws of descent and distribution.
10. INDEMNIFICATION. In addition to such other rights of indemnification
---------------
as they may have as members of the Board or officers or employees of the
Participating Company Group, members of the Board and any officers or employees
of the Participating Company Group to whom authority to act for the Board is
delegated shall be indemnified by the Company against all reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein,
9
<PAGE>
to which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan, or any right granted
hereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of a judgment in any such action, suit
or proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such person is liable for gross negligence,
bad faith or intentional misconduct in duties; provided, however, that within
sixty (60) days after the institution of such action, suit or proceeding, such
person shall offer to the Company, in writing, the opportunity at its own
expense to handle and defend the same.
11. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend
--------------------------------
the Plan at any time. However, subject to changes in the law or other legal
requirements that would permit otherwise, without the approval of the Company's
stockholders, there shall be (a) no increase in the total number of shares of
Stock that may be issued under the Plan (except by operation of the provisions
of Section 4.2), and (b) no expansion in the class of persons eligible to
receive Options. Furthermore, to the extent required by Rule 16b-3, provisions
of the Plan addressing eligibility to participate in the Plan and the amount,
price and timing of Options shall not be amended more than once every six (6)
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder. In any event,
no termination or amendment of the Plan may adversely affect any then
outstanding Option, or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is necessary to comply with
any applicable law or government regulation.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Storm Primax, Inc. 1996 Outside Directors Stock Option Plan was
duly adopted by the Compensation Committee of the Board on May 20, 1996 and
ratified by the Board on June 5, 1996.
___________________________
Secretary
10
<PAGE>
PLAN HISTORY
------------
May 20, 1996 Compensation Committee of the Board adopts Plan, with an
initial reserve of 450,000 shares.
June 5, 1996 Board ratifies adoption of the Plan and the initial reserve
of 450,000 shares.
__________, 1996 Stockholders approve Plan, with an initial reserve of
450,000 shares.
11
<PAGE>
STANDARD FORM OF
STORM PRIMAX, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(INITIAL OPTION)
<PAGE>
STORM PRIMAX, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(INITIAL OPTION)
THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (INITIAL
OPTION) (the "Option Agreement") is made and entered into as of ___________,
199_, by and between Storm Primax, Inc. and ___________________________ (the
"Optionee").
The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "Option").
1. Definitions and Construction.
----------------------------
1.1 Definitions. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "Date of Option Grant" means ____________________ , 199_.
(b) "Number of Option Shares" means forty-five thousand (45,000)
shares of Stock, as adjusted from time to time pursuant to Section 9.
(c) "Exercise Price" means $ ____________ per share of Stock, as
adjusted from time to time pursuant to Section 9.
(d) "Initial Exercise Date" means the Initial Vesting Date.
(e) "Initial Vesting Date" means the Date of Option Grant.
1
<PAGE>
(f) "Vested Ratio" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date 1/24
Plus
----
For each full month of the 1/24
Optionee's continuous Service
from the Initial Vesting Date
until the Vested Ratio equals
1/1, an additional
</TABLE>
(g) "Option Expiration Date" means the date ten (10) years after
the Date of Option Grant.
(h) "Board" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(i) "Code" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(j) "Committee" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted in the Plan, including,
without limitation, the power to amend or terminate the Plan at any time,
subject to the terms of the Plan and any applicable limitations imposed by law.
(k) "Company" means Storm Primax, Inc., a California
corporation, or any successor corporation thereto.
(l) "Consultant" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
(m) "Director" means a member of the Board or of the board of
directors of any other Participating Company.
(n) "Disability" means the permanent and total disability of the
Optionee within the meaning of Section 22(e)(3) of the Code.
2
<PAGE>
(o) "Employee" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan .
(p) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(q) "Fair Market Value" means, as of any date, if there is then
a public market for the Stock, the closing price of the Stock (or the mean of
the closing bid and asked prices of the Stock if the Stock is so reported
instead) as reported on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System, the NASDAQ National Market System or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on NASDAQ, the NASDAQ National Market System or other
national or regional securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the Stock
was so traded prior to the relevant date. If there is then no public market for
the Stock, the Fair Market Value on any relevant date shall be as determined by
the Board without regard to any restriction other than a restriction which, by
its terms, will never lapse.
(r) "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(s) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.
(t) "Participating Company Group" means, at any point in time,
all corporations collectively which are then Participating Companies.
(u) "Plan" means the Storm Primax, Inc. 1996 Outside Directors
Stock Option Plan.
(v) "Rule 16b-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or regulation.
(w) "Securities Act" means the Securities Act of 1933, as
amended.
(x) "Service" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
3
<PAGE>
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be
deemed to have terminated either upon an actual termination of Service or upon
the corporation for which the Optionee performs Service ceasing to be a
Participating Company.
(y) "Stock" means the common stock of the Company, as adjusted
from time to time in accordance with Section 9.
(z) "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
1.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. Tax Status of the Option. This Option is intended to be a
------------------------
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
3. Administration. All questions of interpretation concerning this
--------------
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. Exercise of the Option.
----------------------
4.1 Right to Exercise.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Exercise Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares multiplied by the Vested Ratio less the number of shares
previously acquired upon exercise of the Option. In no event shall the Option be
exercisable for more shares than the Number of Option Shares.
(b) Notwithstanding the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan is subject to the approval of
the Company's stockholders in order for the Plan or the grant of the Option to
comply
4
<PAGE>
with the requirements of Rule 16b-3, the Option shall not be exercisable prior
to such stockholder approval.
4.2 Method of Exercise. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and the aggregate Exercise Price.
4.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value not less than the
aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in
Section 4.3(c), or (iv) by any combination of the foregoing.
(b) Tender of Stock. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) Cashless Exercise. A "Cashless Exercise" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
5
<PAGE>
4.4 Tax Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
agrees to make adequate provision for any sums required to satisfy the federal,
state, local and foreign tax withholding obligations of the Participating
Company Group, if any, which arise in connection with the Option, including,
without limitation, obligations arising upon (i) the exercise, in whole or in
part, of the Option, (ii) the transfer, in whole or in part, of any shares
acquired upon exercise of the Option, or (iii) the lapsing of any restriction
with respect to any shares acquired upon exercise of the Option.
4.5 Certificate Registration. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, the heirs of the Optionee.
4.6 Restrictions on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
4.7 Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. Nontransferability of the Option. The Option may be exercised during
--------------------------------
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
6
<PAGE>
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. Effect of Termination of Service.
--------------------------------
7.1 Option Exercisability.
(a) Disability. If the Optionee's Service with the Participating
Company Group is terminated because of the Disability of the Optionee, the
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's guardian or legal representative) at any time prior to the expiration
of twelve (12) months after the date on which the Optionee's Service terminated,
but in any event no later than the Option Expiration Date.
(b) Death. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within three (3) months
after the Optionee's termination of Service.
(c) Other Termination of Service. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability or
death, the Option, to the extent unexercised and exercisable by the Optionee on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee within three (3) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
7.2 Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by
7
<PAGE>
the Company that the Option is exercisable, but in any event no later than the
Option Expiration Date.
7.3 Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if a sale, within the applicable time periods set forth in
Section 7.1, of shares acquired upon the exercise of the Option would subject
the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
8. Ownership Change and Transfer of Control.
----------------------------------------
8.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the stockholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or substantially
all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Transfer of Control" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "Transaction")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company
8
<PAGE>
or multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
8.2 Effect of Transfer of Control on Option. In the event of a
Transfer of Control, any unexercised portion of the Option shall be immediately
exercisable and vested in full as of the date ten (10) days prior to the date of
the Transfer of Control. Any exercise of the Option that was permissible solely
by reason of this Section 8.2 shall be conditioned upon the consummation of the
Transfer of Control. In addition, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), may either assume the Company's rights and obligations
under the Option or substitute for the Option a substantially equivalent option
for the Acquiring Corporation's stock. The Option shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate.
9. Adjustments for Changes in Capital Structure. In the event of any
--------------------------------------------
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded down to the nearest whole number, and in no event may the Exercise
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Option.
9
<PAGE>
10. Rights as a Stockholder. The Optionee shall have no rights as a
------------------------
stockholder with respect to any shares covered by the Option until the date of
the issuance of a certificate for the shares for which the Option has been
exercised (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company). No adjustment shall be
made for dividends, distributions or other rights for which the record date is
prior to the date such certificate is issued, except as provided in Section 9.
11. Legends. The Company may at any time place legends referencing any
-------
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
12. Binding Effect. Subject to the restrictions on transfer set forth
--------------
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
13. Termination or Amendment. The Board may terminate or amend the Plan
------------------------
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
14. Integrated Agreement. This Option Agreement constitutes the entire
--------------------
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
10
<PAGE>
15. Applicable Law. This Option Agreement shall be governed by the laws
--------------
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
STORM PRIMAX, INC.
By:
--------------------------------
Title:
-----------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:
------------------------------- ------------------------------------
11
<PAGE>
STANDARD FORM OF
STORM PRIMAX, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(ANNUAL OPTION)
<PAGE>
STORM PRIMAX, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
FOR OUTSIDE DIRECTORS
(ANNUAL OPTION)
THIS NONSTATUTORY STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS (ANNUAL
OPTION) (the "Option Agreement") is made and entered into as of ___________,
199_, by and between Storm Primax, Inc. and ___________________________ (the
"Optionee").
The Company has granted to the Optionee an option to purchase certain
shares of Stock, upon the terms and conditions set forth in this Option
Agreement (the "Option").
1. Definitions and Construction.
----------------------------
1.1 Definitions. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "Date of Option Grant" means ____________________ , 199_.
(b) "Number of Option Shares" means twenty-four thousand
(24,000) shares of Stock, as adjusted from time to time pursuant to Section 9.
(c) "Exercise Price" means $ ____________ per share of Stock,
as adjusted from time to time pursuant to Section 9.
(d) "Initial Exercise Date" means the Initial Vesting Date.
(e) "Initial Vesting Date" means the Date of Option Grant.
1
<PAGE>
(f) "Vested Ratio" means, on any relevant date, the ratio
determined as follows:
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date 1/24
Plus
----
For each full month of the 1/24
Optionee's continuous Service
from the Initial Vesting Date
until the Vested Ratio equals
1/1, an additional
</TABLE>
(g) "Option Expiration Date" means the date ten (10) years
after the Date of Option Grant.
(h) "Board" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(i) "Code" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(j) "Committee" means a committee of the Board duly appointed
to administer the Plan and having such powers as shall be specified by the
Board. Unless the powers of the Committee have been specifically limited, the
Committee shall have all of the powers of the Board granted in the Plan,
including, without limitation, the power to amend or terminate the Plan at any
time, subject to the terms of the Plan and any applicable limitations imposed by
law.
(k) "Company" means Storm Primax, Inc., a California
corporation, or any successor corporation thereto.
(l) "Consultant" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(m) "Director" means a member of the Board or of the board of
directors of any other Participating Company.
(n) "Disability" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.
2
<PAGE>
(o) "Employee" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for purposes of the Plan.
(p) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(q) "Fair Market Value" means, as of any date, if there is then
a public market for the Stock, the closing price of the Stock (or the mean of
the closing bid and asked prices of the Stock if the Stock is so reported
instead) as reported on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") System, the NASDAQ National Market System or such other
national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on NASDAQ, the NASDAQ National Market System or other
national or regional securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the Stock
was so traded prior to the relevant date. If there is then no public market for
the Stock, the Fair Market Value on any relevant date shall be as determined by
the Board without regard to any restriction other than a restriction which, by
its terms, will never lapse.
(r) "Parent Corporation" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(s) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.
(t) "Participating Company Group" means, at any point in time,
all corporations collectively which are then Participating Companies.
(u) "Plan" means the Storm Primax, Inc. 1996 Outside Directors
Stock Option Plan.
(v) "Rule 16b-3" means Rule 16b-3 as promulgated under the
Exchange Act, as amended from time to time, or any successor rule or regulation.
(w) "Securities Act" means the Securities Act of 1933, as
amended.
(x) "Service" means the Optionee's service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
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<PAGE>
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be
deemed to have terminated either upon an actual termination of Service or upon
the corporation for which the Optionee performs Service ceasing to be a
Participating Company.
(y) "Stock" means the common stock of the Company, as adjusted
from time to time in accordance with Section 9.
(z) "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
1.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. Tax Status of the Option. This Option is intended to be a
------------------------
nonstatutory stock option and shall not be treated as an incentive stock option
within the meaning of Section 422(b) of the Code.
3. Administration. All questions of interpretation concerning this
--------------
Option Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. Exercise of the Option.
----------------------
4.1 Right to Exercise.
(a) Except as otherwise provided herein, the Option shall be
exercisable on and after the Initial Exercise Date and prior to the termination
of the Option (as provided in Section 6) in an amount not to exceed the Number
of Option Shares multiplied by the Vested Ratio less the number of shares
previously acquired upon exercise of the Option. In no event shall the Option
be exercisable for more shares than the Number of Option Shares.
(b) Notwithstanding the foregoing, in the event that the
adoption of the Plan or any amendment of the Plan is subject to the approval of
the Company's stockholders in order for the Plan or the grant of the Option to
comply
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with the requirements of Rule 16b-3, the Option shall not be exercisable prior
to such stockholder approval.
4.2 Method of Exercise. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and must be
delivered in person, by certified or registered mail, return receipt requested,
by confirmed facsimile transmission, or by such other means as the Company may
permit, to the Chief Financial Officer of the Company, or other authorized
representative of the Participating Company Group, prior to the termination of
the Option as set forth in Section 6, accompanied by full payment of the
aggregate Exercise Price for the number of shares of Stock being purchased. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice and the aggregate Exercise Price.
4.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value not less than the
aggregate Exercise Price, (iii) by means of a Cashless Exercise, as defined in
Section 4.3(c), or (iv) by any combination of the foregoing.
(b) Tender of Stock. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) Cashless Exercise. A "Cashless Exercise" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
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4.4 Tax Withholding. At the time the Option is exercised, in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
agrees to make adequate provision for any sums required to satisfy the federal,
state, local and foreign tax withholding obligations of the Participating
Company Group, if any, which arise in connection with the Option, including,
without limitation, obligations arising upon (i) the exercise, in whole or in
part, of the Option, (ii) the transfer, in whole or in part, of any shares
acquired upon exercise of the Option, or (iii) the lapsing of any restriction
with respect to any shares acquired upon exercise of the Option.
4.5 Certificate Registration. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, the heirs of the Optionee.
4.6 Restrictions on Grant of the Option and Issuance of Shares. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT
THE OPTION MAY NOT BE EXERCISED UNLESS THE FOREGOING CONDITIONS ARE SATISFIED.
ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED
EVEN THOUGH THE OPTION IS VESTED. The inability of the Company to obtain from
any regulatory body having jurisdiction the authority, if any, deemed by the
Company's legal counsel to be necessary to the lawful issuance and sale of any
shares subject to the Option shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of the
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
4.7 Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. Nontransferability of the Option. The Option may be exercised during
--------------------------------
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
6
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legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. Termination of the Option. The Option shall terminate and may no
-------------------------
longer be exercised on the first to occur of (a) the Option Expiration Date, (b)
the last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. Effect of Termination of Service.
--------------------------------
7.1 Option Exercisability.
(a) Disability. If the Optionee's Service with the Participating
Company Group is terminated because of the Disability of the Optionee, the
Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee (or the
Optionee's guardian or legal representative) at any time prior to the expiration
of twelve (12) months after the date on which the Optionee's Service terminated,
but in any event no later than the Option Expiration Date.
(b) Death. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee's legal representative or
other person who acquired the right to exercise the Option by reason of the
Optionee's death at any time prior to the expiration of twelve (12) months after
the date on which the Optionee's Service terminated, but in any event no later
than the Option Expiration Date. The Optionee's Service shall be deemed to have
terminated on account of death if the Optionee dies within three (3) months
after the Optionee's termination of Service.
(c) Other Termination of Service. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability or
death, the Option, to the extent unexercised and exercisable by the Optionee on
the date on which the Optionee's Service terminated, may be exercised by the
Optionee within three (3) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
7.2 Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by
7
<PAGE>
the Company that the Option is exercisable, but in any event no later than the
Option Expiration Date.
7.3 Extension if Optionee Subject to Section 16(b). Notwithstanding
the foregoing, if a sale, within the applicable time periods set forth in
Section 7.1, of shares acquired upon the exercise of the Option would subject
the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
8. Ownership Change and Transfer of Control.
----------------------------------------
8.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Transfer of Control" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "Transaction")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "Transferee
Corporation(s)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company
8
<PAGE>
or multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
8.2 Effect of Transfer of Control on Option. In the event of a
Transfer of Control, any unexercised portion of the Option shall be immediately
exercisable and vested in full as of the date ten (10) days prior to the date of
the Transfer of Control. Any exercise of the Option that was permissible solely
by reason of this Section 8.2 shall be conditioned upon the consummation of the
Transfer of Control. In addition, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), may either assume the Company's rights and obligations
under the Option or substitute for the Option a substantially equivalent option
for the Acquiring Corporation's stock. The Option shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate.
9. Adjustments for Changes in Capital Structure. In the event of any
--------------------------------------------
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "New Shares"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded down to the nearest whole number, and in no event may the Exercise
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Option.
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10. Rights as a Stockholder. The Optionee shall have no rights as a
------------------------
stockholder with respect to any shares covered by the Option until the date of
the issuance of a certificate for the shares for which the Option has been
exercised (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company). No adjustment shall be
made for dividends, distributions or other rights for which the record date is
prior to the date such certificate is issued, except as provided in Section 9.
11. Legends. The Company may at any time place legends referencing any
-------
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
12. Binding Effect. Subject to the restrictions on transfer set forth
--------------
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns.
13. Termination or Amendment. The Board may terminate or amend the Plan
------------------------
or the Option at any time; provided, however, that no such termination or
amendment may adversely affect the Option or any unexercised portion hereof
without the consent of the Optionee unless such termination or amendment is
necessary to comply with any applicable law or government regulation. No
amendment or addition to this Option Agreement shall be effective unless in
writing.
14. Integrated Agreement. This Option Agreement constitutes the entire
--------------------
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
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15. Applicable Law. This Option Agreement shall be governed by the laws
--------------
of the State of California as such laws are applied to agreements between
California residents entered into and to be performed entirely within the State
of California.
STORM PRIMAX, INC.
By:
--------------------------------
Title:
-----------------------------
The Optionee represents that the Optionee is familiar with the terms and
provisions of this Option Agreement and hereby accepts the Option subject to all
of the terms and provisions thereof. The Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board upon
any questions arising under this Option Agreement.
OPTIONEE
Date:
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Exhibit 10.5
STORM PRIMAX, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
---------------------------------------
1.1 ESTABLISHMENT. The Storm Primax, Inc. 1996 Employee Stock Purchase
Plan (the "PLAN") is hereby established effective as of June 5, 1996 (the
"EFFECTIVE DATE").
1.2 PURPOSE. The purpose of the Plan is to provide Eligible Employees
of the Participating Company Group with an opportunity to acquire a proprietary
interest in the Company through the purchase of Stock. The Company intends that
the Plan shall qualify as an "employee stock purchase plan" under Section 423 of
the Code (including any amendments or replacements of such section), and the
Plan shall be so construed.
1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier
of its termination by the Board or the date on which all of the shares of Stock
available for issuance under the Plan have been issued. However, all Purchase
Rights shall be granted, if at all, within ten (10) years from the Effective
Date.
2. DEFINITIONS AND CONSTRUCTION.
----------------------------
2.1 DEFINITIONS. Any term not expressly defined in the Plan but defined
for purposes of Section 423 of the Code shall have the same definition herein.
Whenever used herein, the following terms shall have their respective meanings
set forth below:
(a) "BOARD" means the Board of Directors of the Company. If one or
more Committees have been appointed by the Board to administer the Plan, "Board"
also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means a committee of the Board duly appointed to
administer the Plan and having such powers as shall be specified by the Board.
Unless the powers of the Committee have been specifically limited, the Committee
shall have all of the powers of the Board granted herein, including, without
limitation, the power to amend or terminate the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law.
(d) "COMPANY" means Storm Primax, Inc., a Delaware corporation, or
any successor corporation thereto.
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(e) "COMPENSATION" means, with respect to an Offering Period under
the Plan, all amounts paid in cash in the forms of base salary, commissions,
overtime, bonuses, annual awards, other incentive payments, shift premiums, and
all other compensation paid in cash during such Offering Period before deduction
for any contributions to any plan maintained by a Participating Company and
described in Section 401(k) or Section 125 of the Code. Compensation shall not
include reimbursements of expenses, allowances, long-term disability, workers'
compensation or any amount deemed received without the actual transfer of cash
or any amounts directly or indirectly paid pursuant to the Plan or any other
stock purchase or stock option plan.
(f) "ELIGIBLE EMPLOYEE" means an Employee who meets the
requirements set forth in Section 5 for eligibility to participate in the Plan.
(g) "EMPLOYEE" means any person treated as an employee (including
an officer or a director who is also treated as an employee) in the records of a
Participating Company and for purposes of Section 423 of the Code; provided,
however, that neither service as a director nor payment of a director's fee
shall be sufficient to constitute employment for purposes of the Plan.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, if there is then a
public market for the Stock, the closing price of a share of Stock (or the mean
of the closing bid and asked prices of a share of Stock if the Stock is so
reported instead) as reported on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") System, the NASDAQ National Market System or such
other national or regional securities exchange or market system constituting the
primary market for the Stock. If the relevant date does not fall on a day on
which the Stock is trading on NASDAQ, the NASDAQ National Market System or other
national or regional securities exchange or market system, the date on which the
Fair Market Value shall be established shall be the last day on which the Stock
was so traded prior to the relevant date, or such other appropriate day as shall
be determined by the Board, in its sole discretion. If there is then no public
market for the Stock, the Fair Market Value on any relevant date shall be as
determined by the Board without regard to any restriction other than a
restriction which, by its terms, will never lapse.
(j) "OFFERING" means an offering of Stock as provided in
Section 6.
(k) "OFFERING DATE" means, for any Offering Period, the first day
of such Offering Period.
(l) "OFFERING PERIOD" means a period determined in accordance with
Section 6.1.
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(m) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(n) "PARTICIPANT" means an Eligible Employee participating in the
Plan.
(o) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation which the Board determines should be
included in the Plan. The Board shall have the sole and absolute discretion to
determine from time to time what Parent Corporations or Subsidiary Corporations
shall be Participating Companies.
(p) "PARTICIPATING COMPANY GROUP" means, at any point in time, the
Company and all other corporations collectively which are then Participating
Companies.
(q) "PURCHASE DATE" means, for any Purchase Period, the last day
of such Purchase Period.
(r) "PURCHASE PERIOD" means a period determined in accordance with
Section 6.2.
(s) "PURCHASE PRICE" means the price at which a share of Stock may
be purchased pursuant to the Plan, as determined in accordance with Section 9.
(t) "PURCHASE RIGHT" means an option pursuant to the Plan to
purchase such shares of Stock as provided in Section 8 which may or may not be
exercised at the end of an Offering Period. Such option arises from the right of
a Participant to withdraw such Participant's accumulated payroll deductions (if
any) and terminate participation in the Plan or any Offering therein at any time
during a Purchase Period.
(u) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
(v) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural, the plural shall include the singular, and
use of the term "or" shall include the conjunctive as well as the disjunctive.
3
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3. ADMINISTRATION. The Plan shall be administered by the Board, including
--------------
any duly appointed Committee of the Board. All questions of interpretation of
the Plan or of any Purchase Right shall be determined by the Board and shall be
final and binding upon all persons having an interest in the Plan or such
Purchase Right. Subject to the provisions of the Plan, the Board shall determine
all of the relevant terms and conditions of Purchase Rights granted pursuant to
the Plan; provided, however, that all Participants granted Purchase Rights
pursuant to the Plan shall have the same rights and privileges within the
meaning of Section 423(b)(5) of the Code. All expenses incurred in connection
with the administration of the Plan shall be paid by the Company.
4. SHARES SUBJECT TO PLAN.
----------------------
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be three hundred thousand (300,000) and shall
consist of authorized but unissued or reacquired shares of the Stock, or any
combination thereof. If an outstanding Purchase Right for any reason expires or
is terminated or canceled, the shares of Stock allocable to the unexercised
portion of such Purchase Right shall again be available for issuance under the
Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any
stock dividend, stock split, reverse stock split, recapitalization, combination,
reclassification or similar change in the capital structure of the Company, or
in the event of any merger (including a merger effected for the purpose of
changing the Company's domicile), sale of assets or other reorganization in
which the Company is a party, appropriate adjustments shall be made in the
number and class of shares subject to the Plan, to the Per Offering Share Limit
set forth in Section 8.1 and to each Purchase Right and in the Purchase Price.
5. ELIGIBILITY.
-----------
5.1 EMPLOYEES ELIGIBLE TO PARTICIPATE. Any Employee of a Participating
Company is eligible to participate in the Plan except the following:
(a) Employees who are customarily employed by the Participating
Company Group for twenty (20) hours or less per week;
(b) Employees who are customarily employed by the Participating
Company Group for not more than five (5) months in any calendar year; and
(c) Employees who own or hold options to purchase or who, as a
result of participation in the Plan, would own or hold options to purchase,
stock of the Company or of any Parent Corporation or Subsidiary Corporation
possessing five percent (5%) or more of the total combined voting power or value
4
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of all classes of stock of such corporation within the meaning of Section
423(b)(3) of the Code.
5.2 LEASED EMPLOYEES EXCLUDED. Notwithstanding anything herein to the
contrary, any individual performing services for a Participating Company solely
through a leasing agency or employment agency shall not be deemed an "Employee"
of such Participating Company.
6. OFFERINGS.
---------
6.1 OFFERING PERIODS. Except as otherwise set forth below, the
Plan shall be implemented by sequential Offerings of approximately twenty-four
(24) months duration (an "OFFERING PERIOD"); provided, however that the first
Offering Period shall commence on July 15, 1996, and end on June 30, 1998 (the
"INITIAL OFFERING PERIOD"). Subsequent Offerings shall commence on the first day
of January and July of each year and end on the last day of the second December
and June, respectively, occurring thereafter. Notwithstanding the foregoing, the
Board may establish a different term for one or more Offerings or different
commencing or ending dates for such Offerings; provided, however, that no
Offering may exceed a term of twenty-seven (27) months. An Employee who becomes
an Eligible Employee after an Offering Period has commenced shall not be
eligible to participate in such Offering but may participate in any subsequent
Offering provided such Employee is still an Eligible Employee as of the
commencement of any such subsequent Offering. Eligible Employees may not
participate in more than one Offering at a time. In the event the first or last
day of an Offering Period is not a business day, the Company shall specify the
business day that will be deemed the first or last day, as the case may be, of
the Offering Period.
6.2 PURCHASE PERIODS. Each Offering Period shall consist of four
(4) consecutive purchase periods of approximately six (6) months duration
(individually, a "PURCHASE PERIOD"). The Purchase Period commencing on the
Offering Date of the Initial Offering Period shall end on December 31, 1996. A
Purchase Period commencing on January 1 shall end on the next June 30. A
Purchase Period commencing on July 1 shall end on the next December 31.
Notwithstanding the foregoing, the Board may establish a different term for one
or more Purchase Periods or different commencing or ending dates for such
Purchase Periods. In the event the first or last day of a Purchase Period is not
a business day, the Company shall specify the business day that will be deemed
the first or last day, as the case may be, of the Purchase Period.
6.3 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL. Notwithstanding
any other provision of the Plan to the contrary, any Purchase Right granted
pursuant to the Plan shall be subject to (a) obtaining all necessary
governmental approvals or qualifications of the sale or issuance of the Purchase
Rights or the shares of Stock and (b) obtaining stockholder approval of the
Plan. Notwithstanding the foregoing, stockholder approval shall not be necessary
in order to grant any Purchase Right granted in the Plan's Initial Offering
Period; provided,
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<PAGE>
however, that the exercise of any such Purchase Right shall be subject to
obtaining stockholder approval of the Plan.
7. PARTICIPATION IN THE PLAN.
-------------------------
7.1 INITIAL PARTICIPATION. An Eligible Employee shall become a
Participant on the first Offering Date after satisfying the eligibility
requirements of Section 5 and delivering to the Company's payroll office or
other office designated by the Company not later than the close of business for
such office on the last business day before such Offering Date (the
"SUBSCRIPTION DATE") a subscription agreement indicating the Employee's election
to participate in the Plan and authorizing payroll deductions. An Eligible
Employee who does not deliver a subscription agreement to the Company's payroll
or other designated office on or before the Subscription Date shall not
participate in the Plan for that Offering Period or for any subsequent Offering
Period unless such Employee subsequently enrolls in the Plan by filing a
subscription agreement with the Company by the Subscription Date for such
subsequent Offering Period. The Company may, from time to time, change the
Subscription Date as deemed advisable by the Company in its sole discretion for
proper administration of the Plan.
7.2 CONTINUED PARTICIPATION. A Participant shall automatically
participate in the Offering Period commencing immediately after the final
Purchase Date of each Offering Period in which the Participant participates
until such time as such Participant (a) ceases to be an Eligible Employee, (b)
withdraws from the Plan pursuant to Section 13.2 or (c) terminates employment as
provided in Section 14. If a Participant automatically may participate in a
subsequent Offering Period pursuant to this Section 7.2, then the Participant is
not required to file any additional subscription agreement for such subsequent
Offering Period in order to continue participation in the Plan. However, a
Participant may file a subscription agreement with respect to a subsequent
Offering Period if the Participant desires to change any of the Participant's
elections contained in the Participant's then effective subscription agreement.
8. RIGHT TO PURCHASE SHARES.
------------------------
8.1 PURCHASE RIGHT. Except as set forth below, during an Offering
Period each Participant in such Offering Period shall have a Purchase Right
consisting of the right to purchase that number of whole shares of Stock arrived
at by dividing Fifty Thousand Dollars ($50,000) by the Fair Market Value of a
share of Stock on the Offering Date of such Offering Period; provided, however,
that such number shall not exceed fifteen thousand (15,000) shares (the "PER
OFFERING SHARE LIMIT"). Shares of Stock may only be purchased through a
Participant's payroll deductions pursuant to Section 10.
8.2 PRO RATA ADJUSTMENT OF PURCHASE RIGHT. Notwithstanding the
foregoing, if the Board shall establish an Offering Period of less than twenty-
three and one-half (23 1/2) months or more than twenty-four and one-half (24
1/2) months
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in duration, (a) the dollar amount in Section 8.1 shall be determined by
multiplying $2,083.33 by the number of months in the Offering Period and
rounding to the nearest whole dollar, and (b) the Per Offering Share Limit shall
be determined by multiplying 625 shares by the number of months in the Offering
Period and rounding to the nearest whole share. For purposes of the preceding
sentence, fractional months shall be rounded to the nearest whole month.
9. PURCHASE PRICE. The Purchase Price at which each share of Stock may be
--------------
acquired in a given Offering Period pursuant to the exercise of all or any
portion of a Purchase Right granted under the Plan shall be set by the Board;
provided, however, that the Purchase Price shall not be less than eighty-five
percent (85%) of the lesser of (a) the Fair Market Value of a share of Stock on
the Offering Date of the Offering Period, or (b) the Fair Market Value of a
share of Stock on the Purchase Date of the Offering Period. Unless otherwise
provided by the Board prior to the commencement of an Offering Period, the
Purchase Price for that Offering Period shall be eighty-five percent (85%) of
the lesser of (a) the Fair Market Value of a share of Stock on the Offering Date
of the Offering Period, or (b) the Fair Market Value of a share of Stock on the
Purchase Date of the Offering Period.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION. Shares of
--------------------------------------------------------
Stock which are acquired pursuant to the exercise of all or any portion of a
Purchase Right for an Offering Period may be paid for only by means of payroll
deductions from the Participant's Compensation accumulated during the Offering
Period. Except as set forth below, the amount of Compensation to be deducted
from a Participant's Compensation during each pay period shall be determined by
the Participant's subscription agreement.
10.1 COMMENCEMENT OF PAYROLL DEDUCTIONS. Payroll deductions shall
commence on the first payday following the Offering Date and shall continue to
the end of the Offering Period unless sooner altered or terminated as provided
in the Plan.
10.2 LIMITATIONS ON PAYROLL DEDUCTIONS. The amount of payroll
deductions with respect to the Plan for any Participant during any pay period
shall be in one percent (1%) increments not to exceed ten percent (10%) of the
Participant's Compensation for such pay period. Notwithstanding the foregoing,
the Board may change the limits on payroll deductions effective as of a future
Offering Date, as determined by the Board. Amounts deducted from Compensation
shall be reduced by any amounts contributed by the Participant and applied to
the purchase of Company stock pursuant to any other employee stock purchase plan
qualifying under Section 423 of the Code.
10.3 ELECTION TO INCREASE, DECREASE OR STOP PAYROLL DEDUCTIONS. During
an Offering Period, a Participant may elect to increase or decrease the amount
deducted or stop deductions from his or her Compensation by filing an amended
subscription agreement with the Company on or before the "Change Notice Date."
The "CHANGE NOTICE DATE" shall initially be the first day of the first
7
<PAGE>
pay period for which such election is to be effective; however, the Company may
change such Change Notice Date from time to time.
10.4 PARTICIPANT ACCOUNTS. Individual Plan accounts shall be maintained
for each Participant. All payroll deductions from a Participant's Compensation
shall be credited to such account and shall be deposited with the general funds
of the Company. All payroll deductions received or held by the Company may be
used by the Company for any corporate purpose.
10.5 NO INTEREST PAID. Interest shall not be paid on sums deducted from
a Participant's Compensation pursuant to the Plan.
10.6 COMPANY ESTABLISHED PROCEDURES. The Company may, from time to
time, establish or change (a) a minimum required payroll deduction amount for
participation in an Offering, (b) limitations on the frequency or number of
changes in the rate of payroll deduction during an Offering, (c) an exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars, (d)
payroll deduction in excess of or less than the amount designated by a
Participant in order to adjust for delays or mistakes in the Company's
processing of subscription agreements, (e) the date(s) and manner by which the
Fair Market Value of a share of Stock is determined for purposes of
administration of the Plan, or (f) such other limitations or procedures as
deemed advisable by the Company in the Company's sole discretion which are
consistent with the Plan and in accordance with the requirements of Section 423
of the Code.
11. PURCHASE OF SHARES.
------------------
11.1 EXERCISE OF PURCHASE RIGHT. On each Purchase Date of an Offering
Period, each Participant who has not withdrawn from the Offering or whose
participation in the Offering has not terminated on or before such Purchase Date
shall automatically acquire pursuant to the exercise of the Participant's
Purchase Right the number of whole shares of Stock arrived at by dividing the
total amount of the Participant's accumulated payroll deductions for the
Purchase Period by the Purchase Price; provided, however, in no event shall the
number of shares purchased by the Participant during an Offering Period exceed
the number of shares subject to the Participant's Purchase Right. No shares of
Stock shall be purchased on a Purchase Date on behalf of a Participant whose
participation in the Offering or the Plan has terminated on or before such
Purchase Date.
11.2 RETURN OF CASH BALANCE. Any cash balance remaining in the
Participant's Plan account shall be refunded to the Participant as soon as
practicable after the Purchase Date. In the event the cash to be returned to a
Participant pursuant to the preceding sentence is an amount less than the amount
necessary to purchase a whole share of Stock, the Company may establish
procedures whereby such cash is maintained in the Participant's Plan account and
applied toward the purchase of shares of Stock in the subsequent Purchase Period
or Offering Period.
8
<PAGE>
11.3 TAX WITHHOLDING. At the time a Participant's Purchase Right is
exercised, in whole or in part, or at the time a Participant disposes of some or
all of the shares of Stock he or she acquires under the Plan, the Participant
shall make adequate provision for the foreign, federal, state and local tax
withholding obligations of the Participating Company Group, if any, which arise
upon exercise of the Purchase Right or upon such disposition of shares,
respectively. The Participating Company Group may, but shall not be obligated
to, withhold from the Participant's compensation the amount necessary to meet
such withholding obligations.
11.4 EXPIRATION OF PURCHASE RIGHT. Any portion of a Participant's
Purchase Right remaining unexercised after the end of the Offering Period to
which such Purchase Right relates shall expire immediately upon the end of such
Offering Period.
12. LIMITATIONS ON PURCHASE OF SHARES; RIGHTS AS A STOCKHOLDER.
----------------------------------------------------------
12.1 FAIR MARKET VALUE LIMITATION. Notwithstanding any other provision
of the Plan, no Participant shall be entitled to purchase shares of Stock under
the Plan (or any other employee stock purchase plan which is intended to meet
the requirements of Section 423 of the Code sponsored by the Company or a Parent
Corporation or Subsidiary Corporation at a rate which exceeds $25,000 in Fair
Market Value, which Fair Market Value is determined for shares purchased during
a given Offering Period as of the Offering Date for such Offering Period (or
such other limit as may be imposed by the Code), for each calendar year in which
the Participant participates in the Plan (or any other employee stock purchase
plan described in this sentence).
12.2 PRO RATA ALLOCATION. In the event the number of shares of Stock
which might be purchased by all Participants in the Plan exceeds the number of
shares of Stock available in the Plan, the Company shall make a pro rata
allocation of the remaining shares in as uniform a manner as shall be
practicable and as the Company shall determine to be equitable.
12.3 RIGHTS AS A STOCKHOLDER AND EMPLOYEE. A Participant shall have no
rights as a stockholder by virtue of the Participant's participation in the Plan
until the date of the issuance of a stock certificate for the shares of Stock
being purchased pursuant to the exercise of the Participant's Purchase Right. No
adjustment shall be made for cash dividends or distributions or other rights for
which the record date is prior to the date such stock certificate is issued.
Nothing herein shall confer upon a Participant any right to continue in the
employ of the Participating Company Group or interfere in any way with any right
of the Participating Company Group to terminate the Participant's employment at
any time.
9
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13. WITHDRAWAL.
----------
13.1 WITHDRAWAL FROM AN OFFERING. A Participant may withdraw from an
Offering by signing and delivering to the Company's payroll or other designated
office a written notice of withdrawal on a form provided by the Company for such
purpose. Such withdrawal may be elected at any time prior to the end of an
Offering Period; provided, however, if a Participant withdraws after the
Purchase Date for a Purchase Period of an Offering, the withdrawal shall not
affect shares of Stock acquired by the Participant in such Purchase Period.
Unless otherwise indicated, withdrawal from an Offering shall not result in a
withdrawal from the Plan or any succeeding Offering therein. By withdrawing from
an Offering effective as of the close of a given Purchase Date, a Participant
may have shares of Stock purchased on such Purchase Date and immediately
commence participation in the new Offering commencing immediately after such
Purchase Date. A Participant is prohibited from again participating in an
Offering at any time following withdrawal from such Offering. The Company may
impose, from time to time, a requirement that the notice of withdrawal be on
file with the Company's payroll office or other designated office for a
reasonable period prior to the effectiveness of the Participant's withdrawal
from an Offering.
13.2 WITHDRAWAL FROM THE PLAN. A Participant may withdraw from the Plan
by signing and delivering to the Company's payroll office or other designated
office a written notice of withdrawal on a form provided by the Company for such
purpose. Withdrawals made after a Purchase Date shall not affect shares of Stock
acquired by the Participant on such Purchase Date. In the event a Participant
voluntarily elects to withdraw from the Plan, the Participant may not resume
participation in the Plan during the same Offering Period, but may participate
in any subsequent Offering under the Plan by again satisfying the requirements
of Sections 5 and 7.1. The Company may impose, from time to time, a requirement
that the notice of withdrawal be on file with the Company's payroll office or
other designated office for a reasonable period prior to the effectiveness of
the Participant's withdrawal from the Plan.
13.3 RETURN OF PAYROLL DEDUCTIONS. Upon a Participant's withdrawal from
an Offering or the Plan pursuant to Sections 13.1 or 13.2, respectively, the
Participant's accumulated payroll deductions which have not been applied toward
the purchase of shares of Stock shall be returned as soon as practicable after
the withdrawal, without the payment of any interest, to the Participant, and the
Participant's interest in the Offering or the Plan, as applicable, shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
13.4 AUTOMATIC WITHDRAWAL FROM AN OFFERING. If the Fair Market Value of
a share of Stock on a Purchase Date of an Offering (other than the final
Purchase Date of such Offering) is less than the Fair Market Value of a share of
Stock on the Offering Date for such Offering, then every Participant shall
automatically (a) be withdrawn from such Offering at the close of such Purchase
10
<PAGE>
Date and after the acquisition of shares of Stock for such Purchase Period and
(b) be enrolled in the Offering commencing on the first business day subsequent
to such Purchase Period. A Participant may elect not to be automatically
withdrawn from an Offering Period pursuant to this Section 13.4 by delivering to
the Company not later than the close of business on the last day before the
Purchase Date a written notice indicating such election.
13.5 WAIVER OF WITHDRAWAL RIGHT. The Company may, from time to time,
establish a procedure pursuant to which a Participant may elect, at least six
(6) months prior to a Purchase Date, to have all payroll deductions accumulated
in his or her Plan account as of such Purchase Date applied to purchase shares
of Stock under the Plan, and (a) to waive his or her right to withdraw from the
Offering or the Plan and (b) to waive his or her right to increase, decrease, or
cease payroll deductions under the Plan from his or her Compensation during the
Purchase Period ending on such Purchase Date. Such election shall be made in
writing on a form provided by the Company for such purpose and must be delivered
to the Company not later than the close of business on the day preceding the
date which is six (6) months before the Purchase Date for which such election is
to first be effective.
14. TERMINATION OF EMPLOYMENT OR ELIGIBILITY. Termination of a
----------------------------------------
Participant's employment with a Participating Company for any reason, including
retirement, disability or death or the failure of a Participant to remain an
Eligible Employee, shall terminate the Participant's participation in the Plan
immediately. In such event, the payroll deductions credited to the Participant's
Plan account since the last Purchase Date shall, as soon as practicable, be
returned to the Participant or, in the case of the Participant's death, to the
Participant's legal representative, and all of the Participant's rights under
the Plan shall terminate. Interest shall not be paid on sums returned to a
Participant pursuant to this Section 14. A Participant whose participation has
been so terminated may again become eligible to participate in the Plan by again
satisfying the requirements of Sections 5 and 7.1.
15. TRANSFER OF CONTROL.
-------------------
15.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company: (i) the direct or
indirect sale or exchange in a single or series of related transactions by the
stockholders of the Company of more than fifty percent (50%) of the voting stock
of the Company; (ii) a merger or consolidation in which the Company a party;
(iii) the sale, exchange, or transfer of all or substantially all of the assets
of the Company; or (iv) a liquidation or dissolution of the Company.
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<PAGE>
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
15.2 EFFECT OF TRANSFER OF CONTROL ON PURCHASE RIGHTS. In the event of
a Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may assume the Company's rights and obligations under the Plan or
substitute substantially equivalent Purchase Rights for stock of the Acquiring
Corporation. If the Acquiring Corporation elects not to assume or substitute for
the outstanding Purchase Rights, the Board may, in its sole discretion and
notwithstanding any other provision herein to the contrary, adjust the Purchase
Date of the then current Purchase Period to a date on or before the date of the
Transfer of Control, but shall not adjust the number of shares of Stock subject
to any Purchase Right. All Purchase Rights which are neither assumed or
substituted for by the Acquiring Corporation in connection with the Transfer of
Control nor exercised as of the date of the Transfer of Control shall terminate
and cease to be outstanding effective as of the date of the Transfer of Control.
Notwithstanding the foregoing, if the corporation the stock of which is subject
to the outstanding Purchase Rights immediately prior to an Ownership Change
Event described in Section 15.1(a)(i) constituting a Transfer of Control is the
surviving or continuing corporation and immediately after such Ownership Change
Event less than fifty percent (50%) of the total combined voting power of its
voting stock is held by another corporation or by other corporations that are
members of an affiliated group within the meaning of section 1504(a) of the Code
without regard to the provisions of section 1504(b) of the Code, the outstanding
Purchase Rights shall not terminate unless the Board otherwise provides in its
sole discretion.
16. NONTRANSFERABILITY OF PURCHASE RIGHTS. A Purchase Right may not be
-------------------------------------
transferred in any manner otherwise than by will or the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. The Company, in its absolute discretion, may impose
such restrictions on the transferability of the shares purchasable upon the
exercise of a
12
<PAGE>
Purchase Right as it deems appropriate and any such restriction shall be set
forth in the respective subscription agreement and may be referred to on the
certificates evidencing such shares.
17. REPORTS. Each Participant who exercised all or part of his or her
-------
Purchase Right for a Purchase Period shall receive, as soon as practicable after
the Purchase Date of such Purchase Period, a report of such Participant's Plan
account setting forth the total payroll deductions accumulated, the number of
shares of Stock purchased, the Purchase Price for such shares, the date of
purchase and the remaining cash balance to be refunded or retained in the
Participant's Plan account pursuant to Section 11.2, if any. At least annually,
copies of the Company's balance sheet and income statement for the just
completed fiscal year shall be made available to each Participant. The Company
shall not be required to provide such information to persons whose duties in
connection with the Company assure them access to equivalent information.
18. RESTRICTION ON ISSUANCE OF SHARES. The issuance of shares under the
---------------------------------
Plan shall be subject to compliance with all applicable requirements of foreign,
federal or state law with respect to such securities. A Purchase Right may not
be exercised if the issuance of shares upon such exercise would constitute a
violation of any applicable foreign, federal or state securities laws or other
law or regulations. In addition, no Purchase Right may be exercised unless (a) a
registration statement under the Securities Act of 1933, as amended, shall at
the time of exercise of the Purchase Right be in effect with respect to the
shares issuable upon exercise of the Purchase Right, or (b) in the opinion of
legal counsel to the Company, the shares issuable upon exercise of the Purchase
Right may be issued in accordance with the terms of an applicable exemption from
the registration requirements of said Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares under the Plan shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of a
Purchase Right, the Company may require the Participant to satisfy any
qualifications that may be necessary or appropriate, to evidence compliance with
any applicable law or regulation, and to make any representation or warranty
with respect thereto as may be requested by the Company.
19. LEGENDS. The Company may at any time place legends or other
-------
identifying symbols referencing any applicable foreign, federal or state
securities law restrictions or any provision convenient in the administration of
the Plan on some or all of the certificates representing shares of Stock issued
under the Plan. The Participant shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to a Purchase Right in the possession of the Participant in order to
carry out the provisions of this Section. Unless otherwise specified by the
Company, legends placed on such certificates may include but shall not be
limited to the following:
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<PAGE>
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN
EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY
SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE
REGISTERED HOLDER HEREOF MADE ON OR BEFORE ______________, 19__. THE REGISTERED
HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S
NAME (AND NOT IN THE NAME OF ANY NOMINEE) PRIOR TO THIS DATE."
20. NOTIFICATION OF SALE OF SHARES. The Company may require the
------------------------------
Participant to give the Company prompt notice of any disposition of shares
acquired by exercise of a Purchase Right within two years from the date of
granting such Purchase Right or one year from the date of exercise of such
Purchase Right. The Company may require that until such time as a Participant
disposes of shares acquired upon exercise of a Purchase Right, the Participant
shall hold all such shares in the Participant's name (and not in the name of any
nominee) until the lapse of the time periods with respect to such Purchase Right
referred to in the preceding sentence. The Company may direct that the
certificates evidencing shares acquired by exercise of a Purchase Right refer to
such requirement to give prompt notice of disposition.
21. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time amend
------------------------------------
or terminate the Plan, except that (a) such termination shall not affect
Purchase Rights previously granted under the Plan, except as permitted under the
Plan, and (b) no amendment may adversely affect a Purchase Right previously
granted under the Plan (except to the extent permitted by the Plan or as may be
necessary to qualify the Plan as an employee stock purchase plan pursuant to
Section 423 of the Code or to obtain qualification or registration of the shares
of Stock under applicable foreign, federal or state securities laws). In
addition, an amendment to the Plan must be approved by the stockholders of the
Company within twelve (12) months of the adoption of such amendment if such
amendment would authorize the sale of more shares than are authorized for
issuance under the Plan or would change the definition of the corporations that
may be designated by the Board as Participating Companies.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that
the foregoing Storm Primax, Inc. 1996 Employee Stock Purchase Plan was duly
adopted by the Board of Directors of the Company on June 5, 1996.
__________________________________________
Secretary
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PLAN HISTORY
June 5, 1996 Board adopts Plan, with an initial reserve of 300,000
shares.
__________, 1996 Stockholders approve Plan, with an initial reserve of
300,000 shares.
15
<PAGE>
STORM PRIMAX, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
[ ] Original Application
[ [ Change in Percentage of Payroll Deductions
I hereby elect to participate in the 1996 Employee Stock Purchase Plan (the
"PLAN") of Storm Primax, Inc. (the "COMPANY") and subscribe to purchase shares
of the Company's common stock as determined in accordance with the terms of the
Plan.
I hereby authorize payroll deductions in the amount of ______________
percent (in 1% increments not to exceed 10%) of my "COMPENSATION" (as defined in
the Plan) from each paycheck throughout the "OFFERING PERIOD" (as defined in the
Plan) in accordance with the terms of the Plan. I understand that these payroll
deductions will be accumulated for the purchase of shares of common stock of the
Company at the applicable purchase price determined in accordance with the Plan.
I further understand that, except as otherwise set forth in the Plan, shares
will be purchased for me automatically on the last day of each Purchase Period
unless I withdraw from the Plan or from the Offering by giving written notice to
the Company or unless I terminate employment.
I further understand that I will automatically participate in each
subsequent Offering which commences immediately after the last day of an
Offering in which I am participating under the Plan until such time as I file
with the Company a notice of withdrawal from the Plan on such form as may be
established from time to time by the Company or I terminate employment.
Shares purchased for me under the Plan should be issued in the name set
forth below. (I understand that shares may be issued either in my name alone or
together with my spouse as community property or in joint tenancy.)
NAME: _______________________________________________________
ADDRESS: _______________________________________________________
_______________________________________________________
MY SOCIAL SECURITY NUMBER:________________________________________
I hereby authorize withholding from my compensation in order to satisfy the
foreign, federal, state and local tax withholding obligations, if any, which may
arise upon my purchase of shares under the Plan and/or upon my disposition of
shares I acquired under the Plan. I hereby agree that until I dispose of the
shares, unless otherwise permitted by the Company, I will hold all shares I
acquire under the Plan in the name entered above (and not in the name of any
nominee) for at least two (2) years from the first day of the Offering Period in
which, and at least one (1) year from the Purchase Date on which, I acquired
such shares. I further agree that I will promptly notify the Chief Financial
Officer of the Company in writing of any transfer of such shares prior to the
end of the periods referred to in the preceding sentence.
I am familiar with the provisions of the Plan and hereby agree to
participate in the Plan subject to all of the provisions thereof. I understand
that the Board of Directors of the Company reserves the right to amend the Plan
and my right to purchase stock under the Plan as may be necessary to qualify the
Plan as an employee stock purchase plan as defined in section 423 of the
Internal Revenue Code of 1986, as amended, or to obtain qualification or
registration of the Company's common stock to be issued out of the Plan under
applicable foreign, federal and state securities laws. I understand that the
effectiveness of this subscription agreement is dependent upon my eligibility to
participate in the Plan.
Date:________________________ Signature:________________________________
Name Printed:_____________________________
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STORM PRIMAX, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I hereby elect to withdraw from the current offering (the "CURRENT
OFFERING") of the common stock of Storm Primax, Inc. (the "COMPANY") under the
Company's 1996 Employee Stock Purchase Plan (the "PLAN").
MAKE ONE ELECTION UNDER SECTION A AND ONE ELECTION UNDER SECTION B:
A. Current Offering. As to my participation in the current purchase period
----------------
(the "Current Purchase Period") of the Current Offering under the Plan, I
elect as follows (check one):
____ 1. I elect to terminate my participation in the Current Purchase Period
immediately.
I hereby request that all payroll deductions credited to my account
under the Plan (if any) not previously used to purchase shares under
the Plan shall not be used to purchase shares on the last day of the
---
Current Purchase Period. Instead, I request that all such amounts be
paid to me as soon as practicable. I understand that this election
immediately terminates my interest in the Current Offering.
____ 2. I elect to terminate my participation in the Current Offering
following my purchase of shares on the last day of the Current
Purchase Period.
I hereby request that all payroll deductions credited to my account
under the Plan (if any) not previously used to purchase shares under
the Plan shall be used to purchase shares on the last day of the
Current Purchase Period. I understand that this election will
terminate my interest in the Current Offering immediately following
such purchase. I request that any cash balance remaining in my account
under the Plan after my purchase of shares be returned to me as soon
as practicable.
I understand that if no election is made as to participation in the Current
Offering under the Plan, I will be deemed to have elected to participate in the
Current Offering.
B. Future Offerings. As to my participation in future offerings of common
----------------
stock under the Plan, I elect as follows (check one):
____ 1. I elect to participate in future offerings under the Plan.
I understand that by making this election I will participate in the
next offering under the Plan commencing subsequent to the Current
Offering, and in each subsequent offering commencing immediately after
the last day of an offering in which I participate, until such time as
I elect to withdraw from the Plan or from any such subsequent
offering.
____ 2. I elect not to participate in future offerings under the Plan.
---
I understand that by making this election I terminate my interest in
the Plan and that no further payroll deductions will be made unless I
elect in accordance with the Plan to become a participant in another
offering under the Plan.
I understand that if no election is made as to participation in future
offerings under the Plan, I will be deemed to have elected to participate in
such future offerings.
Date:_________________________ Signature:_____________________________
Name Printed:__________________________
17
<PAGE>
EXHIBIT 10.19
AGREEMENT BETWEEN INTEL CORPORATION AND STORM PRIMAX, INC.
AGREEMENT #:
EFFECTIVE DATE: 5/22/96
Parties:
Intel Corporation (and all world wide Intel divisions and subsidiaries,
hereinafter "Intel")
2200 Mission College Blvd.
Santa Clara, CA 95052
Storm Primax, Inc. (hereinafter "Storm")
1861 Landings Drive
Mountain View, CA 94043
This AGREEMENT BETWEEN INTEL CORPORATION AND STORM PRIMAX, INC.("Agreement")
sets forth the terms under which the parties agree to develop and deliver
certain software and related documentation to each other in accordance with the
provisions contained in the following Exhibits, which are included in and made a
part of this Agreement:
. Exhibit "A"-General Terms and Conditions;
. Exhibit "B"-Statement of Work;
. Exhibit "C"-Intel Technical Information and Storm Information;
. Exhibit "D"-Warrant
AGREED:
INTEL CORPORATION STORM PRIMAX, INC.
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
- ------------------------ ------------------------
Signature Signature
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
- ------------------------ ------------------------
Printed Name Printed Name
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
- ------------------------ ------------------------
Title Title
5/22/96 5/22/96
- ------------------------ ------------------------
Date Date
[*] Confidential Treatment Requested--Omitted portions filed
separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT "A"
GENERAL TERMS AND CONDITIONS
1. DEFINITIONS
-----------
1.1 General Definitions.
-------------------
(a) "Intel Intellectual Property" means Intel's parents, copyrights and
trade secrets represented or disclosed in the Intel Technical
Information or in PhotoPhone, and necessary for the manufacture,
distribution and use of the Product.
(b) "Intel Technical Information" means the technical information and
associated documentation specified in Exhibit "C", including
PhotoPhone.
(c) "Milestones" means the requirements for the completion of each
Phase, as specified in Exhibit "B".
(d) "PC OEM(s)" means a company engaged in integrating Intel
microprocessors and/or Intel motherboards and/or Intel systems based
on such microprocessors for ultimate sale to end users in the form of
a personal computer or part thereof.
(e) "Phase" means any of the various segments or portions into which the
development and delivery of the Product is divided, as described in
Exhibit "B".
(f) "Product" means EasyPhoto, EasyPhoto Phone, EasyPhoto Phone Lite and
EasyPhoto Phone Trial software and collateral documentation to be
developed pursuant to this Agreement and accepted by Intel as set
forth in Exhibit "B", including all updates, enhancements, bug fixes,
revisions, upgrades or new versions of the Product (but excludes
customer-specific versions of the Product and new products, as
designated by Storm).
(g) "Storm Intellectual Property" means Storm's patents, copyrights and
trade secrets represented or disclosed in the Storm Technical
Information or in EasyPhoto and necessary for the manufacture,
distribution and use of the Product.
(h) "Storm Technical Information" means the technical information and
associated documentation specified in Exhibit "C", including
EasyPhoto.
(i) "EasyPhoto" means Storm's existing photo software application
described in Exhibit "B" and all updates, enhancements and bug fixes,
excluding updates, enhancements and bug fixes that include or are
derived from PhotoPhone or Intel Intellectual Property or Intel
Technical Information and excluding customer-specific versions of
EasyPhoto and new products, as designated by Storm.
(j) "PhotoPhone" means Intel's existing photo sharing software
application described in Exhibit "B" and all updates, enhancements
and bug fixes excluding updates, enhancements and bug fixes that
include or are derived from EasyPhoto, EasyPhoto Phone Lite,
EasyPhoto Phone Trial, Storm Intellectual Property or Storm Technical
Information.
<PAGE>
(k) "EasyPhoto Phone" means that portion of the Product to be developed
under this Agreement as described in Exhibit "B", excluding
EasyPhoto Phone Lite and EasyPhoto Phone Trial.
(l) "EasyPhoto Phone Lite" and "EasyPhoto Phone Trial" means that
portion of the Product to be developed under this Agreement as
described in Exhibit "B", that consists of limited versions of
EasyPhoto Phone which the parties presently intend to post on the
internet or otherwise distribute royalty-free .
(m) [*] means products designed specifically to function or be
compatible with [*] which are [*] (whether designed and manufactured
by [*] or others) that are [*] with the [*] as defined by [*] of the
[*] families, and all derivatives and future members and generations
thereof.
2. OWNERSHIP
---------
2.1 Ownership of the Product.
------------------------
Storm will own the Product developed by Storm under this Agreement,
subject to Intel's ownership rights in any Intel Intellectual Property
represented or used in the Product.
2.2 Ownership of Technical Information.
----------------------------------
Storm retains ownership of Storm Technical Information and Storm
Intellectual Property. Intel retains ownership of Intel Technical
Information and Intel Intellectual Property.
2.3 Ownership of Derivative Works.
-----------------------------
Storm will own derivative works solely created by Storm or Storm's agents
and independent contractors under this Agreement, excluding Intel
Intellectual Property and PhotoPhone. Intel or Intel's agents and
independent contractors will own derivative works solely created by Intel
under this Agreement, excluding Storm Intellectual Property and EasyPhoto.
[*]
2.4 Use of Technical Information.
----------------------------
(a) Except as provided in this Agreement. Storm may not sublicense
others to use the Intel Technical Information or Intel Intellectual
Property for any purpose without Intel's prior written consent.
(b) Except as provided in this Agreement, Intel may not sublicense
others to use Storm Technical Information or Storm Intellectual
Property for any purpose without Storm's prior written consent.
[*] Confidential Treatment Requested--Omitted portions filed
separately with the Securities and Exchange Commission.
<PAGE>
3. LICENSES
--------
3.1 Licenses to Storm
-----------------
(a) Intel grants to Storm a [*] license, without the right to sublicense,
under Intel Intellectual Property to use, copy, have copied and create
derivative works, including translations, of PhotoPhone software in
source form for incorporation into [*] versions of the Storm products.
Pursuant to this Section 3.1(a), Storm may disclose PhotoPhone
software in source form to third parties performing services for Storm
that have agreed in writing to i) restrict their use of such software
to performing services for Storm, and ii) not disclose such software
to any third party.
(b) Intel grants to Storm a [*] license, with the right to sublicense,
under Intel Intellectual Property to use, copy, have copied, demo,
sell, offer to sell, license, distribute or otherwise dispose of [*]
versions of the Product in binary form only.
(c) Subject to the other provisions of Sections 3.1(a) and (b) above and
the other terms and conditions of this Agreement, the [*] restrictions
contained in the license grants in such Sections shall terminate [*]
after the Effective Date.
(d) Intel's license grants to Storm as set forth in this Section 3.1 do
not include any rights to any third party software specified in
Exhibit "B" embedded in PhotoPhone. Storm is solely responsible for
acquiring any necessary licenses to such third party software directly
from the respective owners of such software.
3.2 Licenses to Intel
-----------------
(a) Storm grants to Intel a [*] license under Storm Intellectual Property
to use, copy, have copied, demo, sell, offer to sell, license,
distribute or otherwise dispose of [*] versions of the Product
provided by Storm hereunder, in binary form only to Intel's PC OEM
customers for redistribution with other Intel hardware or software
products.
(b) The term of the license grant set forth in Section 3.2(a) above for
the EasyPhoto portion of the Product shall be for [*] from the
Effective Date. Thereafter, the term of such license grant shall be
automatically extended for successive [*] unless and until either
party provides written notice of termination to the other no later
than ninety (90) days prior to the expiration of any such [*]
extension.
(c) The initial term of the license grant set forth in Section 3.2(a)
above for the EasyPhoto Phone, EasyPhoto Phone Lite and EasyPhoto
Phone Trial portion of the Product shall be for [*] from the Effective
Date. Thereafter the term of such license grant shall be automatically
extended for successive [*] terms
[*] Confidential Treatment Requested--Omitted portions filed separately with the
Securities and Exchange Commission.
<PAGE>
unless and until either party provides written notice of
termination to the other no later than ninety (90) days prior to
the expiration of any such [*] extension.
(d) Subject to the terms and conditions of this Agreement, Storm grants
to Intel a [*] license (without the right to sublicense) to
manufacture, have manufactured, use, lease, offer to sell, sell,
import, export, or otherwise distribute any current or future Intel
product incorporating any Storm patents or trade secrets to the
extent such patents or trade secrets incorporate, or constitute a
derivative work of, in whole or in part, any Intel Intellectual
Property provided to Storm pursuant to this Agreement.
(e) During the term of this Agreement, Intel will [*]. Intel, in its
sole discretion, will determine how, and to which customers
products will be presented. Intel and Storm will agree upon a
mechanism whereby Intel or certain Intel EasyPhoto or EasyPhoto
Phone sublicensees, at sole discretion of sublicensee, will provide
[*].
3.3 No Other Licenses Granted
-------------------------
No license or other right is granted by implication, estoppel or
otherwise to either party except the licenses and rights expressly
granted in this Section 3.
4. PRODUCT MARKING AND USE OF EACH PARTY'S NAME AND TRADEMARKS
-----------------------------------------------------------
Both parties will place on or incorporate in each copy or partial copy
of PhotoPhone and the Product and any related literature a conspicuous
notice of each party's copyrights incorporated in same, as reasonably
requested by the copyright owner. Except for this required notice of any
such copyrights, neither party may use the others name or any trademark
or servicemark of the other in connection with PhotoPhone or the Product
or to market same without first obtaining the written permission of the
other party.
5. CONSIDERATION
-------------
On the date hereof, [*].
6. MAINTENANCE
-----------
The parties will share responsibilities to maintain and support the
Product, as described in Exhibit "B".
7. WARRANTIES AND REPRESENTATIONS
------------------------------
7.1 Both parties warrant that they have the right to grant the licenses
granted by each of them to the other, respectively, set forth in Section
3.
[*] Confidential Treatment Requested--Omitted portions filed
separately with the Securities and Exchange Commission.
<PAGE>
7.2 THE INTEL DELIVERABLES, STORM DELIVERABLES, INTEL TECHNICAL INFORMATION,
STORM TECHNICAL INFORMATION, PHOTOPHONE AND THE PRODUCT ARE PROVIDED BY
EACH PARTY TO THE OTHER (AS THE CASE MAY BE) [*]. BOTH PARTIES
SPECIFICALLY DISCLAIM THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE AND ANY WARRANTY AGAINST INFRINGEMENT
OF ANY INTELLECTUAL PROPERTY RIGHT OF ANY THIRD PARTY WITH RESPECT TO
ALL SUCH INFORMATION, DATA AND MATERIALS, INCLUDING ANY DERIVATIVES,
UPDATES AND ENHANCEMENTS THERETO. NEITHER PARTY MAKES ANY REPRESENTATION
OR WARRANTY THAT THE INTEL DELIVERABLES, STORM DELIVERABLES, INTEL
TECHNICAL INFORMATION, STORM TECHNICAL INFORMATION, PHOTOPHONE, AND/OR
EASYPHOTO WILL BE ADEQUATE TO DEVELOP THE PRODUCT.
8. TERM, TERMINATION, AND REMEDIES:
-------------------------------
(a) The initial term of this Agreement shall be for five (5) years
from the Effective Date. Thereafter, the term of this Agreement
shall be automatically extended for successive two (2) year
terms unless and until either party provides written notice of
termination to the other no later than ninety (90) days prior to
the expiration of any such two (2) year extension.
(b) Either party may terminate this Agreement if the other party:
(1) breaches any material provision of this Agreement and
fails to cure the same within thirty (30) days after
receipt of written notice from the other party;
(2) files or has filed against it a petition of bankruptcy;
(3) has a receiver appointed to handle its assets or
affairs;
(4) makes or attempts to make an assignment for the benefit
of creditors.
(c) The following provisions of this Exhibit "A" will survive the
expiration or termination of this Agreement: Sections (including
any sub-sections) 2, 3, 4, 5, 6, 7, 8, 9(b), 10, and 11.
9. CONFIDENTIALLY AND NON-DISCLOSURE
---------------------------------
(a) It may become necessary during the course of this Agreement for
one party to disclose to the other information which the
disclosing party considers confidential ("Confidential
Information"). Disclosure of such Confidential Information shall
be governed by the terms of the Corporate Non-disclosure
Agreement or Restricted Use Non-disclosure Agreement(s) to be
executed separately by the parties.
(b) Neither party may disclose the contents of this Agreement
without the prior written consent of the other party. Either
party may announce the signing of this Agreement [*] after
obtaining the other party's approval of the content of the
announcement. Such approval will not be unreasonably withheld or
delayed.
[*] Confidential Treatment Requested--Omitted portions filed separately with the
Securities and Exchange Commission.
<PAGE>
10. LIMITATION OF LIABILITY
-----------------------
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR LOSS OF PROFITS, DATA, OR
USE OR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES,
HOWEVER CAUSED, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. THE
PARTIES ACKNOWLEDGE THAT THESE LIMITATIONS ON POTENTIAL LIABILITIES WERE
AN ESSENTIAL ELEMENT IN SETTING CONSIDERATION UNDER THIS AGREEMENT.
11. GENERAL PROVISIONS
------------------
11.1 Relationship of Parties:
-----------------------
Nothing in this Agreement will be construed to make the parties partners
or joint ventures or to make either party liable for the obligations,
acts, omissions, or activities of the other.
11.2 Change Procedures; Other Amendments.
-----------------------------------
Any change, modification or waiver to this Agreement must be in writing
and signed by an authorized representative of each party.
11.3 Notices and Requests.
--------------------
All notices and requests required or made under this Agreement must be
in writing and will be deemed given if personally delivered or if mailed
postage prepaid, certified or registered mail to the addresses listed on
the signature page to this Agreement or to such other address as may be
noticed. All notices to Intel shall be marked to the attention of the
General Counsel with a copy to OPSD Software Business Manager mailstop
HF3-27.
11.4 Assignments.
-----------
Neither party may assign all or any portion of this Agreement to any
third party without the other's prior written consent. Not withstanding
the foregoing, either Party may assign this Agreement without the other
Party's prior written consent if such assignment is in connection with a
merger, consolidation, reorganization, sale of all or substantially all
of the assets of such Party or reincorporation.
11.5 Merger and Waiver.
-----------------
This Agreement is intended to be the entire agreement between the
parties with respect to matters contained herein, and supersedes all
prior or contemporaneous agreements and negotiations with respect to
those matters. No waivers of any breach of default shall constitute a
waiver of any subsequent breach or default.
11.6 Export.
------
Neither party will export/re-export any information, data or materials
received from the other directly or indirectly to any country for which
the United States or foreign
<PAGE>
government or any agencies thereof requires an export license or other
government approval without first obtaining such license or approval.
11.7 No Rule of Strict Construction.
------------------------------
Regardless of which party may have drafted any portion of this
Agreement, no rule of strict construction shall be applied against
either party. If any provision of this Agreement is determined by a
court to be unenforceable, such provision(s) will be deemed to be
modified to the extent necessary to allow it to be enforced to the
extent permitted by law, or if it cannot be modified, the provision will
be severed and deleted from this Agreement, and the remainder of the
Agreement will continue in effect.
11.8 Choice of Law.
-------------
Any claim arising under or relating to this Agreement shall be governed
by the internal substantive laws of the State of California or federal
courts located in California without regard to principles of conflict of
laws.
11.9 [___*_____] Program
-------------------
Intel agrees that Storm will be considered a [___*____] vendor, eligible
for all services and benefits provided to such vendors by Intel, as
specified in Intel's 4/15/96 document entitled "[___*____] Technology
Applications Progam (a.k.a.--[___*____])", a copy of which was
previously provided to Storm by Intel, provided Storm meets the
milestones and delivery dates specified in such document. (Note:
"[___*____]" is an Intel internal program name, in which there are
currently more that (sic) [___*____] companies participating)
[*] Confidential Treatment Requested--Omitted portions filed
separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT "B"
STATEMENT OF WORK
Definitions
EasyPhoto: Storm's software environment for capturing, organizing, displaying,
printing, and editing photos and high quality images, with features and
capabilities [*].
PhotoPhone: Intel's software for exchanging photos and high-quality images [*]
as described in more detail below in this Statement of Work. It is partly based
on the following [*], and does not include rights to these [*]:
. [*]
. [*]
. [*]
. [*]
EasyPhoto Phone: EasyPhoto and PhotoPhone [*] as described in more detail below
in this Statement of Work.
EasyPhoto [*]: A full functioning, but [*] only version of EasyPhoto Phone.
EasyPhoto Phone [*]: A full functioning, [*] version of EasyPhoto Phone, with a
[*].
PhotoPhone Functional Specification
The PhotoPhone component shares pictures between PCs over a [*] line using
modems. It is a [*] application that uses [*] and [*] for [*]. It is a
component that is intended to be used in conjunction with other components such
as [*]. See the User Interface Specification for the specific look-and-feel of
the component.
Connecting
A user can initiate a connection via an explicit Connect operation, or by
initiating a Send or Chat operation. PhotoPhone will dial a number for a direct
connection [*] or convert an existing voice call to [*]. The connection
operation presents call progress and allows the calling user to abort the
operation. PhotoPhone must be launched on the answering PC in order to connect.
The users can disconnect at any time; if the modem is [*], it returns to voice
mode. For [*], the users can use the telephone handset or any [*] to make the
voice call [*].
[*] Confidential Treatment Requested--Omitted portions filed
separately with the Securities and Exchange Commission.
<PAGE>
Communicating
PhotoPhone includes an optional [*] in which the users can [*]. On a [*] the
users can [*].
Transferring
When PhotoPhone transfers a picture, both the sender and receiver see the
picture displayed progressively; the picture should be "legible" after a few
seconds. Either user can cancel the transfer. Only one picture can be sent at a
time. PhotoPhone detects and handles both users attempting to send or cancel at
the same time. The transfer is done in the background. The transferred picture
(on either sending or receiving side) can be shown at full size in a separate
window, saved (various formats), copied to the clipboard, sent, or dragged to a
drop target (particularly EasyPhoto). Each user can choose to show the
transferred picture as shrunk to fit in the window, or a normal size with scroll
bars. Each user can resize the PhotoPhone window.
Previewing
PhotoPhone allows the users to browse/preview pictures on disk (various
formats), on PhotoCD, and on video (live or stored, YUV9)/2/. The preview can
show pictures as small or medium thumbnails. A previewed picture can be shown at
full size in a separate window, saved (various formats), copied to the
clipboard, sent or dragged to a drop target (particularly EasyPhoto). Drag
sources (particularly EasyPhoto) can be used to preview pictures that, when
dragged to PhotoPhone, are [*]. Finally, the users can [*] the picture that is
currently on the clipboard.
Interoperability
PhotoPhone interoperates with other applications using [*] standards: [*].
Documentation
PhotoPhone documentation includes online help: [*].
[*]
The [*] version of [*] is meant to be [*].
The [*] version includes all of the above features except that:
It includes [*].
It [*] photos from any source or [*].
- -------------------------------------
/2/ EasyPhoto provides input from scanning devices.
[*] Confidential Treatment Requested--Omitted portions filed
separately with the Securities and Exchange Commission.
<PAGE>
The [*] version will aid the consumer in [*] and [*] the [*] version [*]. For
instance, the connection dialog can refer to the [*] version, and the [*] can
provide instructions for distribution.
The [*] version will [*] the consumer toward [*]. For instance, the [*] box can
refer to the [*] version and [*].
The method of ([*] etc.) is not yet determined; one suggestion is to [*];
another is to [*]. This version should be [*] in size.
The [*] version will be simple to [*] (and under [*]), and [*] for instance, it
should be a [*] file to simplify [*], and [*] to simplify [*]. The [*] version
should be [*] to [*] and [*] (pirate); for example, [*] the [*] executable file
[*] a [*] installation [*].
This is included in Phase 1.
[*]
This version is an extension of PhotoPhone as described above, using [*]. It
can be [*] in the same [*][*] as PhotoPhone.
When a connection is inititated, PhotoPhone can connect to an [*]/3/.
For [*], the [*] feature can also be used on [*] application can be used [*]
with [*]. Again, PhotoPhone does not [*] the [*] of the [*][*] may include a
simple way to launch a [*], in the same vein as [*].
This is not included in [*] and may be included in [*].
[*]
This version is [*] PhotoPhone with [*].
This may be included in [*].
[*] Confidential Treatment Requested--Omitted portions filed
separately with the Securities and Exchange Commission.
- -----------------------
/3/ [*]
<PAGE>
EasyPhoto Integration
[*]
This phase is the [*].
[*]
This phase is the [*].
[*] Deliverables and Milestones
[*]
The development schedule below encompasses the following activities:
. Product definition
. Product development
. Beta test
. Final Beta test
. Final Product delivery
. Final Product support
At the time of Beta test [*].
At the time of Final Beta [*].
At the time of Final Product, [*].
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
What Who When
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Publish Product requirements [*] [*]
- ----------------------------------------------------------------------------------------------
Approve Product requirements [*] [*]
- ----------------------------------------------------------------------------------------------
Delivery UI specification for Product [*] [*]
- ----------------------------------------------------------------------------------------------
Approve UI specification for Product [*] [*]
- ----------------------------------------------------------------------------------------------
Approve Statement of Work [*] [*]
- ----------------------------------------------------------------------------------------------
Deliver draft branding (Product name, icon, splash screen,
startup photo/AVI) for Product [*] [*]
- ----------------------------------------------------------------------------------------------
Deliver draft binary for appearance evaluation and installation [*] [*]
- ----------------------------------------------------------------------------------------------
[*] Confidential Treatment Requested--Omitted portions filed
separately with the Securities and Exchange Commission.
</TABLE>
<PAGE>
- ---------------------------------------------------------------------
development for Photo Phone
- ---------------------------------------------------------------------
Deliver draft help text for PhotoPhone [*] [*]
- ---------------------------------------------------------------------
Approve help text for PhotoPhone [*] [*]
- ---------------------------------------------------------------------
Deliver Beta of PhotoPhone [*] [*]
- ---------------------------------------------------------------------
Deliver Beta installation for Product [*] [*]
- ---------------------------------------------------------------------
Deliver final branding for Product [*] [*]
- ---------------------------------------------------------------------
Deliver Beta Update for PhotoPhone [*] [*]
- ---------------------------------------------------------------------
Deliver Beta Update installation for Product [*] [*]
- ---------------------------------------------------------------------
Deliver final PhotoPhone [*] [*]
- ---------------------------------------------------------------------
Deliver final, customer ready version of Product [*] [*]
- ---------------------------------------------------------------------
Post EasyPhoto Lite and EasyPhoto reader demo [*] [*]
version of Product on Web
- ---------------------------------------------------------------------
[*]Roles and Responsibilities
[*]
. Deliver [*] binaries
. Conduct testing (see below)
. Second-level support [*] to [*]
. [*] bug fix updates
. [*] will support its customers with first line of support. In cases where [*]
customers desire to work directly with [*], [*] and [*] shall discuss in good
faith the best way to support such customers.
[*]
. Product identity/branding
. Deliver product binaries, including installation.
. Product/Channel PR
. Product collateral/documentation.
. [*]
. Internationalization, when requested by customers. Intel and Storm to agree
upon schedules.
. [*] will support its customers with first line of support. In cases where [*]
customers desire to work directly with [*], [*] and [*] shall discuss in good
faith the best way to support such customers.
. [*] will provide support to all end-users.
. [*] is responsible for providing bug fixes and updates to Intel.
Testing
[*] will do the following testing:
. Unit testing
[*] Confidential Treatment Requested--Omitted portions filed separately with the
Securities and Exchange Commission.
<PAGE>
. Functional Testing
. Stress testing
. [*] compatibility testing (including [*])
. [*] interoperability testing
. Commercial [*] interoperability testing
[*] will do the following testing:
. Acceptability testing
. Installation testing
For the end user testing conducted by [*] [*] will provide a small number (no
more than ten of EasyPhoto Readers to give the end users a source of photos on
their PC. [*] will also provide a small number (no more than 10) of end users to
evaluate the software.
Acceptance
Within 30 days of final software delivery from either Storm or Intel, the
receiving company will provide the sending company with a written notice of
acceptance. If the final software is not acceptable, the receiving company
will provide the sending company with a list of problems to be corrected and the
two companies will agree to a plan for correction of the problems.
Updates, Enhancements, Bug Fixes, Revisions, Upgrades and/or New Versions
[*] will provide [*] with updates, enhancements, bug fixes, revisions, upgrades
and/or new versions of the Products during the term of this Agreement at dates
no later than it provides same to any other third party.
[*] Overview
The main items are the fundamental areas which Intel and Storm agree to jointly
pursue. The bulleted items indicate a preliminary list of possibilities of what
[*] could include, and this will be concretely nailed down after completing [*].
By [*] a draft specification will be published and approved by both parties.
A detailed timetable, similar to the above [*] table, will follow, with [*]
delivery to consumers in [*]. The timetable may include earlier delivery of
some features earlier.
In this phase and beyond [*] will assume full support for EasyPhoto Phone,
including first-level customer support (OEM and end user) and second-level
technical support [*] will transition the second-level support to [*] during
[*].
Integrate PhotoPhone and EasyPhoto:
. Integrate [*] methods: [*]
. Add [*] to PhotoPhone
. Add PhotoPhone [*] to [*] engine and EasyPhoto [*]
Optimize PhotoPhone and EasyPhoto for [*]
. [*] scanned photos [*]
. Photo [*]
[*] Confidential Treatment Requested--Omitted portions filed
separately with the Securities and Exchange Commission.
<PAGE>
. [*]
. [*] Read/Write [*] files (using [*])
. [*] photos [*]
[*] PhotoPhone:
. Add [*] support
. Add [*] support
. Move to [*]
[*] PhotoPhone elements from [*] to [*]
. Source transfer
. Engineering documentation
. Test suites
. Transition support
[*] Confidential Treatment Requested--Omitted portions filed
separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT "C"
INTEL TECHNICAL INFORMATION
AND
STORM TECHNICAL INFORMATION
Description of Intel Technical Information or Documentation
- -----------------------------------------------------------
A. Intel Technical Information:
---------------------------
. PhotoPhone binaries [*] described in Exhibit "B"
. PhotoPhone and [*]
. PhotoPhone sources and technical notes [*]
. [*] libraries needed to create [*]
B. Other Information or Documentation:
----------------------------------
. PhotoPhone [*] file
. [*] document
Description of Storm Technical Information or Documentation
- -----------------------------------------------------------
A. Storm Technical Information:
---------------------------
. EasyPhoto binaries [*] described in Exhibit "B"
. Installation binary that [*]
. EasyPhoto and EasyPhoto Phone [*]
B. Other Information or Documentation:
----------------------------------
. End-user [*] document including EasyPhoto Phone description
. [*] including all usual EasyPhoto product contents
[*] Confidential Treatment Requested--Omitted portions filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT D
WARRANT
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY AND THE SHARES OF CAPITAL STOCK
ISSUABLE HEREUNDER HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") AND MAY NOT BE SOLD, OFFERED
FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE
ACT UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL TO THE
EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR
(ii) THE SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES AND EXCHANGE
COMMISSION RULE 144.
WARRANT TO PURCHASE STOCK
of
STORM PRIMAX, INC.
THIS CERTIFIES THAT, for value received, Intel Corporation, a Delaware
corporation ("Intel"), or its permitted registered assigns ("Holder"), is
entitled subject to the terms and conditions of this Warrant, at any time after
May 16, 1996 (the "Effective Date"), and before 5:00 p.m. Pacific Time on May
16, 1999 (the "Expiration Date"), to purchase from Storm Primax, Inc., a
California corporation (the "Company"), one hundred twelve thousand (112,000)
shares of fully paid and nonassessable shares of Warrant Stock (as defined in
Section 1. 2), at the Exercise Price (as defined in Section 1.3). Both the
number of shares of Warrant Stock purchasable under this Warrant and the
Exercise Price are subject to adjustment as provided herein.
1. CERTAIN DEFINITIONS. As used in this Warrant.
1.1. The term "Warrant" as used herein, shall include this Warrant and any
warrant delivered in substitution or exchange therefor as provided herein.
1.2. The term "Warrant Stock" shall mean the Common Stock of the Company
or, if converted, as provided herein at Section 12, shall mean the Series "F"
Preferred Stock, issuable or receivable upon exercise of the Warrant.
1.3. The term "Exercise Price" shall mean the price at which this Warrant
may be exercised and shall be $3.10 per share of Warrant Stock, as adjusted from
time to time pursuant to Section 4 hereof. If converted, as provided herein at
Section 12, the Exercise Price shall be that per share price designated in the
Series "F" Preferred Stock Purchase Agreement.
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1.4. The term "Registered "Holder" shall mean any Holder in whose name
this Warrant is registered upon the books and records maintained by the Company.
1.5. The term "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976.
1.6. The term "Fair Market Value" of a share of Warrant Stock shall mean:
(a) If traded on a securities exchange or the Nasdaq National
Market, the Fair Market Value shall be deemed to be the average of the closing
prices of the Common Stock of the Company on such exchange or market over the 5
business days ending immediately prior to the applicable date of valuation;
(b) If actively traded over-the-counter, the Fair Market Value shall
be deemed to be the average of the closing bid prices over the 30-day period
ending immediately prior to the applicable date of valuation; and
(c) if there is no active public market, the Fair Market Value shall
be the value thereof, as determined in good faith by the Board of Directors of
the Company.
2. Exercise of Warrant
2.1. Payment
Subject to compliance with the terms and conditions of this Warrant
and applicable securities laws this Warrant may be exercised, in whole or in
part at any time on or before the Expiration Date, by surrendering this Warrant
at the principal office of the Company together with:
(a) the form of Notice of Exercise attached hereto as Exhibit 1 (the
"Notice of Exercise") duly executed by the Holder together with representations
and warranties reasonably acceptable to the Company that Holder is an
"accredited investor" within the meaning of Securities and Exchange Commission
("SEC") Rule 501 of Regulation D and the Holder is purchasing the Warrant Stock
for investment purposes only and not with a view to the resale or distribution
thereof, and
(b) payment, (i) in cash (by check) or by wire transfer, (ii) by
cancellation by the Holder of any undisputed indebtedness of the Company due and
owing to the Holder or (iii) by a combination of (i) and (ii), of an amount
equal to the product obtained by multiplying the number of shares of Warrant
Stock being purchased upon such exercise by the then effective Exercise Price
(the "Exercise Amount"), except that if Holder is subject to HSR Act
Restrictions (as defined below), the Exercise Amount shall be paid to Company
within five (5) business days of the termination of all HSR Act Restrictions.
<PAGE>
2.2 Net Issue Exercise
------------------
In lieu of the payment methods set forth in Section 2.1(b), above, the
Holder may elect to exchange all or some of the Warrant for shares of Warrant
Stock equal to the value of the amount of the Warrant being exchanged on the
date of exchange. If Holder elects to exchange this Warrant as provided in this
Section 2.2, Holder shall tender to the Company the Warrant for the amount being
exchanged, along with written notice of Holder's election to exchange some or
all of the Warrant, and the Company shall issue to Holder the number of shares
of Warrant Stock computed using the following formula:
X= Y (A-B)
-------
A
Where X = the number of shares of Warrant Stock to be issued to
Holder.
Y = the number of shares of Warrant Stock purchasable under the amount
of the Warrant being exchanged (as adjusted to the date of such
calculation).
A = the Fair Market Value of one of the Company's shares of Warrant
Stock as of the date of exercise.
B = Exercise Price.
All references herein to an "exercise" of the Warrant shall include an
exchange pursuant to this Section 2.2. Upon receipt of a written notice of
Company's intention to raise capital by selling shares of Common Stock in an IPO
(the "IPO Notice"), which notice shall be delivered to Holder at least
forty-five (45) but not more than ninety (90) days before the anticipated date
of the filing with the Securities and Exchange Commission of the registration
statement associated with the IPO, the Holder shall use its reasonable efforts
to determine whether or not the Holder will exercise this Warrant pursuant to
this Section 2.2 prior to the completion of the IPO. Notwithstanding whether or
not an IPO Notice has been delivered to Holder or any other provision of this
Warrant to the contrary, if Holder decides to exercise this Warrant while a
registration statement is on file with the Securities and Exchange Commission in
connection with the IPO, this Warrant shall be deemed exercised on the closing
of the IPO and the Fair Market Value of a share of Warrant Stock will be the
price at which one share of the Company's common stock was sold to the public in
the IPO multiplied by the number of shares of common stock into which each
share of Warrant Stock is then convertible. If Holder has elected to exercise
this Warrant pursuant to this Section 2.2 while a registration statement is on
file with the Securities and Exchange Commission in connection with an IPO and
the IPO is not completed, then Holder's exercise of this Warrant shall not be
effective unless Holder confirms in writing Holder's intention to go forward
with the exercise of this Warrant.
2.3 HSR Act.
--------
Company hereby acknowledges that exercise of this Warrant by Holder
may subject Company and/or Holder to the filing requirements of the HSR Act and
that Holder may
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be prevented from exercising this Warrant until the expiration or early
termination of all waiting periods imposed by the HSR Act ("HSR Act
Restrictions"). If on or before the Expiration Date Holder has sent the Notice
of Exercise to Company and Holder has not been able to complete the exercise of
this Warrant prior to the Expiration Date because of HSR* Act Restrictions, the
Holder shall be entitled to complete the process of exercising this Warrant in
accordance with the procedures contained herein notwithstanding the fact that
completion of the exercise of this Warrant would take place after the Expiration
Date or the completion of the IPO.
2.4 Partial Exercise; Effective Date of Exercise.
--------------------------------------------
In case of any partial exercise of this Warrant, the Company shall
cancel this Warrant upon surrender hereof and shall execute and deliver a new
Warrant of like tenor and date for the balance of the shares of Warrant Stock
purchasable hereunder. This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above. However, if Holder is subject to HSR Act filing
requirements this Warrant shall be deemed to have been exercised on the date
immediately following the date of the expiration of all HSR Act Restrictions.
The person entitled to receive the shares of Warrant Stock issuable upon
exercise of this Warrant shall be treated for all purposes as the holder of
record of such shares as of the close of business on the date the Holder is
deemed to have exercised this Warrant.
2.5 Stock Certificates; Financial Shares.
------------------------------------
As soon as practicable on or after date, the Company shall issue and
deliver to the person or persons entitled to receive the same certificate or
certificates for the number of whole shares of Warrant Stock issuable upon such
exercise, together with cash in lieu of any fraction of a share equal to such
fraction of the current Fair Market Value of one whole share of Warrant Stock as
of the date of exercise of this Warrant as determined in good faith by the
Company's Board of Directors. No fractional shares or scrip representing
fractional shares shall be issued upon an exercise of this Warrant.
3. VALID ISSUANCE: TAXES
All shares of Warrant Stock issued upon the exercise of this Warrant shall
be validly issued, fully paid and non-assessable, and the Company shall pay all
taxes and other governmental charges that may be imposed in respect of the issue
or delivery thereof. The Company shall not be required to pay any tax or other
charge imposed in connection with any transfer involved in the issuance of any
certificate for shares of Warrant Stock in any name other than that of the
Registered Holder of this Warrant, and in such case the Company shall not be
required to issue or deliver any stock certificate or security until such tax or
other charge has been paid, or it has been established to the Company's
reasonable satisfaction that no tax or other charge is due.
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<PAGE>
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
The number of shares of Warrant Stock issuable upon exercise of this
Warrant (or any shares of stock or other securities or property receivable or
issuable upon exercise of this Warrant) and the Exercise Price are subject to
adjustment upon occurrence of the following events:
4.1 Adjustments for Stock Splits, Stock Subdivisions or Combinations of
-------------------------------------------------------------------
Shares.
- ------
The Exercise Price of this Warrant shall be proportionally decreased and
the number of shares of Warrant Stock issuable upon exercise of this Warrant (or
any shares of stock or other securities at the time issuable upon exercise of
this Warrant) shall be proportionally increased to reflect any stock split or
subdivision of the Company's Warrant Stock. The Exercise Price of this Warrant
shall be proportionally increased and the number of shares of Warrant Stock
issuable upon exercise of this Warrant (or any shares of stock or other
securities at the time issuable upon exercise of this Warrant) shall be
proportionally decreased to reflect any combination of the Company's Warrant
Stock.
4.2 Adjustment for Dividends or Distributions of Stock or Other
-----------------------------------------------------------
Securities or Property.
- ----------------------
In case the Company shall make or issue, or shall fix a record date
for the determination of eligible holders entitled to receive, a dividend or
other distribution with respect to the Warrant Stock (or any shares of stock
or other securities at the time issuable upon exercise of the Warrant) payable
in (i) securities of the Company or (ii) assets (excluding cash dividends paid
or payable solely out of retained earnings), then, in each such case, the
Holder of this Warrant on exercise hereof at any time after the consummation,
effective date or record date of such dividend or other distribution, shall
receive, in addition to the shares of Warrant Stock (or such other stock
or securities) issuable on such exercise prior to such date, and without the
payment of additional consideration therefor, the securities or such other
assets of the Company to which such Holder would have been entitled upon
such Holder had exercised this Warrant on the date hereof and had thereafter;
during the period from the date hereof to and including the date of such
exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period giving effect to all adjustments
called for by this Section 4.
4.3 Reclassification
----------------
If the Company, by reclassification of securities or otherwise,
shall change any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any
other class or classes, this Warrant shall thereafter represent the right
to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities that were subject
to the purchase rights under this Warrant immediately prior to such
reclassification or other change and the Exercise Price therefore shall
5
<PAGE>
be appropriately adjusted, all subject to further adjustment as provided in this
Section 4. No adjustment shall be made pursuant to this Section 4.3 upon any
conversion or redemption of the Warrant Stock which is the subject of Section
4.5.
4.4. Adjustment for Capital Reorganization, Merger or Consolidation.
--------------------------------------------------------------
In case of any capital reorganization of the capital stock of the
Company (other than a combination, reclassification, exchange or subdivision of
shares otherwise provided for herein), or any merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all the assets of the Company then, and in each such case, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the Holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer, all
subject to further adjustment as provided in this Section 4. The foregoing
provisions of this Section 4.4 shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant. If the per-share consideration payable to the Holder
hereof for shares in connection with any such transaction is in a form other
than cash or marketable securities, then the value of such consideration shall
be determined in good faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Holder after the transaction, to
the end that the provisions of this Warrant shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant.
4.5. Conversion of Warrant Stock.
---------------------------
In case all or any portion of the authorized and outstanding shares of
Warrant Stock of the Company are redeemed or converted or reclassified into
other securities or property pursuant to the Company's Articles of Incorporation
or otherwise, or the Warrant Stock otherwise ceases to exist, then, in such
case, the Holder of this Warrant, upon exercise hereof at any time after the
date on which the Warrant Stock is so redeemed or converted, reclassified or
ceases to exist (the "Termination Date"), shall receive, in lieu of the number
of shares of Warrant Stock that would have been issuable upon such exercise
immediately prior to the Termination Date, the shares of Common Stock of the
Company that would have been received if this Warrant had been exercised in full
and the Warrant Stock received thereupon had been simultaneously converted
immediately prior to the Termination Date, all subject to further adjustment as
6
<PAGE>
provided in this Warrant. Additionally, the Exercise Price shall be immediately
adjusted to equal the quotient obtained by dividing (x) the aggregate Exercise
Price of the maximum number of shares of Warrant Stock for which this Warrant
was exercisable immediately prior to the Termination Date by (y) the number of
shares of common stock of the Company for which this Warrant is exercisable
immediately after the Termination Date, all subject to further adjustment as
provided herein.
4.6 Reservation of Securities and Assets
------------------------------------
The Company shall reserve, for the life of the Warrant, such
securities or such other assets of the Company the Holder is entitled to receive
pursuant to this Section 4.
5. CERTIFICATE AS TO ADJUSTMENTS.
In each case of any adjustment in the Exercise Price, or number or type of
shares issuable upon exercise of this Warrant, the Chief Financial Officer of
the Company shall compute such adjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment and showing in
detail the facts upon which such adjustment is based, including a statement of
the adjusted Exercise Price. The Company shall promptly send (by facsimile and
by either first class mail, postage prepaid or overnight delivery) a copy of
each such certificate to the Holder.
6. LOSS OR MUTILATION.
Upon receipt of evidence reasonably satisfactory to the Company of the
ownership of and the loss, theft, destruction or mutilation of this Warrant, and
of indemnity reasonably satisfactory to it, and (in the case if mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
in lieu thereof a new Warrant of like tenor as the lost, stolen, destroyed or
mutilated Warrant.
7. RESERVATION OF WARRANT STOCK.
The Company hereby covenants that at all times there shall be reserved for
issuance and delivery upon exercise of this Warrant such number of shares of
Warrant Stock or other shares of capital stock of the Company as are from time
to time issuable upon exercise of this Warrant and, from time to time, will take
all steps necessary to amend its Articles of Incorporation to provide sufficient
reserves of shares of Warrant Stock issuable upon exercise of this Warrant. All
such shares shall be duly authorized, and when issued upon such exercise, shall
be validly issued, fully paid and non-assessable, free and clear of all liens,
security interests, charges and other encumbrances or restrictions on sale and
free and clear of all preemptive rights, except encumbrances or restrictions
arising under federal or state securities laws. Issuance of this Warrant shall
constitute full authority to the Company's Officers who are charged with the
duty executing stock certificates to execute and issue the necessary
certificates for shares of Warrant Stock upon the exercise of this Warrant.
7
<PAGE>
8. TRANSFER AND EXCHANGE
Subject to the terms and conditions of this Warrant and compliance with all
applicable securities laws, this Warrant and all rights hereunder may be
transferred in their entirety, on the books of the Company maintained for such
purpose at the principal office of the Company referred to above, by the
Registered Holder hereof in person, or by duly authorized attorney, upon
surrender of this Warrant properly endorsed and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Each taker
and holder of this Warrant, by taking or holding the same, consents and agrees
that when this Warrant shall have been so endorsed, the person in possession of
this Warrant may be treated by the Company, and all other persons dealing with
this Warrant, as the absolute owner hereof for any purpose and as the person
entitled to exercise the rights represented hereby, any notice to the contrary
notwithstanding; provided, however that until a transfer of this Warrant is duly
registered on the books of the Company, the Company may treat the Registered
Holder hereof as the owner for all purposes.
Notwithstanding the preceding paragraph, this Warrant may only be
transferred in its entirety and to (i) a wholly owned subsidiary of Holder, or
(ii) to a third-party transferee with the Company's prior written consent, which
consent shall not be unreasonably withheld. Without limiting the generality of
the foregoing, it shall be deemed unreasonable for Holder to transfer this
Warrant to an individual or entity that is not an "accredited investor" within
the meaning of SEC Rule 501 of Regulation D or to an individual or entity that
could cause the Company to lose its status as a Subchapter S corporation under
the Internal Revenue Code of 1986. All subsequent transferees of Holder shall
be bound by the provisions of this paragraph.
9. RESTRICTIONS ON TRANSFER
The Holder, by acceptance hereof, agrees that, absent an effective
registration statement filed with the SEC under the Securities Act of 1933, as
amended (the "1933 Act"), covering the disposition or sale of this Warrant or
the Warrant Stock issued or issuable upon exercise hereof, and registration or
qualification under applicable state securities laws, such Holder will not sell,
transfer, pledge, or hypothecate any or all such Warrants or Warrant Stock
unless either (i) the Company has received an opinion of counsel, in form and
substance reasonably satisfactory to the Company, to the effect that such
registration is not required in connection with such disposition or (ii) the
sale of such securities is made pursuant to SEC Rule 144.
10. COMPLIANCE WITH SECURITIES LAWS
By acceptance of this Warrant, the Holder hereby represents, warrants and
covenants that it is an "accredited investor" within the meaning of SEC Rule 501
of Regulation D and that this Warrant and any shares of stock purchased upon
exercise of this Warrant or acquired upon conversion thereof shall be acquired
for investment only and not with a view to, or for sale in connection with, any
distribution thereof; that the Holder has had such opportunity as such Holder
has deemed adequate to obtain from representatives of the Company such
information as is necessary to permit the Holder to evaluate the merits and
risks of its investment in the Company; that the Holder is able to bear the
economic risk of holding this Warrant and such
8
<PAGE>
shares as may be acquired pursuant to the exercise of this Warrant for an
indefinite period; that the Holder understands that this Warrant and the shares
of stock acquired pursuant to the exercise of this Warrant or acquired upon
conversion thereof will not be registered under the 1933 Act (unless
otherwise required pursuant to exercise by the holder of the registration
rights, if any, previously granted to the registered Holder) and the Warrant
Shares will be "restricted securities" within the meaning of Rule 144 under the
1933 Act and that the exemption from registration under Rule 144 will not be
available for at least two years from the date of exercise of this Warrant,
subject to any special treatment by the Securities and Exchange Commission for
exercise of this Warrant pursuant to Section 2.2, and even then will not be
available unless a public market then exists for the stock, adequate information
concerning the Company is then available to the public, and other terms and
conditions of Rule 144 are complied with; and that all stock certificates
representing shares of stock issued to the Holder upon exercise of this Warrant
or upon conversion of such shares may have affixed thereto a legend
substantially in the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE
BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") AND MAY NOT
BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT OR UNLESS
EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE
COMPANY, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN
CONNECTION WITH SUCH DISPOSITION OR (ii) THE SALE OF SUCH
SECURITIES IS MADE PURSUANT TO SECURITIES AND EXCHANGE
COMMISSION RULE 144.
11. NO RIGHTS OR LIABILITIES AS SHAREHOLDER.
This Warrant shall not entitle the Holder to any voting rights or other
rights as a shareholder of the Company. In the absence of affirmative action by
such Holder to purchase Warrant Stock by exercise of this Warrant, no provisions
of this Warrant, and no enumeration herein of the rights or privileges of the
Holder hereof shall cause such Holder hereof to be a stockholder of the Company
for any purpose.
12. REGISTRATION RIGHTS AND CONVERSION TO PREFERRED STOCK.
12.1 Registration Rights.
--------------------
The Holder upon exercise of this Warrant shall have and be entitled to
exercise those registration rights as set forth in the Company's Fourth Amended
and Restated Rights Agreement. By its receipt of this Warrant, Holder agrees to
be bound by the relevant portions of the Fourth Amended and Restated Rights
Agreement upon exercise of this Warrant as a party thereto. The Company shall do
all things necessary so that the provisions of the Fourth Amended and Restated
Rights Agreement pertaining to registration rights are hereby
9
<PAGE>
incorporated herein by reference and made a part hereof and shall be deemed to
apply to the registration of the shares of Warrant Stock which the Holder may
acquire upon exercise of this Warrant.
12.2 Conversion to Preferred Stock.
------------------------------
In case Company and Holder enter into an agreement for the issuance of a
Series "F" Preferred Stock to the Holder within ninety (90) days of the
Effective Date, the Holder shall have the right to convert this Warrant to a
right to purchase from Company shares of Series "F" Preferred Stock subject to
the registration rights and other preferences as provided for therein.
13. NOTICES
All notices and requests regarding this Agreement shall be in writing and
shall be deemed given if personally delivered, if sent by facsimile (with
receipt acknowledged) to the facsimile number of the other party set forth below
or if mailed postage prepaid, to:
Intel Corporation Storm Primax, Inc
2200 Mission College Blvd. 1861 Landing Drive
Santa Clara, CA 95052 Mountain View, CA 94043
Attn: Treasurer Attn: Chief Financial Officer
Fax Number (408) 765-6038 Fax Number (415) 691-9825
or such other address as the addressee shall have provided to the other party by
written notice in accordance with this Section 13.
14. HEADINGS.
The headings in this Warrant are for purposes of convenience in reference
only, and shall not be deemed to constitute a part hereof.
15. LAW GOVERNING.
This Warrant shall be construed and enforced in accordance with and
governed by, the laws of the State of Delaware.
16. NO IMPAIRMENT
The Company will not, by amendment of Articles of Incorporation or bylaws,
or through reorganization, consolidation, merger, dissolution, issue or sale of
securities, sale of assets or any voluntary action, avoid or seek the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Registered Holder of this Warrant against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value of
any shares of
10
<PAGE>
stock issuable upon exercise of this Warrant above the amount payable therefor
upon such exercise, and (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable shares of Warrant Stock upon exercise of this Warrant.
17. NOTICES OF RECORD DATE. In case:
17.1 the Company shall take a record of the holders of its Warrant Stock
(or other stock or securities at the time receivable upon the exercise of this
Warrant) for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any shares of stock of
any class any other securities or to receive any other right; or
17.2 of any consolidation or merger of the Company with or into another
corporation, any capital reorganization of the Company, any reclassification of
the Capital Stock of the Company, or any conveyance of all or substantially all
of the assets of the Company to another corporation in which holders of the
Company's stock are to receive stock, securities or property of another
corporation; or
17.3 of any voluntary dissolution, liquidation or winding-up of the Company
or
17.4 of any redemption or conversion of all outstanding Common Stock or
Warrant Stock;
then, and in each such case, the Company will mail or cause to be mailed to
the Registered Holder of this Warrant a notice specifying, as the case may
be, (i) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, or (ii) the date on which such
reorgainzation, reclassification, consolidation, merger, conveyance,
dissolution, liquidation, winding-up, redemption or conversion is to take
place, and the time, if any is to be fixed, as of which the holders of
record of Warrant Stock (or such stock or securities as at the time are
receivable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Warrant Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution,
liquidation or winding-up. To the extent reasonably possible, such notice
shall be delivered at least thirty (30) days prior to the date therein
specified.
18. SEVERABILTY.
If any term, provision, covenant or restriction of this Warrant is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
11
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19. COUNTERPARTS.
For the convenience of the parties, any number of counterparts of this
Warrant may be executed by the parties hereto and each such executed counterpart
shall be, and shall be deemed to be, an original instrument.
20. NO INCONSISTENT AGREEMENTS.
The Company will not on or after the date of this Warrant enter into any
agreement with respect to its securities which is inconsistent with the rights
granted to the Holders of this Warrant or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to holders of the
Company's securities under any other agreements, except rights that have been
waived.
21. SATURDAYS, SUNDAYS AND HOLIDAYS.
If the Expiration Date falls on a Saturday, Sunday or legal holiday, the
Expiration Date shall automatically be extended until 5.00 p.m. the next
business day.
22. CONFIDENTIALITY.
This Warrant, including its existence, shall be confidential information
and shall not be disclosed to any third party without written permission. In
the event of a disclosure required by law, including the Securities and Exchange
Commission, the disclosing party shall use all reasonable efforts to obtain
confidential treatment of materials so disclosed.
AGREED:
INTEL CORPORATION (HOLDER) STORM PRIMAX, INC. (COMPANY)
/s/ Rick McConnell
- ------------------------------- ---------------------------------
Signature Signature
/s/ Noel Lazo Rick McConnell
- ------------------------------- ---------------------------------
Printed Name Printed Name
Assistant Treasurer Chief Financial Officer
- ------------------------------- ---------------------------------
Title Title
5/16/96 5/16/96
- ------------------------------- ---------------------------------
Date Date
12
<PAGE>
[LETTER HEAD OF INTEL CORPORATION APPEARS HERE]
[INTEL LOGO]
Date: May 10, 1996
To Whom It May Concern,
I hereby designate Noel Lazo to act on my behalf during my absence from the
office 5-13-96 through 5-16-96 as authorized by the Intel Corporation Board of
Directors' Resolution dated April 28, 1995, and the corresponding Board of
Directors' Resolution of Intel Corporation's direct and indirect subsidiaries.
Below is the true and authentic signature of Noel Lazo and, for internal
accounting purposes, his initials.
/s/Noel Lazo NL
------------------------------------ ------------
Noel Lazo Initials
Assistant Treasurer, Cash Management
Sincerely,
/s/Arvind Sodhani
Arvind Sodhani
Vice President and Treasurer
INTEL CORPORATION
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
"STORM PRIMAX, INC."
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
Warrant Stock, as provided for therein, and (check the applicable box):
[_] tenders herewith payment of the exercise price in full in the form of cash
or a certified of official bank check in same-day funds in the amount of
$__________ for____________ shares of Warrant Stock.
[_] Elects the Net Issue Exercise option pursuant to Section 2.2 of the Warrant
accordingly requests delivery of a net of ______________shares Warrant
Stock.
Please issue a certificate or certificates for such shares of Warrant Stock in
the name of, and pay any cash for any fractional share to (please print name,
address and social security number):
Name: ____________________________
Address: ____________________________
Signature: ____________________________
Note: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
If said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher whole number of shares.
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EXHIBIT 2
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
For value received, hereby sells, assigns and transfers unto _______________ the
within Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint ___________________
attorney, to transfer said Warrant Certificate on the books of the within-named
Company with respect to the number of Warrants set forth below, with full power
of substitution in the premises:
Name(s) of Assignee(s) Address # of Warrants
- ---------------------- ------- -------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants registered by said
Warrant Certificate.
Dated: 19
---------------------
Signature:
---------------------
Notice: The signature of the foregoing Assignment must correspond to the name as
written upon the face of this security in every particular, without alteration
or any change whatsoever, signature(s) must be guaranteed by an eligible
guarantor institution (banks, stock brokers, savings and loan associations and
credit unions with membership in an approved signature guarantee medallion
program) pursuant to Securities and Exchange Commission Rule 17Ad-15.
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EXHIBIT 10.25
AMENDMENT NO. 1
This Amendment No. 1 ("Amendment") amends the Agreement between Intel
Corporation and Storm Primax, Inc. dated effective May 22, 1996 (the
"Agreement").
For good and valuable consideration, intending to be legally bound, the
parties hereby agree to amend the Agreement as follows (all references being to
the numbering in the Agreement). Except as specifically amended herein, the
Agreement remains unchanged and in full force and effect:
1.1 General Definitions.
-------------------
(a) "Intel Intellectual Property" means Intel's patents, copyrights
and trade secrets represented or disclosed in the Intel Technical
Information, in PhotoPhone, or in [*] and necessary for the
manufacture, distribution and use of the Product.
(f) "Product" means EasyPhoto, EasyPhoto [*], EasyPhoto Phone,
EasyPhoto Phone [*], EasyPhoto Phone Trial, EasyPhoto [*], and
EasyPhoto [*] software and collateral documentation to be
developed pursuant to this Agreement and accepted by Intel as set
forth in Exhibit "B", including all updates, enhancements, bug
fixes, revisions, upgrades or new versions of the Product (but
excludes customer-specified versions of the Product and new
products, as designated by Storm).
(i) "Easy Photo" means Storm's existing photo software application
described in Exhibit "B" and all updates, enhancements and bug
fixes, excluding updates, enhancements and bug fixes that include
or are derived from PhotoPhone, [*], or Intel Intellectual
Property or Intel Technical Information and excluding customer-
specific versions of EasyPhoto and new products, as designated by
Storm.
(k) "Easy-Photo Phone" means that portion of the Product to be
developed under this Agreement as described in Exhibit "B",
excluding without limitation, EasyPhoto Phone Lite and Easy Photo
Phone Trial.
(n) "EasyPhoto [*]" means that portion of the Product that the
parties may at some future time develop, but which they are not
by this Agreement or Amendment No. 1 obligated to develop.
(o) "EasyPhone [*]" means that portion of the Product to be developed
under this Agreement as described in Exhibit "B" that consists of
limited version of EasyPhoto, which the parties presently intend
[*] [*].
(p) "EasyPhoto [*]" means a limited version of EasyPhoto [*], which
the parties presently intend to [*]. EasyPhoto [*] is intended as
a technology demonstration only of what might be included in a
future [*] type product in Phase 2 (as such is defined in Exhibit
"B").
*[*] Confidential Treatment Requested--Omitted portions filed separately with
the Securities and Exchange Commission.
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(q) "[*]" means [*] described in Exhibit "B" designed for
communication over the Internet, and all updates, enhancements
and bug fixes excluding updates, enhancements and bug fixes that
include or are derived from EasyPhoto, Easy Photo Trial,
EasyPhoto [*], EasyPhoto Phone [*], Storm Intellectual Property
or Storm Technical Information.
2.3 Ownership of Derivative Works
-----------------------------
Storm will own derivative works solely created by Storm or Storm's
agents and independent contractors under this Agreement, excluding
Intel Intellectual Property, PhotoPhone and [*]. [Remainder of
paragraph remains the same].
3.1 Licenses to Storm
-----------------
(a) Intel grants to Storm a [*] license, without the right to
sublicense, under Intel Intellectual Property to use, copy, have
copied and create derivative works, including translations, of
PhotoPhone and [*] software in source form for incorporation into
[*] versions of the Storm products. Pursuant to this Section
3.1(a), Storm may disclose PhotoPhone and [*] software in source
form to third parties performing services for Storm that have
agreed in writing to i) restrict their use of such software to
performing services for Storm, and ii) not disclose such software
to any third party.
3.2 Licenses to Intel
-----------------
(a) Storm grants to Intel a [*] license under Storm Intellectual
Property to use, copy, have copied, demo, sell, offer to sell,
license, distribute otherwise dispose of [*] versions of the
Product provided by Storm hereunder, in binary form only to
Intel's PC OEM customers for redistribution with other Intel
hardware or software products.
In addition, Storm grants to Intel a [*] license under Storm
Intellectual Property to use, copy, have copied, demo, sell,
offer to sell, license, distribute or otherwise dispose of [*]
versions of EasyPhoto Trial, EasyPhoto [*], EasyPhoto Phone [*]
and EasyPhoto [*] in binary form only, [*].
Storm also grants to Intel a [*] license under Storm Intellectual
Property and trademark rights to use, copy, have copied, demo,
and publicly display, on Intel's Internet web site relating to
the Product, written and electronic materials and Storm
trademarks, including, for example, corporate logos and screen
capture bitmaps. Intel shall use reasonable efforts to ensure
that Intel complies
*[*] Confidential Treatment Requested - Omitted portions filed separately with
the Securities and Exchange Commission.
2
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with Storm's guidelines and style sheets for use of Storm
trademarks. When Storm's trademarks are displayed by Intel on the
Internet, Intel shall also use reasonable efforts to include an
Internet link to Storm's Internet home page, if such a page is
available. Before making the web site publicly available, Intel
must obtain Storm's consent, which Storm agrees not to
unreasonably withhold or delay.
(c) The initial term of the license grant set forth in Section 3.2(a)
above for the EasyPhoto [*], EasyPhoto Phone, EasyPhoto
Phone [*], EasyPhoto [*], EasyPhoto [*], and
EasyPhoto Net [*] portion of the Product shall be for five
(5) years from the Effective Date. Thereafter, the term of such
license grant shall be automatically extended for successive two
(2) terms unless and until either party provides written notice
of termination to the other no later than ninety (90) days prior
to the expiration of any such two (2) year extension.
6. MAINTENANCE
-----------
The parties will share responsibilities to maintain and support the
Product, as described in Exhibit "B". The parties will negotiate in
good faith to agree on the support or maintenance obligations for
EasyPhoto [*] if and when it becomes a commercial product."
AGREED:
INTEL CORPORATION STORM PRIMAX, INC.
/s/ D. Craig Kinnie /s/ Adriaan Ligtenberg
- ------------------- ----------------------
Signature Signature
D. Craig Kinnie Adriaan Ligtenberg
- ------------------- -----------------------
Printed Name Printed Name
Vice President V.P.
- ------------------- -----------------------
Title Title
7/22/96 7/24/96
- ------------------- -----------------------
Date Date
*[*] Confidential Treatment Requested - Omitted portions filed separately with
the Securities and Exchange Commission.
3
<PAGE>
EXHIBIT 10.26
BUNDLING AGREEMENT
This Bundling Agreement (the "Agreement") is effective as of the Effective
Date (as defined below), between Netscape Communications Corporation
("Netscape") with a business address at 501 East Middlefield Road, Mountain
View, California 94043, and the entity listed on Exhibit A ("Participant").
RECITALS
A. Netscape markets and distributes computer software to link people and
information over enterprise networks and the Internet.
B. Participant markets and distributes hardware and software to enable
consumers and small businesses to input, organize and use photos with their PCs
in printed form and on-line.
C. Netscape and Participant believe that it would be useful to end users
of Netscape products for such end users to have access to certain of
Participant's software.
NOW, THEREFORE, the parties agree as follows:
AGREEMENT
1. "Definitions".
1.1 "Netscape Product" means Netscape Navigator/TM/ Gold Personal Edition
software, Versions 3.x and 4.x.
1.2 "Participant Product" means the product described on Exhibit A,
related documentation, and any updates, upgrades, enhancements, ports,
internationalized and/or localized versions of the Participant Product that
Participant elects or is required to provide to Netscape during the term of this
Agreement ("Upgrades").
1.3 "Integrated Offering" means a product offered by Netscape that
combines a Netscape Product with a Participant Product, and optionally with
third party products that do not include image editing and/or image data base
functions that compete in the consumer market with the Participant Product, to
produce a single offering.
1.4 "Electronic Distribution" means placing information and/or products in
files on servers which permit downloading of such information and/or products.
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1.5 "Non-Electronic Distribution" means distribution by any means other
than Electronic Distribution, including any method of distribution now available
or hereafter developed.
1.6 "Distribution" and "Distribute" mean, collectively, Electronic
Distribution and Non-Electronic Distribution of an Integrated Offering, in
object code form, directly and indirectly to end users though Netscape's normal
channels of distribution, except that "Distribution" and "Distribute" do not
include the distribution of an Integrated Offering bundled with a Scanner.
Distributors that are authorized to reproduce an Integrated Offering must agree
to essentially the same restrictions as set forth in Section 2.2 (as though
applied to such distributor).
1.7 "Scanner" means a sheetfed scanner that is capable of scanning any
photographs (3 1/2" x 5", 4" x 6" and/or 5" x 7") and/or documents (up to 8 1/2"
x 11"), other than a scanner manufactured for Participant.
2. Licenses.
2.1 Grant. Participant hereby grants Netscape a non-exclusive, non-
-----
transferable (except as set forth in Section 8.4 (Assignment)), world-wide,
royalty-free license to distribute one or more versions of an Integrated
Offering via any form of Distribution.
2.2 Reverse Engineering. Netscape agrees that it shall not modify,
-------------------
decompile, disassemble, decrypt, extract or otherwise reverse engineer or
attempt to reconstruct or discover any source code or underlying algorithms of,
or used in, any Participant Product.
2.3 Discretion. Netscape may, it its discretion, determine which of the
----------
above forms of Distribution is appropriate for the Integrated Offering.
2.4 Reproduction. Netscape and its channels of distribution may reproduce
------------
or have reproduced Participant Product as necessary for Distribution. Netscape
shall reproduce, or cause to be reproduced, on all copies of the Participant
Product made by or for Netscape, all proprietary marks, legends and copyright
notices that are embedded in the original copies of such Participant Product as
delivered to Netscape by Participant.
2.5 Trademark License. Netscape and its channels of distribution may,
-----------------
during the term of this Agreement, use Participant's trademarks and logos
applicable to Participant Product in connection with Distribution and related
marketing and promotion, provided Netscape uses reasonable efforts to include:
(i) with the first use of a Participant trademark in the Integrated Offering the
appropriate "/TM/" or "/(R)/" symbol, as directed in writing by Participant; and
(ii) a statement in the Integrated Offering identifying Netscape's marks (which
will not include any of Participant's
2
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marks) and noting, in language substantially similar to the following, that "all
other product names and marks are the trademarks of their respective holders."
Unless otherwise approved by Participant in writing, Netscape's use of
Participant's marks and logos will be in accordance with Participant's trademark
usage policies set forth in Exhibit E. Netscape will not remove or obscure any
Participant trademarks or logos or proprietary notices embedded in Participant
Products. Upon the termination of this Agreement, Netscape will cease to use
the trademarks, tradenames, symbols and logos of Participant. Upon
Participant's request, Netscape will furnish Participant with a photocopy of any
physical (or if tangible, physical manifestation of) Netscape's usage of
Participant's trademarks and logos.
2.6 Localization/Internationalization. Participant may provide Netscape
---------------------------------
with an internationalized and localized version of the Participant Product
(which shall be multi-byte enabled).
3. Business Practices.
3.1 End User Fees. Participant acknowledges that Netscape may charge for
-------------
the Integrated Offering.
3.2 Commitment. Netscape agrees that it shall distribute the first
----------
release of an English-language Windows 95 and Windows 3.1.1 retail versions of
Version 3.0 of the Netscape Product bundled with a Participant Product in the
form of an Integrated Offering. This obligation will also apply to bug fix
versions (e.g., 3.0x) of such first release. Netscape's obligations under this
Section 3.2 shall terminate with respect to a version of the Participant Product
that Netscape then bundles in an Integrated Offering if: (i) Participant has
informed Netscape or Netscape reasonably believes, after consultation with
Participant, that such version may infringe a third party's intellectual
property rights; or (ii) such version fails to operate substantially in
accordance with its documentation. If the initial version of the Participant
Product provided to Netscape fails to operate substantially in accordance with
its documentation, Netscape's obligations under this Section 3.2 shall: (a) not
terminate if Participant provides an Upgrade that corrects such failure within
thirty (30) days of receipt of written notice from Netscape and (b) be postponed
until Netscape is required to substitute such Upgrade into an Integrated
Offering pursuant to Section 4.2
3.3 Discretion. Except as specifically provided in this Agreement: (i)
----------
Netscape may, in its sole discretion, incorporate other third party products
into any Integrated Offering(s); and (ii) each party may, in its sole
discretion, bundle or permit third parties to bundle any of its products with
any third party products.
3.4 Identity as Separate Product. All Distributors will distinguish
----------------------------
Participant Product as separate and distinct from the Netscape Products. The
license grant to the end user for Participant Product will be granted by
Participant and not
3
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Netscape. Participant shall be responsible for all support, warranty,
maintenance, liability and indemnity obligations with respect to Participant
Product. Netscape may utilize whatever method(s) Netscape deems appropriate to
convey the separate nature of Participant Product to end users.
3.5 End User License Agreement. Participant Product will be licensed
--------------------------
under an end user license between Participant and the end user, the form of
which shall be not materially less protective of Participant's rights in the
Participant Product than the form of license agreement attached hereto as
Exhibit B ("License Form"). Netscape will use the same License Form for the
Netscape Products.
(i) For Non-Electronic Distribution, Netscape shall: (a) include in
the package with the media on which the Participant Product is
delivered, an end user agreement substantially similar to the
License Form, and (b) shrink wrap or otherwise enclose the
package in which or the media on which the Participant Product is
delivered with a conspicuous statement substantially similar to
the following, (or as otherwise agreed by the parties): "BY
OPENING THE PACKAGE, YOU ARE CONSENTING TO BE BOUND BY THE
ENCLOSED LICENSE(s). IF YOU DO NOT AGREE TO ALL OF THE TERMS OF
SUCH AGREEMENT(s), RETURN THE PRODUCT TO THE PLACE OF PURCHASE
FOR A FULL REFUND."
(ii) For Electronic Distribution, Netscape shall include such License
Form as a static file (ReadMe) as part of the Integrated
Offering, and/or if the end user license is built into the
Participant Product by Participant, Participant agrees that such
end user license shall be in the form of the License Form.
Participant acknowledges that Netscape's installation procedure
for the Integrated Offering may not provide a mechanism for the
potential end user to review the end user license agreement for
the Participant Product prior to installation; provided that if
Netscape's installation procedure for the Integrated Offering
provides a mechanism for the potential end user to review the
License Form prior to installation of the Netscape Product, it
will also provide that such License Form applies to Participant
as Licensor and to the Participant Product.
Netscape makes no representation or warranty that the License Form will be
enforceable.
3.6 Integration. Netscape will, in its discretion, determine reasonable
-----------
installation requirements and other technical requirements applicable to
inclusion of Participant Product in the Integrated Offering, with the good faith
goal of including
4
<PAGE>
the Participant Product in the Integrated Offering. At Netscape's request,
Participant will promptly assist Netscape in making the integration of
Participant Product and Netscape Product into the Integrated Offering as
seamless as reasonably possible.
3.7 Unauthorized Distribution. Participant acknowledges Electronic
-------------------------
Distribution of the Participant Product may result in an increased number of
persons obtaining copies through improper channels (e.g., redistribution over
the Internet, "mirror sites," unauthorized posting to news groups, etc).
Participant agrees that Participant will bear the risk of unauthorized
distribution or redistribution by third parties, both during and after the term
of this Agreement, and that Netscape shall have no liability for any such
unauthorized distribution.
3.8 Registered End Users. Once each quarter during the term of this
--------------------
Agreement and once for the three month period following any termination hereof,
Netscape will, upon Participant's request, provide to Participant in electronic
form, a listing of all new registered users of the Netscape Product, including
the names and e-mail addresses of such users (if available). Notwithstanding
the foregoing, Netscape will have no obligation to provide any information that
Netscape is required to hold in confidence. Except as permitted herein and in
Section 8.4 (Assignment), Participant may not sell or provide such listing to
third parties. Participant may use the listing solely to contact new registered
users on one occasion to register such users of the Participant Product, to
support such users, and to sell Participant's products and services to such
users (which products may be bundled with third party products that are not
Browser Products of Browser Companies (except Participant products may be
bundled with Netscape Browser Products)); and Participant may authorize third
parties to use the listing to perform such functions on Participant's behalf;
provided, that Participant may contact any such registered user on more than one
occasion if such registered user initiates subsequent contact with Participant
as a result of Participant's initial contact pursuant to this Section 3.8 or
otherwise.
4. Participant Obligations.
4.1 Support. Netscape will not provide any support for Participant
-------
Product. Netscape may notify end users that it does not provide any such
support and that end users must contact Participant directly for support
options; Participant will take reasonable commercial steps to make end users
aware that all support requests for Participant Product should be directed to
Participant. Participant will make available to end users of the Participant
Product, at Participant's then-standard price for such services, support that,
at a minimum, conforms to the requirements of Exhibit C.
4.2 Upgrades. During the term of this Agreement, Participant: (i) may
--------
provide Netscape with any existing or newly developed ports and
internationalized and/or localized versions of the Participant Product, (ii)
will include Netscape in its beta programs for all Upgrades to Participant
Product, (iii) will provide Netscape
5
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with the production version of all Upgrades simultaneously with Participant's
earliest release of such Upgrades to other customers; and (iv) will provide
Netscape a Macintosh version of the Participant Product (but without LZW-reading
functionality) by the later of (a) September 30, 1996 or (b) four weeks after
the Effective Date. If Participant provides Netscape an Upgrade that
Participant informs Netscape: (i) corrects any failure of the Participant
Product to operate substantially in accordance with its documentation; or (ii)
contains modifications to the Participant Product that have been made to attempt
to avoid an allegation of infringement of a third party's intellectual property
rights, Netscape will substitute the Upgrade for the previous version(s) of
Participant's Product, in all forms of Distribution, as soon as commercially
reasonable. For Electronic Distribution of an Integrated Offering, such
substitution will occur within sixty (60) days of receipt of the Upgrade; and
for all other forms of Distribution, within ninety (90) days of receipt of the
Upgrade. Notwithstanding the foregoing, Netscape will not be obligated to
recall or provide Upgrades for Participant Products distributed prior to the
date that such Upgrade is required to be substituted in an Integrated Offering
pursuant to this Section 4.2
4.3 Warranty to Netscape. Storm's warranty to end users is set forth in
--------------------
the License Form. PARTICIPANT PRODUCTS ARE PROVIDED TO NETSCAPE "AS IS".
Except as specifically set forth above, STORM DISCLAIMS ALL WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT AND WARRANTIES ARISING FROM A
COURSE OF DEALING, USAGE, TRADE OR PRACTICE. THE PARTICIPANT PRODUCTS DO NOT
CONSTITUTE "CONSUMER GOODS" FOR ANY PURPOSE.
Without limiting Netscape's rights under Section 5, should a Participant
Product become, or in Participant's opinion be likely to become, the subject of
any intellectual property infringement claim or suit, Participant may, at its
option: (a) procure for Netscape the right to continue distributing the
Participant Product, as well as the right for Netscape and its customers to
continue use of the Participant Product, while maintaining its functionality,
(b) modify the Participant Product such that it no longer infringes the
proprietary rights of any third party, while maintaining the functionality, look
and feel of the Participant Product or (c) terminate this Agreement and
Netscape's right to distribute the Integrated Product as set forth in Section 6
(Term and Termination).
4.4 Complete Listing. Participant will provide Netscape with a complete
----------------
list of all files, libraries, etc. that are required for installation and use of
Participant Product within five (5) days of Netscape's request.
4.5 No Viruses. Participant will use reasonable efforts to ensure that
----------
the Participant Product (i) does not contain any computer virus or (ii) will not
otherwise introduce any harmful or destructive code to the end user's computer.
6
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4.6 Exclusivity. So long as Netscape bundles Participant Product with
-----------
each English language Windows 95 and Windows 3.1.1 version of Version 3.0 or
3.0x of the Netscape Product that is not bundled with a Scanner, Participant
will not grant any Browser Company the right to distribute a Participant Product
bundled with any of such Browser Company's Browser Products. A "Browser
Company" is a company that derived annual gross revenue, during the immediately
preceding calendar year, in excess of $5 million directly from the sale,
licensing or other distribution through any channel of its own Browser Products,
and whose primary business is not providing on-line or internet access services.
A "Browser Product" is a software product one of the three primary functions of
which is basic internet browsing.
5. Indemnification.
5.1 By Participant.
--------------
(a) Obligation. Participant agrees to defend, at its expense, any
----------
action, brought against Netscape, alleging infringement of any trademark,
copyright, trade secret or United States patent of any third party, to the
extent that such action is based on, arises in connection with, or results from
the manufacture, use, reproduction or Distribution, as permitted under this
Agreement, of a Participant Product; and Participant will pay any costs, damages
and fees finally awarded against Netscape in such action that are attributable
to such claim (or if a settlement is entered pursuant to subpart (b) below, then
Participant will pay all costs, damages and fees Netscape is obligated to pay
pursuant to such settlement, unless otherwise agreed by the parties in writing).
If Participant fails to defend an action for which indemnity is required under
this Section 5.1, Netscape may defend the action, and Participant will: (i)
reimburse Netscape for its reasonable attorneys' fees in conducting such
defense, and (ii) pay the amount of any settlement reasonably entered by
Netscape with respect to the claims on which Participant was obligated to
indemnify Netscape.
(b) Limitations. For the indemnification and defense obligations
-----------
above to be applicable, Netscape must (i) promptly notify Participant in writing
of any such action and grant Participant sole control of the defense and all
related settlement negotiations, and (ii) cooperate with Participant, at
Participant's expense, in defending or settling such action.
(c) Exceptions. Notwithstanding the above, Participant shall have no
----------
obligation to indemnify or defend Netscape from or against any action to the
extent based upon, arising in connection with, or resulting from the use,
reproduction or distribution of (i) a Participant Product in combination with
any non-Participant-provided equipment, software or data, if the alleged
infringement would not have occurred but for such combination; or (ii) an
allegedly-infringing version of a Participant Product, if Netscape used,
reproduced or Distributed such Participant Product (or had such Participant
Product reproduced or Distributed for it)
7
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after; (a) any termination or expiration of this Agreement; or (b) the date by
which Netscape was obligated under Section 4.2 (Upgrades) to substitute an
Upgrade for such version of the Participant Product.
(d) Entire Liability. THIS SECTION 5 AND SECTION 2.3 OF EXHIBIT D
----------------
STATE THE ENTIRE LIABILITY OF PARTICIPANT WITH RESPECT TO INFRINGEMENT OF ANY
THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS.
5.2 By Netscape.
-----------
(a) Obligation. Netscape agrees to defend, at its expense, any
----------
action, brought against Participant, alleging infringement of any trademark,
copyright, trade secret or United States patent of any third party, to the
extent that such action is based on, arises in connection with, or results from
the manufacture, use, reproduction or distribution of (i) a Participant Product
in combination with a Netscape Product included in an Integrated Offering; or
(ii) an allegedly-infringing version of a Participant Product, if Netscape
reproduced or Distributed, to an end user or OEM, such Participant Product (or
had such Participant Product reproduced or Distributed on Netscape's behalf)
after: (a) any termination or expiration of this Agreement; or (b) the date by
which Netscape was obligated under Section 4.2 (Upgrades) to substitute an
Upgrade for such version of the Participant Product; and Netscape will pay any
costs, damages and fees finally awarded against Participant in such action (or
if a settlement is entered pursuant to subpart (b) below, then Netscape will pay
all costs, damages and fees Participant is obligated to pay pursuant to such
settlement, unless otherwise agreed by the parties in writing). If Netscape
fails to defend an action for which indemnity is required under this Section
5.2, Participant may defend the action, and Netscape will: (i) reimburse
Participant for its reasonable attorneys' fees in conducting such defense, and
(ii) pay the amount of any settlement reasonably entered by Participant with
respect to the claims on which Netscape was obligated to indemnify Participant.
(b) Limitations. For the indemnification obligations above to be
-----------
applicable, Participant must (i) promptly notify Netscape in writing of any such
claim and grant Netscape sole control of the defense and all related settlement
negotiations, and (ii) cooperate with Netscape, at Netscape's expense, in
defending or settling such claim.
(c) Entire Liability. THIS SECTION 5 AND SECTION 2.3 OF EXHIBIT D
----------------
STATE THE ENTIRE LIABILITY OF NETSCAPE WITH RESPECT TO INFRINGEMENT OF ANY
THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS.
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6. Term and Termination.
6.1 Term. Unless earlier terminated as set forth below, this Agreement
----
will continue in effect until six (6) months after Netscape ceases to distribute
any Integrated Offering through any form of Distribution.
6.2 By Participant. Participant may terminate this Agreement on one
--------------
hundred twenty (120) days written notice to Netscape, if (i) Participant
believes in good faith that Participant's Product, alone or in combination with
any Netscape Product or third party product with which Netscape bundles such
Participant Product or with which Netscape permits a third party to bundle the
Participant Product, may be subject to a claim of infringement of a third
party's intellectual property rights; or (ii) Netscape has materially breached
this Agreement and has failed to cure such breach within such notice period.
Upon receipt of any notice under clause (i), Netscape will cease use,
reproduction and Distribution of Integrated Offerings as soon as commercially
reasonable.
6.3 By Netscape. Netscape may terminate this Agreement on thirty (30)
-----------
days written notice to Participant.
6.4 Effect of Termination. Following any termination or expiration of
---------------------
this Agreement, Netscape shall cease use, reproduction and Distribution of any
Integrated Offering; provided that licenses in the form of the License Form,
previously granted to end-users, will survive any termination or expiration of
this Agreement. Netscape will use all reasonable efforts to cause its
distributors to cease distributing the Integrated Product upon any such
termination; and if Netscape complies with this provision, it will not be liable
to Participant if a Netscape distributor continues to distribute an Integrated
Offering after any termination of this Agreement. Licenses granted to Netscape
distributors, prior to any expiration or termination of this Agreement, to
distribute the Integrated Product will survive the expiration of this Agreement,
but will not survive any termination of this Agreement.
7. Limitation on Liability. NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS
AGREEMENT AND WHETHER OR NOT ANY REMEDY PROVIDED HEREUNDER FAILS OF ITS
ESSENTIAL PURPOSE, EXCEPT FOR: (i) OBLIGATIONS UNDER SECTION 5 OF THIS AGREEMENT
AND SECTION 2.3 OF EXHIBIT D, AND (ii) VIOLATIONS OF THE PROVISIONS OF SECTIONS
2.2 AND 3.5, OR (WITH RESPECT TO LOST PROFITS) NETSCAPE'S DISTRIBUTION OF
PARTICIPANT'S PRODUCT OTHER THAN AS PERMITTED UNDER SECTION 2.1, IN NO EVENT
WILL: (a) EITHER PARTY BE LIABLE FOR ANY LOST PROFITS OR ANY FORM OF SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES FROM ANY CAUSES OF ACTION OF ANY KIND,
WHETHER ARISING IN TORT (INCLUDING NEGLIGENCE), CONTRACT, OR OTHERWISE, EVEN IF
IT HAS BEEN INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES; AND (b) EACH
PARTY'S TOTAL LIABILITY TO THE OTHER
9
<PAGE>
ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY PARTICIPANT PRODUCT OR
INTEGRATED OFFERING EXCEED $100,000.00.
8. General.
8.1 Independent Contractor. Netscape's relationship with Participant
----------------------
during the term of this Agreement will be that of an independent contractor, and
not a partner or joint venturer.
8.2 Notices. All notices and demands under this Agreement will be in
-------
writing and will be delivered by personal service, express courier, or certified
mail, return receipt requested, to the address of receiving party set forth in
this Agreement (or at such different address as may be designated by such party
by written notice to the other party), and will be effective on receipt.
8.3 Government Law and Personal Jurisdiction. This Agreement shall be
----------------------------------------
subject to and governed in all respects by the statutes and laws of the State of
California without regard to the conflicts of laws principles thereof. The
Superior Court of Santa Clara County and/or the United States District Court for
the Northern District of California shall have exclusive jurisdiction and venue
over all controversies in connection herewith, and each party hereby consents to
such exclusive and personal jurisdiction and venue. The application of the
United Nations Convention of Contracts for the International Sale of Goods is
expressly excluded.
8.4 Assignment. This Agreement is not assignable by either party without
----------
the written consent of the other party, except that a party may, without such
permission, assign this Agreement to an entity that acquires substantially all
of its assets or with which it mergers. Any attempted assignment in derogation
hereof shall be void. This Agreement shall apply to and bind any successor or
assigns of the parties hereto.
8.5 Force Majeure. Neither party will be responsible for any failure to
-------------
perform its obligations under this Agreement due to causes beyond its reasonable
control, including but not limited to acts of God, war, riot, embargoes, acts of
civil or military authorities, fire, floods, or accidents.
8.6 Waiver. The waiver by either party of any breach of this Agreement by
------
the other party will not waive subsequent defaults by such party of the same or
a different kind.
8.7 Severability. In the event any provision of this Agreement is held by
------------
a court or other tribunal of competent jurisdiction to be unenforceable, the
other provisions of this Agreement will remain in full force and effect.
10
<PAGE>
8.8 Publicity. Netscape will issue a press release, announcing the
---------
inclusion of Participant's Product in each major release (e.g., 3.0, 4.0) of an
Integrated Offering, upon the release of such Integrated Offering. Participant
may issue a press release, announcing the signing of this Agreement and the fact
that Netscape will be bundling Participant's Product with such Integrated
Offering, at any time after Netscape's applicable press release.
Notwithstanding the foregoing, neither party may issue a press release or make
other public statements concerning this Agreement or the subject matter hereof
without the other party's prior written consent, which consent will not
unreasonably be withheld or delayed, unless disclosure is required by law or
governmental regulation; provided that for the first proposed press release by
each party, such consent will be deemed given unless the other party notifies
the proposing party of its reasonable objections, in writing, within two (2)
business day of receipt of the proposed press release.
8.9 Survival. The provisions of Sections 2.2 (Reverse Engineering), 4.3
--------
(Warranty to Netscape), 5 (Indemnification), 6.4 (Effect of Termination), 7
(Limitation of Liability), 8 (General) and Exhibit D Section 2.3 (Indemnity)
will survive any termination or expiration of this Agreement.
8.10 Entire Agreement. This Agreement and Exhibits A through E hereto
----------------
constitute the complete and exclusive agreement between the parties pertaining
to the subject matter hereof, and supersedes in its entirety any and all prior
written or oral agreements or communications between the parties with respect to
such subject matter. Any modifications or waivers under this Agreement must be
in writing and signed by both parties.
8.11 Export. Neither Netscape nor any of its distributors shall knowingly
------
export, re-export or transfer, whether directly or indirectly, nor knowingly
make a Distribution of any Participant Product, or any direct product thereof,
to any person or company that is a legal resident of or is controlled by a legal
resident of any proscribed country listed by the U.S. Export Administration
Regulations (or any equivalent thereof).
11
<PAGE>
This Agreement shall become effective on the last date on which it is
executed by a party below (the "Effective Date").
PARTICIPANT NETSCAPE
Storm Primax, Inc. Netscape Communications Corporation
Signature: /s/ L. William Krause Signature: /s/ Mike Homer
------------------------- ----------------------
Name: L. William Krause Name: Mike Homer
------------------------------ ---------------------------
Title: President & CEO Title: SVP Mktg
----------------------------- --------------------------
Date: 8/14/96 Date: 8/19/96
------------------------------ ---------------------------
REVIEWED BY NETSCAPE LEGAL
Initial
-------------------------
12
<PAGE>
EXHIBIT A
1. Participant (Name and Address):
Storm Primax, Inc.
1861 Landings Drive
Mountain View, CA 94043
Participant Contact Person:
name: Bill Krause
telephone: 415 691 6620
facsimile: 415 691 0142
email: [email protected]
2. Participant Product: EasyPhoto software, version 2.2 (with LZW
functionality removed), for the following operating system platforms:
Windows 3.1 and 3.1.1; and
Windows 95
and versions 1.5.1 (with LZW functionality removed), for the following operating
system platforms:
Macintosh System 7.x
Within five (5) days after the Effective Date, Participant shall deliver the
Windows versions of Participant Product to Netscape. Within thirty (30) days
after such deliver, Netscape or its designee shall test the Participant Product
to determine whether the Participant Product conforms to the specifications for
the Participant Product in applicable documentation ("Specifications"). In the
event the Participant Product conforms to the Specifications, Netscape shall
provide Participant with written notice that Netscape has accepted the
Participant Product. In the event the Participant Product does not conform to
the Specifications, Netscape or its designee shall notify Participant of such
non-conformance, and Participant shall redeliver the corrected Participant
Product as soon as Participant makes such correction available to other OEMs of
such Participant Product.
13
<PAGE>
EXHIBIT B
Form of End User License Agreement
The End User License Agreement will be Netscape's then-standard form of end
user license agreement applicable to the Netscape Product, except that
Participant will be identified (therein or in a supplemental document) as the
licensor and the licensed product will be the Participant Product.
If Netscape changes the form of its end user license agreement, so
that such form provides materially less protection for Participant than the
preceding form, Netscape will reasonably consult with Participant as to the
terms of such agreement.
14
<PAGE>
EXHIBIT C
Minimum Support Requirements
Participant shall provide to end users of the Participant Product support
services at a level consistent with or exceeding the following support
requirements:
1. "Definitions.
1.1 "Error" means any instance where a Participant Product or Upgrade does
not substantially conform to its published features and specifications.
1.2 "Workaround" means a method by which a user of a Participant Product
can, by making a limited number of procedural or programming changes in a
product, prevent the occurrence or re-occurrence of an Error. Programming
changes include adjustments to set-up and configurations tiles or other settings
that do not require recompilation.
1.3 "Respond" means and includes: taking and logging the Error call within
the time frames set forth below; and, in the case of Priority 1 and 2 Errors,
making best efforts on a continuing basis to cure the Error initial the Error is
cured.
1.4 "Licensee" means a person or entity licensed to use the Participant
Product.
2. Obligations.
2.1 Error Reporting. Errors may be reported during normal business days
between the hours of 5 a.m. and 5 p.m., local time, by electronic mail, voice
mail, fax or telephonic recording capability.
2.2 Support. Support includes efforts to identify defective source code
and to provide corrections, workarounds and/or patches to correct Errors.
Participant will provide Licensee with a telephone number and an e-mail address
which Licensee may use to report Errors during the times set forth herein.
Participant will use reasonable commercial efforts to resolve each significant
Error by providing either a reasonable workaround, an object code patch, or a
specific action plan for how Participant will address the problem and an
estimate of how long it will take to rectify the defect. For Errors resulting
from participant Products, a Response will be provided and best efforts will be
used to correct or provide a Workaround to Priority I and Priority 2 Errors that
Licensee identifies, classifies and reports and that are substantiated; and
reasonable commercial efforts will be made to Respond to other Errors within the
time frames below.
15
<PAGE>
<TABLE>
<CAPTION>
PRIORITY
ERROR TITLE AND EXPLANATION RESPONSE TIME
<C> <S> <C>
1 Fatal Error--No useful work can be done. 8 working hours
2 Severe Impact--Functionality disabled. Errors 1 working day
which result in a lack of application
functionality or cause intermittent system
failure.
3 Degraded Operations--Errors causing 3 working days
malfunction of non-critical functions.
4 Minimal impact--Attributes and/or options to Future release, on
utility programs do not operate as stated. business justifiable
basis
5 Enhancement Request When applicable
</TABLE>
16
<PAGE>
EXHIBIT D
ADDITIONAL TERMS
1. Product Description. If Netscape distributes the Participant Product as
part of an Integrated Offering, Netscape will include in the front end shell of
each Netscape Navigator Gold Personal Edition version 3.x software product a
description ("Product Description") of the Participant Product, subject to the
following: Participant will, at its own expense, prepare and supply Netscape
with a logo graphic, product screen shot and text ("Description Items") for the
Product Description, which shall conform to the specifications for the
Description Items provided by Netscape to Participant.
2. Links
2.1 Participant Link. If Netscape distributes the Participant Product as
----------------
part of an Integrated Offering, Netscape shall include, on the data sheet for
each version of Netscape Navigator Gold Personal Edition with which Netscape
bundles a Participant product, located on Netscape's U.S. English Web site in a
location to be determined by Netscape: (i) the name of Participant and the
Participant Product, and (ii) a link to the Web site of Participant
("Participant Link"), which Netscape will maintain throughout the term of this
Agreement. Participant shall provide Netscape with a Universal Resource Locator
for Participant's Web site so that Netscape may produce the Participant Link.
Netscape shall retain sole discretion as to the exact location of the
Participant Link on the data sheet for applicable Netscape Product located on
Netscape's Web site. Netscape may, but shall not be required to place the
Participant Link on any of Netscape's non-U.S. English Web site, provided that
if Netscape distributes any non-English-language version of an integrated
offering, Netscape will, upon Participant's request, use reasonable efforts to
place the Participant Link on Netscape's data sheet for such product located on
Netscape's Web Site(s) maintained in such language.
2.2 Netscape Link. If Netscape distributes the Participant Product as
-------------
part of an Integrated offering, Participant shall place a link to the Web site
of Netscape ("Netscape Link") on Participant's Web site in a location to be
determined by Participant, which Participant will maintain during the term of
this Agreement. Netscape shall provide Participant with a Universal Resource
Locator for Netscape's Web site so that Participant may produce the Netscape
Link. Participant shall retain sole discretion as to the exact location of the
Netscape Link on Participant's Web site.
2.3 Indemnity. Each party (the "Indemnifying Party") agrees to
---------
defend, at its expense, any action brought against the other party (the
"Indemnified Party") to the extent that it is based on a claim that (i) the Link
provided by the Indemnifying Party and/or (ii) the material served to end users
immediately following the end users' pressing or "clicking" on such Link,
infringes any trademark, copyright, trade
17
<PAGE>
secret or United States patent, of any third party or violates any applicable
law; and the Indemnifying Party will pay any costs, damages and fees finally
awarded against the Indemnified Party in such action that are attributable to
such claim. For these indemnification obligations to be applicable, the
Indemnified Party must (i) promptly notify the Indemnifying Party in writing of
any such claim and grant the Indemnifying Party sole control of the defense and
all related settlement negotiations, and (ii) cooperate with the Indemnifying
Party, at the Indemnifying Party's expense, in defending or settling such claim.
THIS SECTION 2.3 STATES THE ENTIRE LIABILITY OF EACH PARTY TO THE OTHER WITH
RESPECT TO INFRINGEMENT OF ANY THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS OR
VIOLATION OF ANY LAWS IN CONNECTION WITH ANY LINKS TO A PARTY'S WEB SITE.
18
<PAGE>
EXHIBIT E
GUIDELINES FOR USING THE STORM PRIMAX AND EASYPHOTO LOGOTYPES
[TRADEMARKS]
The Storm Primax and EasyPhoto logotypes shown to the right are trademarks
and registered trademarks in certain areas of Storm Primax, Inc., and may be
used only with permission of Storm Primax, Inc. and in accordance with the
following guidelines:
Colors. The colors used in the EasyPhoto logotype are Pantone Matching
------
System (PMS) 2745 blue (100% cyan and 100% magenta) and PMS 199 red (100%
magenta and 70% yellow.) When used in color, the logotype may be produced by
either PMS or process printing methods. The logotype may be reversed out of
dark background colors, in which case, the words "EasyPhoto" and "TM" must be
white, and the center portion of the decorative "o" must be 199 red or 100%
magenta and 70% yellow. If the logotype is reversed from a single color, the
words "EasyPhoto" and "TM" must be white, and the center portion of the
decorative "o" must be 50% black.
Availability. Storm Primax corporate and product logotypes are available
------------
in a variety of sizes, color modes and depths, and formats. Please contact
Marketing Communications at the number below with your requirements.
Marketing Materials. If the materials are produced in color, the EasyPhoto
-------------------
logotype must likewise be produced in color. If the materials are produced in
one or two colors, the logotype may be reversed out of a dark color or printed
in black, PMS 2745, or 100% cyan and 100% magenta against a light background.
Storm Primax Logotype. The Storm Primax logotype may be used, but is not
---------------------
required to be used, in addition to the EasyPhoto logotype in marketing,
advertising, promotional, collateral, and other materials pertaining to or
referencing Easyphoto products.
Modification. Neither the Storm Primax nor the EasyPhoto logotypes may be
------------
modified, altered, or changed in any way for any purpose without prior written
permission of Storm Primax, Inc.
Please contact Storm Primax, Inc. Marketing Communications (4150 691-6600
with any questions.
19
<PAGE>
EXHIBIT 10.27
TERMINATION AGREEMENT
This Termination Agreement (the "Agreement") is entered into this 1st day
of July, 1996 ("Effective Date") by and by and between Primax Electronics, Ltd.,
an ROC corporation having a place of business at 6F, No.159, Kang Ning St., Hsi
Chih Town, Taipei Hsien, Taiwan, Republic of China ("Primax Taiwan") and Storm
Primax, Inc., a California corporation having a place of business at 1861
Landings Drive, Mountain View, California 94043 ("Storm Primax").
RECITALS
A. Primax Taiwan and Storm Primax entered into a Sales Representative
Agreement dated February 29, 1996 (the "Sales Representative Agreement") whereby
Storm Primax was appointed an OEM sales representative for pointing device
products produced by Primax Taiwan.
B. Primax Taiwan and Storm Primax now mutually desire to terminate the
Sales Representative Agreement in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual representations and
covenants of this Agreement and other good and valuable consideration, the
receipt and sufficiency are hereby acknowledged, Storm Primax and Primax Taiwan
agree as follows:
1. Definitions. All capitalized terms of this Agreement shall have the
------------
meanings as defined in the Sales Representative Agreement.
2. Termination of Sales Representative Agreement. Upon the Effective Date,
----------------------------------------------
the parties mutually agree that the Sales Representative Agreement will
terminate and be of no further force and effect, except as otherwise expressly
provided for in this Agreement.
<PAGE>
3. Commissions. Storm Primax shall be entitled to receive commissions on all
------------
product shipments made by Primax Taiwan pursuant to the Sales Representative
Agreement through June 30, 1996.
4. Outstanding Orders. Primax Taiwan or its agent shall be responsible for
------------------
collecting all payments for commissions owed pursuant to Section 3 above. Storm
Primax may assist as it deems reasonably necessary to complete collection of
such payments.
5. General Provisions.
-------------------
a. Counterparts. This Agreement may be executed simultaneously in
-------------
counterparts, each of which will be considered an original, but all of which
together will constitute one and the same instrument.
b. Amendments. This Agreement may be amended or supplemented only by a
-----------
writing that is signed by duly authorized representatives of both parties.
c. Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the United States and the State of California as
such laws are applied to agreements entered into and to be performed entirely
within California between California residents. The United Nations Convention
on Contracts for the International Sale of Goods shall not apply to this
Agreement in any manner whatsoever.
d. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties relating to this subject matter and supersedes all prior or
simultaneous representations, discussions and agreements, whether written or
oral.
2
<PAGE>
IN WITTINESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
Primax Taiwan: Storm Primax:
Primax Electronics, Ltd. Storm Primax Inc.
By: /s/ Raymond Liang By: /s/ L. William Krause
----------------- ---------------------
Title: Chairman/CEO Title: President & CEO
------------ ---------------
3
<PAGE>
EXHIBIT 10.28
ADDENDUM ONE
TO THE
MANUFACTURING AND PURCHASE AGREEMENT
BETWEEN
STORM PRIMAX, INC.
AND
PRIMAX ELECTRONICS, LTD.
This Addendum ("Addendum One") to the above referenced agreement dated February
24, 1996 (the "Agreement") is entered into this day of June 11, 1996 ("Addendum
One Effective Date") by and between Storm Primax, Inc. ("Storm Primax") and
Primax Electronics, Ltd. ("Primax Taiwan").
NOW THEREFORE, the parties agree to amend the Agreement as follows:
1. Unless otherwise set forth herein, all capitalized terms used in this
Addendum One shall have the meanings ascribed to them in the Agreement.
2. Except as amended herein, all terms and conditions of the Agreement shall
remain in full force and effect.
3. Section 3.4(a) ("Rescheduling and Cancellations") is amended to read:
"With Primax Taiwan's prior written consent (with such consent to not be
unreasonably withheld), Storm Primax may reschedule without charge the
shipment of any accepted purchase order for a shipment date later than
originally specified in the purchase order, provided that: (i) such
rescheduled shipment date is within sixty (60) days after the original
shipment date; (ii) Storm Primax does not reschedule the shipment date of
the particular purchase order more than two (2) times; (iii) Primax Taiwan
must receive all rescheduling requests for a particular purchase order
within forty-five (45) days after Primax Taiwan's original acceptance of
such purchase order; (iv) none of the resulting unit shipments are for less
than the minimum order quantities specified in Exhibit 3.1(a); and (v) only
--------------
a maximum of fifty percent (50%) of each purchase order is to be
rescheduled, except for EAI Products for which one hundred percent (100%) of
each purchase order may be rescheduled subject to the terms of this Section
3.4(a)."
4. Section 7.6 is added to the Agreement as follows:
"Latent Defect Warranty on EAI Products. With respect solely to Epson
--------------------------------------
America, Inc. ("EAI"), Primax Taiwan additionally warrants that all OEM
Products shipped to EAI ("EAI Products") from Primax Taiwan are free of
latent defects for the life of the EAI Products but limited to a maximum of
1
<PAGE>
three (3) years after delivery to EAI. "Latent Defect" is defined as a
defect that meets all the following criteria:
(i) such defect was not detected by Primax Taiwan, Storm Primax or EAI
during customary manufacturing or quality testing and/or inspection;
and
(ii) such defect results solely from defective material(s), workmanship, or
design and is not caused by misuse or misapplication of the items; and
(iii) such defects occur in at least three percent (3%) of a specific model
or spare part sold under this Agreement to EAI."
5. Pursuant to Section 7.2(a) ("Defect Rates and Remedies"), Storm Primax and
Primax Taiwan agree to the following acceptance and rejection criteria
solely for EAI Products as modified from the original terms:
"EAI shall have the right, but not the obligation, to conduct incoming
inspection to determine whether the incoming Product and Spare Parts conform
to the Product Specifications based on a sampling method specified by MIL
105D, Level 2, Normal Sampling which is a U.S. military standard. The
Acceptance Quality Level (hereinafter referred to as "AQL") shall be 0.65
for "major" defects and 1.5 for "minor" defects. The "major" and "minor"
defect list as agreed to by the parties is attached hereto as Exhibit A
("Acceptance Testing") and incorporated herein by reference.
6. The following is added to Exhibit 3.1(a) ("Minimum Order Quantities"):
"EAI Product PC 1,000 units"
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Addendum to be executed by
their undersigned duly authorized representatives as of the Addendum Effective
Date.
"STORM PRIMAX" "PRIMAX TAIWAN"
Storm Primax, Inc. Primax Electronics, Ltd.
/s/ Rick McConnell /s/ Jack Pan
- ------------------------------- -------------------------------
By (Sign) By (Sign)
Rick McConnell
- ------------------------------- -------------------------------
By (Print Name) By (Print Name)
CFO
- ------------------------------- -------------------------------
Title Title
6/14/96 6/12/96
- ------------------------------- -------------------------------
Date Date
3
<PAGE>
EXHIBIT 10.29
LEASE AGREEMENT
between
BRE PROPERTIES, INC.
as "Landlord"
and
PRIMAX ELECTRONICS, INC.
as "Tenant"
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. PREMISES............................................................... 1
2. TERM; POSSESSION....................................................... 1
3. RENT................................................................... 3
4. ADDITIONAL RENT: OPERATING COSTS AND TAXES............................ 3
5. TENANT'S TAXES......................................................... 7
6. USE OF PREMISES........................................................ 7
7. ALTERATIONS............................................................ 8
8. MAINTENANCE AND REPAIRS................................................ 9
9. TRADE FIXTURES......................................................... 10
10. UTILITIES.............................................................. 10
11. EXCULPATION AND INDEMNIFICATION........................................ 11
12. INSURANCE.............................................................. 11
13. DAMAGE AND DESTRUCTION................................................. 13
14. CONDEMNATION........................................................... 15
15. ASSIGNMENT AND SUBLETTING.............................................. 17
16. DEFAULT AND REMEDIES................................................... 19
17. LATE CHARGE; INTEREST.................................................. 23
18. WAIVER................................................................. 23
19. ENTRY AND INSPECTION................................................... 23
20. SURRENDER, HOLDING OVER................................................ 24
21. SUBORDINATION; ATTORNMENT; NONDISTURBANCE.............................. 25
<PAGE>
22. MORTGAGE PROTECTION.................................................... 25
23. ESTOPPEL CERTIFICATES.................................................. 26
24. NOTICES................................................................ 26
25. ATTORNEYS' FEES........................................................ 26
26. QUIET POSSESSION....................................................... 27
27. FORCE MAJEURE.......................................................... 27
28. RULES AND REGULATIONS.................................................. 27
29. LANDLORD'S LIABILITY................................................... 27
30. CONSENTS AND APPROVALS................................................. 28
31. BROKERS................................................................ 28
32. RIGHTS RESERVED BY LANDLORD............................................ 28
33. HAZARDOUS MATERIALS.................................................... 29
34. SECURITY DEPOSIT....................................................... 33
35. TENANT'S FINANCIAL CONDITION........................................... 33
36. ENTIRE AGREEMENT....................................................... 34
37. MISCELLANEOUS.......................................................... 34
38. Authority.............................................................. 35
EXHIBIT A: THE PREMISES.................................................... 36
EXHIBIT B: CONSTRUCTION RIDER.............................................. 37
EXHIBIT C: BUILDING RULES.................................................. 41
EXHIBIT D: GUARANTY OF LEASE............................................... 43
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE is made as of the ____________________________ day of March,
1995, by and between BRE PROPERTIES, INC., a Delaware corporation ("Landlord"),
and PRIMAX ELECTRONICS, INC. a ____________________________ corporation
("Tenant"). Landlord and Tenant hereby agree as follows:
1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases
--------
from Landlord, upon the terms and subject to the conditions of this Lease,
approximately 29,340 square feet of space located in a portion of the single-
story, freestanding building located at 525 Almanor Avenue, Sunnyvale,
California (the "Building"), as depicted on Exhibit A attached hereto and made a
---------
part hereof (the "Premises"). The Building, the parking area on the Land (as
hereinafter defined) that serves the Building ("Parking Area"), the parcel(s) of
land on which the Building and Parking Area are situated (the "Land"), and the
other improvements on the Land, if any, are collectively referred to herein as
the "Property."
2. TERM; POSSESSION.
----------------
2.1 Initial Term. The term of this Lease (the "Term") shall commence
------------
on the "Commencement Date" specified below and, unless sooner terminated
pursuant to the provisions of this Lease, shall expire on the date that is the
last day of the sixtieth (60th) month after the Commencement Date ("Expiration
Date"). The Commencement Date shall be:
(a) The date on which Landlord has (i) "Substantially Completed" the
Improvements to be constructed and installed with respect to the Premises by
Landlord ("Improvements"), as provided in the Construction Rider attached hereto
as Exhibit B and made a part hereof ("Construction Rider"), and (ii) delivered
---------
possession of the Premises to Tenant; or
(b) Any earlier date upon which Tenant, with Landlord's permission,
actually occupies and conducts business in any portion of the Premises.
The parties anticipate that the Commencement Date will occur on or about
May 1, 1995 ("Scheduled Commencement Date"). In the event the Commencement Date
has not occurred by the Scheduled Commencement Date, the Commencement Date shall
be determined in accordance with the provisions of the Construction Rider. When
the Commencement Date has been established, Landlord and Tenant shall confirm
the same in writing.
2.2 Extension Option. Provided no default by Tenant exists under the
----------------
Lease at the time of exercise or at any time thereafter until the beginning of
such extension of the Term, Tenant shall have the option to extend the Term of
the Lease ("Extension Option") for two additional consecutive periods of five
(5) years each
1
<PAGE>
("Extension Period"), by giving written notice to Landlord of the exercise of
such Extension Option no earlier than nine (9) months and not later than six (6)
months prior to the Expiration Date of the initial term or the Expiration Date
of the first Extension Period. The exercise of the Extension Option by Tenant
shall be irrevocable and shall cover the entire Premises. Upon such exercise,
the Term of the Lease shall be extended for the Extension Period without the
execution of any further instrument by the parties; provided that Landlord and
Tenant shall, if requested by either party, execute and acknowledge an
instrument confirming the exercise of the Extension Option. The Extension
Option shall terminate if not exercised precisely in the manner provided herein.
The extension of the Term shall be upon all the terms and conditions set forth
in the Lease and all Exhibits thereto, except that:
(a) Tenant shall have no further options to extend the Term;
(b) The Initial Base Rent for the Extension Period shall be equal to
the "Fair Market Base Rent," as hereinafter defined, for the term and space
involved, which shall be determined as set forth below. "Fair Market Base Rent"
shall mean the "fair market" Base Rent at the time or times in question for the
applicable space, based on the prevailing rentals then being charged to new
tenants in other buildings in the Irvine, California area, of comparable size,
location, quality and age as the Building, taking into account the desirability,
location, size, quality and tenant finish allowance and/or tenant improvements
in the Building and of the buildings which are being used for comparison. Fair
Market Base Rent shall also reflect the then prevailing rental structure for
similar buildings in the general vicinity of the premises, so that if, for
example, at the time Fair Market Base Rent is being determined the prevailing
rental structure for comparable space and for comparable lease terms includes
periodic rental adjustments or escalations, Fair Market Base Rent shall reflect
such rental structure.
Landlord and Tenant shall endeavor to agree upon the Fair Market Base Rent.
If they are unable to so agree within thirty (30) days after receipt by Landlord
of Tenant's notice of exercise of its Extension Option, Landlord and Tenant
shall mutually designate a licensed real estate broker who is active in the
leasing of commercial space in the general vicinity of the Premises and who has
not previously acted on behalf of either party. If the parties are unable to
agree upon a real estate broker within forty-five (45) days after Landlord
receives Tenant's Extension Option notice, a real estate broker meeting the
qualifications described above shall be appointed pursuant to California Code of
Civil Procedure Section 1281.6. Within three (3) days of the appointment of the
broker, the parties shall submit to the broker their respective "final and best"
Fair Market Base Rent determinations which they had submitted to the other party
prior to the appointment of the broker. Within thirty (30) days of the
appointment of the broker, the broker shall then select one of the two
determinations as the Fair Market Base Rent, and such determination shall be
binding on Landlord and Tenant. Landlord and Tenant shall share equally the
cost of the broker.
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In the event the Fair Market Base Rent for the Extension Period has not
been determined at such time as Tenant is obligated to pay Base Rent for such
Extension Period, Tenant shall pay as Base Rent, pending such determination, the
Base Rent in effect for such space immediately prior to the Extension Period;
provided, that upon the determination of the applicable Fair Market Base Rent,
any shortage of Base Rent paid, together with interest at the rate set forth in
Section 17.2-"Interest Rate," shall be paid to Landlord by Tenant.
In no event shall the monthly Base Rent during the Extension Period be less
than the Base Rent in effect immediately prior to such Extension Period.
3. RENT.
----
3.1 Base Rent. During the Term, Tenant shall pay to Landlord, as
---------
monthly base rent for the Premises ("Base Rent"), without offset, deduction,
prior notice or demand, the amounts set forth below:
Period Base Monthly Rent
------ -----------------
Months 1 through 60 $19,071
Base Rent for the first and the second month of the Term for which Base
Rent is payable, in the amount of $38,142 ($19,071 x 2), shall be payable in
advance upon the execution of this Lease. Thereafter, Base Rent shall be
payable in advance on the first day of each calendar month during the Term that
follows the second month of the Term for which Base Rent is payable. Base Rent
for any partial month during the Term shall be prorated, based upon the daily
Base Rent then in effect and the number of days during the month that the Term
is in effect.
3.2 Payment of Rent. All amounts payable or reimbursable by Tenant
---------------
to Landlord under this Lease, including amounts payable as late charges or
interest, shall constitute "Rent" and shall be payable and recoverable as Rent
in the manner provided in this Lease. All sums payable to Landlord on demand
under the terms of this Lease shall be payable within five (5) days after
written notice from Landlord of the amounts due. All Rent shall be paid to
Landlord in lawful money of the United States at the address specified in
Section 24-"Notices" or at such other place as Landlord may from time to time
designate in writing.
4. ADDITIONAL RENT: OPERATING COSTS AND TAXES.
-------------------------------------------
4.1 Definitions. For purposes of this Lease the following terms
-----------
shall be defined as follows:
(a) "Operating Costs" means all direct costs of managing, operating,
maintaining and repairing the Property, including, but not limited to: (1)
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costs of maintenance and repair of any item that Landlord is obligated or elects
to maintain or repair under this Lease (including without limitation pursuant to
Section 8.2 hereof); (2) costs of any utilities and services provided to the
Property; (3) charges for the services of independent contractors and
compensation (including employment taxes and fringe benefits) for persons who
perform duties in connection with the operation, maintenance and repair of the
Property; (4) premiums for property (including coverage for earthquake and flood
if carried by Landlord), liability, rental income and other insurance relating
to the Property, and deductible amounts under such insurance paid in connection
with the repair or restoration of the Property after damage or destruction of
the Property; (5) fees and charges for licenses, permits and inspections; (6)
costs of capital improvements required to meet new or changed governmental
regulations or which are intended to reduce Operating Costs or improve the
appearance, efficiency or image of the Building, such costs, together with
interest on the unamortized balance at the rate of eleven percent (11%) per
annum or any higher rate paid by Landlord on funds borrowed for the purpose of,
constructing such capital improvements, to be amortized over such periods as
Landlord may reasonably determine; (7) property management fees allocable to the
Property; (8) costs for accounting, legal and other professional services
incurred in connection with the operation of the Property and the calculation of
Operating Costs and Taxes; (9) a reasonable allowance for depreciation on
machinery and equipment used to maintain the Property; (10) the reasonable cost
of contesting the validity or applicability of any governmental enactments that
may affect the Property; and (11) any other expense or charge, whether or not
hereinbefore described, which in accordance with generally accepted property
management practices would be considered an expense of managing, operating,
maintaining and repairing the Property.
Operating Costs shall not include (i) capital improvements subsequent to
the initial construction and development of the Property, other than those
specifically enumerated above in the definition of Operating Costs; (ii)
interest and principal payments on loans or indebtedness secured by the
Property; (iii) depreciation or amortization, other than as specifically
enumerated above in the definition of Operating Costs; or (iv) the excess of the
cost of supplies and services provided by subsidiaries and affiliates of
Landlord over competitive costs by independent suppliers and contractors of
comparable buildings in the vicinity of the Property.
(b) "Taxes" means all real property taxes and general, special or
district assessments or other governmental impositions, of whatever kind, nature
or origin, imposed on or by reason of the ownership or use of the Property;
governmental charges, fees or assessments for transit (including without
limitation, area-wide traffic improvement assessments and transportation system
management fees), housing, police, fire or other governmental service or
purported benefits to the Property; personal property taxes assessed on the
personal property of Landlord used in the operation of the Property; service
payments in lieu of taxes and taxes and assessments of every kind and nature
whatsoever levied or assessed in addition to, in lieu of or in substitution for
existing or additional real or personal property taxes on
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the Property or the personal property described above; taxes and assessments on
the gross or net rental receipts of Landlord derived from the Building
(excluding, however, state and federal personal or corporate income taxes
measured by the income of Landlord from all sources); and the reasonable cost of
contesting by appropriate proceedings the amount or validity of any taxes,
assessments or charges described above. The term "Taxes" shall include any
increase in Taxes resulting from a revaluation or reassessment resulting from a
"change of ownership," as defined in Sections 60, 61 and 64 of the California
Revenue and Taxation Code and the regulations issued by the Board of
Equalization thereunder. The term "Taxes" shall not include any "Tenant's Taxes"
as defined in Section 5-"Tenant's Taxes."
(c) Operating Costs and Taxes for any year during which average
occupancy of the Building is less than ninety-five percent (95%) shall be
calculated based upon the Operating Costs and Taxes that would have been
incurred if the Building were so occupied during the entire calendar year.
(d) "Tenant's Share" means a fraction equal to the number of square
feet of space in the Premises (29,340 square feet) divided by 85,680 total
square feet, or 34.24%.
4.2 Additional Rent. During the Term, Tenant shall pay to Landlord,
---------------
as "Additional Rent," Tenant's Share of Operating Costs and Taxes.
4.3 Notice and Payment. Prior to the Commencement Date and,
------------------
thereafter, as close as reasonably possible to the end of each fiscal year of
Landlord (each such fiscal year commencing on August 1), Landlord shall notify
Tenant of Operating Costs and Taxes estimated by Landlord for the following
fiscal year. Commencing on the Commencement Date and on the first day of every
month thereafter, Tenant shall pay to Landlord, as Additional Rent, one-twelfth
(1/12th) of Tenant's Share of Operating Costs and Taxes for each fiscal year as
estimated by Landlord. If at any time during any fiscal year it appears to
Landlord that Operating Costs or Taxes for such year will vary from Landlord's
estimate, Landlord may, by written notice to Tenant, revise its estimate for
such year and the Additional Rent payments by Tenant for such year shall
thereafter be adjusted to reflect such revised estimate.
As soon as possible after each fiscal year for which Tenant has made
estimated payments or is liable for Tenant's Share of Operating Costs and Taxes,
Landlord shall furnish Tenant a statement with respect to such year, certified
by Landlord, showing Operating Costs and Taxes and Tenant's Share thereof, and
the total payments made by Tenant on the basis of any previous estimate. Unless
Tenant raises any objections to Landlord's statement within ten (10) days after
receipt of the same, such statement shall conclusively be deemed correct and
Tenant shall have no right thereafter to dispute such statement or any item
therein or the computation of Operating Costs or Taxes. If Tenant does object
to such statement, Landlord shall provide Tenant with
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reasonable verification of the figures shown on the statement and the parties
agree to negotiate in good faith to resolve any disputes. Any amounts due
Landlord or Tenant shall be paid in the manner set forth below. Any objection
of Tenant to Landlord's statement and resolution of any dispute shall not
postpone the time for payment of any amounts due Tenant or Landlord based on
Landlord's statement, nor shall any failure of Landlord to deliver Landlord's
statement in a timely manner relieve Tenant of its obligation to pay any amounts
due Landlord based on Landlord's statement.
If Tenant's Share of Operating Costs and Taxes for the year as finally
determined exceeds the total payments made by Tenant based on Landlord's
estimates, Tenant shall pay Landlord the deficiency within ten (10) days of
Tenant's receipt of Landlord's statement. If the total payments made by Tenant
based on Landlord's estimate of Operating Costs and Taxes exceed Tenant's Share
of Operating Costs and Taxes, as determined by Landlord, Tenant's excess payment
shall be credited toward future payments by Tenant of estimated Operating Costs
and Taxes.
For any partial fiscal year at the commencement or termination of this
Lease, Tenant's Share of any Operating Costs and Taxes for such year shall be
prorated on the basis of a 365-day year by computing Tenant's Share of Operating
Costs and Taxes for the entire year and then prorating such amount for the
number of days the term of this Lease was in effect during such year.
Notwithstanding the termination of this Lease, and within ten (10) days of
Tenant's receipt of Landlord's statement regarding the determination of
Operating Costs and Taxes for the fiscal year in which this Lease terminates,
Tenant shall pay to Landlord or Landlord shall pay to Tenant, as the case may
be, an amount equal to the difference between Tenant's Share (as prorated) of
Operating Costs and Taxes for such year, as finally determined by Landlord, and
the amount previously paid by Tenant toward Tenant's Share of Operating Costs
and Taxes.
4.4 Triple Net. This Lease shall be deemed and construed to be a
----------
"Net, Net, Net" lease, and Tenant shall pay to Landlord all Rent and other
payments due hereunder free of any charges, assessments, impositions or
deductions of any kind and without any abatement, deduction or setoff
whatsoever. Under no circumstances or conditions, whether now existing or
hereafter arising, and whether or not beyond the present contemplation of the
parties, shall Landlord be expected or required to make any payment of any kind
whatsoever or be under any obligation or liability with respect to the Premises,
except as may be expressly otherwise set forth herein. Without limiting the
generality of the foregoing provisions, Tenant shall bear sole responsibility
for the payment of each and every item of cost or expense of every kind and
nature whatsoever for the payment of which Landlord would otherwise be or become
liable by reason of its estate or interest in the Premises, or by reason of any
rights or interests of Tenant in or under this Lease, or by reason of or in any
manner connected with or arising from the maintenance, repair, alteration,
improvement, remodeling, renovation, use or occupancy of any improvements on the
6
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Premises, or any portion thereof, or the leasing, operation or management
thereof, except as may be expressly otherwise set forth herein.
5. TENANT'S TAXES.
--------------
(a) "Tenant's Taxes" shall mean all taxes, assessments, license fees
and other governmental charges or impositions, to the extent not otherwise
included in Real Property Taxes, levied or assessed against or with respect to
Tenant's personal property or Trade Fixtures installed, located or attached to
the Premises, whether levied directly against Tenant or levied against Landlord
or the Premises.
(b) Tenant shall pay all Tenant's Taxes before delinquency and, at
Landlord's request, shall furnish Landlord satisfactory evidence thereof. If
Tenant fails timely to pay any Tenant's Taxes levied directly against Tenant, if
any Tenant's Taxes are levied against Landlord or the Premises, or if the
assessed value of the Premises is increased by the inclusion of a value placed
on Tenant's personal property, Trade Fixtures or Alterations, Landlord may pay
the portion of Tenant's Taxes that is not paid by Tenant or that is levied or
assessed against Landlord or the Premises. Landlord may pay such Tenant's Taxes
regardless of the validity of their levy or assessment and whether or not Tenant
elects to contest the same if, in the reasonable judgment of Landlord, the
failure to pay such taxes will jeopardize the interest of Landlord in the
Premises. If Landlord pays Tenant's Taxes or any portion thereof, Tenant shall,
immediately upon demand by Landlord, reimburse Landlord for the amount of such
payment, together with interest at the Interest Rate from the date of Landlord's
payment to the date of Tenant's reimbursement.
6. USE OF PREMISES. The Premises shall be used for general office
---------------
purposes, and for no other business or purpose.
Tenant shall, at its sole expense, comply with all present and future
governmental laws, ordinances, rules and regulations relating to the Premises
and Tenant's use or occupancy thereof (collectively, "Legal Requirements") and
shall observe the "Building Rules" (as defined in Section 28-"Rules and
Regulations"). Tenant shall not do, bring, keep or sell anything in or about
the Premises that is prohibited by the standard form of fire insurance policy or
that will cause a cancellation of, or an increase in the existing premium for,
any insurance policy covering the Premises or any part thereof. If Tenant does
anything in or about the Premises that will cause an increase in the existing
premium for any insurance policy covering the Premises, Tenant shall pay such
increase within thirty (30) days of written request therefor. Any breach of the
foregoing covenants shall constitute a default under this Lease.
Tenant shall not occupy or use the Premises, or permit the Premises to be
occupied or used, in any manner that will constitute waste or a nuisance.
Tenant shall not, without the prior consent of Landlord, bring into the Building
or use or
7
<PAGE>
incorporate in the Premises any apparatus, equipment or supplies that may cause
substantial vibration or overload the Building or any of its utility or elevator
systems or jeopardize the structural integrity of the Building or any part
thereof.
Tenant shall keep the Premises clean and in good order, and shall do
nothing which interferes with the cleanliness and good order of the remainder of
the Property.
7. ALTERATIONS. All alterations, improvements or changes to the Premises
-----------
desired by Tenant, including signage ("Alterations") shall be made at Tenant's
expense and shall require Landlord's prior approval. If Tenant desires any
Alteration, Tenant shall submit to Landlord for its prior approval (which
approval shall not, provided such Alteration does not affect the structural
portions or the mechanical or utility systems of the Building, and subject to
other terms of this Lease, be unreasonably withheld or delayed) reasonably
detailed final plans and specifications and the name of the contractor proposed
by Tenant to make the Alteration. Tenant shall obtain all applicable permits,
authorizations and governmental approvals before commencement of the Alteration,
and the Alteration shall be completed with due diligence in compliance with the
plans and specifications approved by Landlord. In making any Alteration, Tenant
shall comply in all respects with the Building Rules and with Section 6-"Use of
Premises."
All Alterations shall be made at such times and in such manner as Landlord
may designate, only by such contractors or mechanics as are approved by
Landlord, and subject to all other conditions which Landlord may in its
discretion impose. Tenant shall reimburse Landlord upon demand for any expenses
incurred by Landlord in connection with any Alterations made by Tenant,
including any reasonable fees charged by Landlord's contractors or consultants
to review plans and specifications prepared by Tenant and the cost of updating
the existing as-built plans and specifications of the Building to reflect the
Alterations.
All Alterations shall be the property of Landlord, and upon expiration or
termination of this Lease, all Alterations shall be surrendered with the
Premises at the end of the Term in accordance with Section 20.1-"Surrender";
provided, however, that Landlord may elect, by notice to Tenant before the end
of the Term, to require Tenant, at Tenant's expense, to remove any Alterations
and to restore the Premises to the condition designated by Landlord.
Tenant shall obtain liability insurance, in form and amount and from an
insurance company acceptable to Landlord, insuring Tenant against damage to
person and property arising out of the construction of the Alteration. If the
cost of any Alteration exceeds $10,000, then Tenant shall obtain a completion
bond for the work, which bond shall be issued by a company acceptable to
Landlord. Tenant shall keep the Premises free and clear of all liens and
encumbrances of any nature whatsoever arising out of any work performed,
materials furnished or obligations
8
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incurred by Tenant, including mechanics' and materialmen's liens. Tenant shall
give Landlord at least five (5) business days' notice prior to the commencement
of any Alterations, whether or not Landlord's consent is required for any such
Alteration. Landlord may post and record an appropriate notice of non-
responsibility with respect to any Alteration or the installation of any "Trade
Fixtures" (as defined in Section 9-"Trade Fixtures"), and Tenant shall maintain
any such notices posted by Landlord in or on the Premises. In the event any
such lien attaches to the Premises, and Tenant does not cause the same to be
released by payment, bonding or otherwise, within ten (10) days after the
attachment thereof, Landlord shall have the right but not the obligation to
cause the same to be released by such means as it shall deem proper, and any
reasonable sums expended by Landlord in connection therewith shall be payable by
Tenant on demand with interest thereon from the date of expenditure by Landlord
until reimbursed by Tenant, at the Interest Rate.
8. MAINTENANCE AND REPAIRS.
-----------------------
8.1 Tenant's Obligations. By taking possession of the Premises
--------------------
Tenant agrees that the Premises are then in a tenantable and good condition.
Subject to the provisions of Sections 8.2-"Landlord's Obligations," 13-"Damage
and Destruction," and 14-"Condemnation," Tenant shall, at Tenant's sole expense
and at all times, keep the Premises and every part thereof, including all
equipment, facilities, systems, and other personal property or fixtures in, on
or serving the Premises, in good order, condition and repair, structural and
non-structural (whether or not such portion of the Premises requiring repair, or
the means of repairing the same are reasonably or readily accessible to Tenant,
and whether or not the need for such repairs arises as a result of Tenant's use,
the elements or the age of such portion of the Premises). In connection with
the foregoing obligations of Tenant, Tenant shall, at its sole expense, procure
and maintain contracts, with copies to Landlord, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, and (iii) fire
sprinkler and/or standpipe and hose or other automatic fire extinguishing
systems, including fire alarm and/or smoke detection.
8.2 Landlord's Obligations. Landlord shall perform such maintenance
----------------------
and repair as may be reasonably necessary to keep the structural portions of the
Building, the exterior of the Building (other than windows), the roof of the
Building, and the Parking Area in good condition, order and repair; provided,
however, that except for the agreements of Landlord contained in this Section
8.2 and in Sections 13 and 14, it is intended by the parties hereto that
Landlord have no obligations, in any manner whatsoever, to repair and maintain
the Premises, the improvements located thereon, or the equipment therein, all of
which obligations are intended to be that of the Tenant under Section 8.1
hereof. All such repair and maintenance costs to Landlord will be Operating
Costs under Section 4. 1 (a).
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8.3 Waiver. As a material part of the consideration for this Lease,
------
Tenant hereby waives the provisions of California Civil Code Sections 1932(l),
1941 and 1942 or any other applicable existing or future law, ordinance or
governmental regulation permitting Tenant to make repairs at Landlord's expense.
9. TRADE FIXTURES. Subject to the provisions of Sections 6-"Use of
--------------
Premises" and 7-"Alterations," Tenant may install and maintain furnishings,
equipment, movable partitions, business machines and other trade fixtures
("Trade Fixtures") in the Premises, provided that the Trade Fixtures do not
become an integral part of the Building. Tenant, if not then in default under
this Lease, may alter or remove any of its Trade Fixtures at any time during the
Term or upon its expiration or termination. Tenant shall promptly repair any
damage to the Building caused by such removal. If Tenant fails to make such
repairs, Landlord may do so at Tenant's expense, and any sums expended by
Landlord in connection therewith shall be payable by Tenant on demand with
interest thereon from the date of expenditure by Landlord until reimbursed by
Tenant, at the Interest Rate.
10. UTILITIES. Tenant shall directly contract with, and pay directly to
---------
the vendor thereof, all water, gas, heat, electricity, light, power, telephone,
trash disposal, janitorial, security and any other utilities and services
supplied to the Premises, together with any taxes thereon. In the event of
Tenant's failure to pay timely for any such service, Landlord may, but shall not
be obligated to, pay for such service, the costs of which shall be payable by
Tenant on demand by Landlord, with interest thereon from the date of expenditure
by Landlord until reimbursed by Tenant, at the Interest Rate. Any lien placed
on the Premises relating to any service to the Premises during the Term shall be
discharged by Tenant (or Landlord, if Tenant fails to do so) in the same manner
as provided in Section 7-"Alterations."
No interruption in or failure of any service or utility provided to the
Premises shall, regardless of its duration, constitute an eviction of Tenant,
constructive or otherwise, or impose upon Landlord any liability whatsoever,
including, but not limited to, liability for consequential damages or loss of
business by Tenant or entitle Tenant to an abatement of Rent or to terminate
this Lease. As a material part of the consideration for this Lease, Tenant
hereby waives the provisions of California Civil Code Section 1932(l) or any
other applicable existing or future law, ordinance or governmental regulation
permitting the termination of this Lease due to such interruption in or failure
of any service or utility.
In the event any government authority having jurisdiction over the Premises
or the Property promulgates or revises any law, ordinance or regulation or
building, fire or other code or imposes mandatory controls or guidelines on
Landlord, Tenant or the Premises or the Property relating to the use or
conservation of energy or utilities or the reduction of automobile or other
emissions (collectively "Controls"), Tenant shall comply with such Controls at
its sale expense. If Tenant fails to so comply, Landlord may, but shall not be
obligated to, comply with such Controls, the costs of
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which shall be payable by Tenant on demand with interest thereon from the date
of expiration until reimbursed by Tenant, at the Interest Rate. Such compliance
and the making of any alterations in connection with such compliance shall not
constitute an eviction of Tenant, constructive or otherwise, or impose upon
Landlord any liability whatsoever, including, but not limited to, liability for
consequential damages or loss of business by Tenant.
11. EXCULPATION AND INDEMNIFICATION. Landlord shall not be liable to
-------------------------------
Tenant for any loss, injury or other damage to any person or property
(including, but not limited to, Tenant or Tenant's property) in, on or about the
Premises or the Property from any cause (including, but not limited to: defects
in the Premises or the Property or in any equipment in the Premises or the
Property, fire, explosion or other casualty; or bursting, rupture, leakage or
overflow of any plumbing or other pipes or lines, sprinklers, tanks, drains,
drinking fountains or washstands in, above, or about the Premises or the
Property). Tenant hereby waives all claims against Landlord for such damage and
the cost and expense of defending against claims relating to such damage.
Tenant shall defend, indemnify and hold Landlord harmless from and against
any Claims arising from (a) the acts or omissions of Tenant or its
Representatives or Visitors in or about the Premises or the Property from and
after the date hereof, or (b) any construction or other work undertaken by
Tenant on the Premises or the Property from and after the date hereof, or (c)
any breach or default under this Lease by Tenant from and after the date hereof,
or (d) any accident, injury or damage, howsoever and by whomsoever caused, to
any person or property, occurring in or about the Premises or the Property
during the Term (collectively, "Claims"); excepting only such Claims caused by
the willful acts or omissions of Landlord or its authorized representatives.
The obligations of the parties under this Section 11 shall survive the
expiration or termination of this Lease.
12. INSURANCE.
---------
12.1 Tenant's Insurance. Tenant, at its sole expense, shall maintain
------------------
in full force during the Term, for the mutual benefit of Landlord and Tenant,
the following:
(a) a policy or policies of Commercial General Liability insurance,
provided on an occurrence form, with minimum limits of One Million Dollars
($1,000,000) General Aggregate, One Million Dollars ($1,000,000) Products-
Completed Operations Aggregate, One Million Dollars ($1,000,000) Personal and
Advertising Injury and One Million Dollars ($1,000,000) Each Occurrence combined
single limit bodily injury and property damage, together with a corresponding
Umbrella Excess Liability Insurance policy in an amount of not less than Two
Million
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Dollars ($2,000,000) over such underlying limits, on an occurrence form,
providing coverage for all hazards and exposures covered on the underlying
policy, which policy shall be reasonably approved by Landlord and will be in
addition to and not in lieu of the underlying policy, insuring against the
liability of Tenant, Tenant's Representatives and Tenant's Visitors for personal
or bodily injury or property damage arising out of or incurred in connection
with Tenant's use or occupancy of the Premises. Such policy or policies shall
include a cross-liability endorsement and shall (as extended, if necessary, by
endorsement) provide broad blanket contractual liability (including, without
limitation, Tenant's indemnity obligations under this Lease), owner and
contractor protective liability, completed operations and products liability and
such other coverage as prudent landlords and owners of comparable properties may
from time to time reasonably require based on Tenant's use of the Premises;
(b) a policy or policies of property insurance with respect to
Tenant's Alterations and Trade Fixtures in an amount not less than the full
replacement cost thereof, on an agreed amount basis or such higher amount as
Tenant may require, without any deduction being made for depreciation, as such
replacement cost may increase from time to time (including, if applicable,
increases due to Tenant's Alterations), providing protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk) and sprinkler leakage;
and
(c) a policy or policies of Worker's Compensation Insurance, as
required by state law, including Employer's Liability Insurance, with a limit of
not less than One Million Dollars ($1,000,000).
During the Term the proceeds from any such policies of casualty insurance
shall be used for the repair or replacement of the Alterations and Trade
Fixtures so insured to the extent deemed necessary by Tenant, in Tenant's
reasonable judgment, for the operation of its business in the Premises.
Landlord shall have no interest in such casualty insurance and shall sign all
documents reasonably necessary or proper in connection with the settlement of
any claim or loss by Tenant. Landlord will not carry insurance on Tenant's
personal property or Trade Fixtures. Any limits set forth in this Lease on the
amount or type of coverage required by this Section 12.1 shall not limit the
liability of Tenant under this Lease.
Each policy of insurance required under this Section 12.1 shall be with an
insurer licensed in the State of California, with an A.M. Best & Company
Policyholder Rating of "A" or better and Financial Size Category of "XIII" or
better, and shall require at least thirty (30) days' written notice to Landlord
prior to any termination or alteration of the policy. Each policy of liability
insurance shall name Landlord, its partners and its property manager and
Mortgagees as additional insureds and provide that it is primary to, and not
contributing with, any policy carried by Landlord covering the same loss.
Tenant shall provide to Landlord, upon
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request, evidence that the insurance required to be carried by Tenant pursuant
to this Section 12.1 is in full force and effect and the premiums therefor have
been paid.
Not more frequently than once every year, Tenant shall increase the amounts
of insurance as reasonably required by Landlord's lender or insurance broker if,
in opinion of either of them, the amount of insurance then required under this
Lease is not adequate.
12.2 Landlord's Insurance. During the Term, Landlord shall maintain
--------------------
in effect insurance on the Building against fire, extended coverage perils and
vandalism and malicious mischief (to the extent such coverages are available),
with responsible insurers licensed to do business in the state in which the
Building is located, insuring the Building and the Improvements in an amount
equal to at least eighty percent (80%) of the replacement cost thereof,
excluding foundations, footings and underground installations. Landlord may,
but shall not be obligated to, carry insurance against additional perils and/or
in greater amounts. Costs for such insurance shall be included in Operating
Costs under Section 4. 1 (a).
12.3 Waiver of Subrogation. To the extent permitted by their
---------------------
respective policies of property insurance, Landlord and Tenant each hereby waive
any right of recovery against the other and the authorized representatives of
the other for any loss or damage that is covered by any policy of property
insurance maintained by either party with respect to the Premises or any
operation therein. If any policy of property insurance relating to this Lease
or to the Premises does not permit the foregoing waiver or if the coverage under
any such policy would be invalidated as a result of such waiver, the party
maintaining such policy shall, if possible, obtain from the insurer under such
policy a waiver of all right of recovery by way of subrogation against either
party in connection with any claim, loss or damage covered by such policy. If
either party is not able to obtain such waiver, then such party shall have the
other party named as an additional insured on all such policies of property
insurance.
13. DAMAGE AND DESTRUCTION.
----------------------
13.1 Landlord's Duty to Repair. If all or a substantial part of the
-------------------------
Premises are rendered untenantable or inaccessible by damage to all or any part
of the Premises from fire or other casualty then, unless either party is
entitled to and elects to terminate this Lease pursuant to Sections 13.2-
"Landlord's Right to Terminate" or 13.3-"Tenant's Right to Terminate," then
Landlord shall use reasonable efforts to repair and restore the Premises, to
substantially its former condition to the extent of insurance proceeds received
by Landlord therefor and as permitted by then applicable Legal Requirements;
provided, however, that in no event shall Landlord have any obligation to repair
or replace any of Tenants personal property, Trade Fixtures or Alterations.
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If Landlord is required or elects to repair damage to the Premises, this
Lease shall continue in effect but the Base Rent from the date of the casualty
through the date of substantial completion of the repair shall be abated with
regard to any portion of the Premises that Tenant is prevented from using by
reason of such damage or its repair; provided, however, that if the casualty is
the result of the willful misconduct or negligence of Tenant or Tenant's
Representatives or Tenant's Visitors, there will be no such rental abatement.
Notwithstanding Tenant's entitlement to rent abatement under the preceding
provisions, Tenant shall continue to pay Tenant's then current Rent until such
time as Landlord and Tenant agree on the amount of the rent abatement. If
Landlord and Tenant are unable to agree on the amount of such abatement within
ten (10) business days of the date they commence negotiations regarding the
abatement, then either party may submit the matter to binding arbitration
pursuant to Sections 1280 et seq. of the California Code of Civil Procedure. In
-- ---
no event shall Landlord be liable to Tenant by reason of any injury to or
interference with Tenant's business or property arising from fire or other
casualty or by reason of any repairs to any part of the Premises made necessary
by such casualty.
13.2 Landlord's Right to Terminate. Landlord may elect to terminate
-----------------------------
this Lease, effective as of the date of the casualty, under the following
circumstances:
(a) Where, in the reasonable judgment of Landlord, the damage cannot
be substantially repaired and restored under applicable legal requirements
within one (1) year from the date of the casualty;
(b) Where, in the reasonable judgment of Landlord, adequate proceeds
are not, for any reason, made available to Landlord from Landlord's insurance
policies to make the required repairs; or
(c) Where the Premises is damaged or destroyed to the extent that the
cost to repair and restore the Premises exceeds twenty-five percent (25%) of the
full replacement cost of the Premises, whether or not the Premises are at all
damaged or destroyed.
If any of the circumstances described in subparagraphs (a), (b) or (c) of
this subsection occur or arise, Landlord must notify Tenant in writing of that
fact within one hundred and twenty (120) days after the date of the casualty and
in such notice Landlord must also advise Tenant whether Landlord has elected to
terminate this Lease as of the date of the casualty.
13.3 Tenant's Right to Terminate. If all or a substantial part of the
---------------------------
Premises are rendered untenantable or inaccessible by damage to all or any part
of the Premises from fire of other casualty, then Tenant may elect to terminate
this Lease under the following circumstances:
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(a) Where Landlord has the right under Section 13.2-"Landlord's Right
to Terminate" to terminate this Lease but has not elected to so terminate and
Landlord fails to commence the required repair within one hundred and twenty
(120) days after the date of the casualty, in which event Tenant may elect to
terminate this Lease upon notice to Landlord given within ten (10) days after
such one hundred and twenty (120) day period, effective as of the next calendar
month following such notice to Landlord.
(b) In the circumstance described in Subsection 13.2(a) above; in
which event Tenant may elect to terminate this Lease as of the date of the
casualty by giving Landlord notice of such election to terminate within thirty
(30) days after Landlord's notice to Tenant pursuant to Section 13.2.
(c) In the event any such casualty is the result of the willful
Misconduct or negligence of Tenant, Tenant's Representatives or Tenant's
Visitors, the termination rights described in Subsection 13.3(a) and 13.3(b)
shall not be available to Tenant.
13.4 Waiver of Statutory Provisions. Landlord and Tenant each hereby
------------------------------
waive the provisions of California Civil Code Sections 1932(2), 1933(4) and any
other applicable existing or future law, ordinance or regulation with respect to
damage or destruction of leased premises or with respect to the termination of a
lease agreement in the event of such damage or destruction under any
circumstances other than as provided in Sections 13.2 and 13.3 above.
14. CONDEMNATION.
------------
14.1 Definitions. For purposes of this Section, the following terms
-----------
shall be defined as follows;
(a) "Award" shall mean all compensation, sums, or anything of value
awarded, paid or received on a total or partial Condemnation.
(b) "Condemnation" shall mean (i) a permanent or temporary taking of
all or a portion of the Premises pursuant to the exercise by a Condemnor of the
power of condemnation or eminent domain, whether by legal proceedings or
otherwise, or (ii) a voluntary sale or transfer by Landlord of all or a portion
of the Premises to any Condemnor, either under threat of condemnation or while
legal proceedings for condemnation are pending.
(c) "Condemnor" shall mean any public or quasi-public authority,
private corporation or individual having the power of condemnation or eminent
domain.
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(d) "Date of Condemnation" shall mean the earlier of the date that
title to the property taken by the Condemnor is vested in the Condemnor or the
date the Condemnor has the right to possession of the property being condemned.
14.2 Condemnation. If twenty-five percent (25%) or more of the
------------
Premises is totally taken by a permanent Condemnation, then at the election of
either Landlord or Tenant, this Lease shall terminate as of the Date of
Condemnation. If this Lease is not so terminated, this Lease shall remain in
effect as to the portion of the Premises not taken. If all or a portion of the
Premises is taken by a temporary Condemnation, this Lease shall remain in full
force and effect.
14.3 Restoration. If this Lease is not terminated as provided in
-----------
Section 14.2 following a Condemnation, Landlord shall diligently proceed to
repair and restore the Premises to substantially their former condition (to the
extent permitted by the then applicable Legal Requirements) and/or repair and
restore the Building to an architecturally complete building; provided, however,
that Landlord's obligations to so repair and restore shall be limited to the
amount of any Award received by Landlord therefor and not required to be paid to
any Mortgagee. If the amount reasonably estimated to repair and restore the
Premises is greater than the amount of the Award received by Landlord (and/or
from Landlord's funds made available for such purpose, at Landlord's sole
option), then either party shall be entitled to terminate the Lease by written
notice given within thirty (30) days of the determination that such funds are
insufficient.
14.4 Abatement and Reduction of Rent. If any portion of the Premises
-------------------------------
is permanently taken in a Condemnation or is rendered permanently untenantable
by repairs necessitated by the Condemnation, and this Lease is not terminated,
the Base Rent payable under this Lease shall be proportionally reduced as of the
Date of Condemnation based upon the percentage of square feet in the Building so
taken or rendered permanently untenantable. In addition, if this Lease remains
in effect following a permanent Condemnation and Landlord proceeds to repair and
restore the Premises, the Base Rent payable under this Lease shall be abated
during the period of such repair or restoration to the extent such repairs
prevent Tenant's use of the Building.
14.5 Award. Except as provided below, any Award made shall be paid to
-----
Landlord, and Tenant hereby assigns to Landlord, and waives all interest in or
claim to, any such Award, including any claim for the value of the unexpired
term of this Lease. However, Tenant shall be entitled to receive, or to
prosecute a separate claim for, an Award for a temporary Condemnation where this
Lease is not terminated, or an Award or portion thereof separately designated
for relocation expenses or the interruption of or damage to Tenant's business or
as compensation for Tenant's personal property, Trade Fixtures or Alterations.
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<PAGE>
14.6 Waiver. Landlord and Tenant each hereby waive the provisions of
------
California Code of Civil Procedure Section 1265.130 and any other applicable
existing or future law, ordinance or governmental regulation providing for, or
allowing either party to petition the courts of the state in which the Premises
is located for, a termination of this Lease upon a partial taking of the
Premises.
15. ASSIGNMENT AND SUBLETTING.
-------------------------
15.1 Landlord's Consent Required. Tenant shall not assign, transfer,
---------------------------
mortgage, pledge, hypothecate or encumber this Lease or any interest therein
(each a "Transfer"), and shall not sublet the Premises or any part thereof,
without the prior written consent of Landlord and any attempt to do so without
such consent being first had and obtained shall be wholly void and shall
constitute a breach of this Lease.
15.2 Reasonable Consent.
------------------
(a) If Tenant complies with the following conditions, Landlord shall
not unreasonably withhold its consent to the subletting of the Premises or any
portion thereof or the assignment of this Lease. Tenant shall submit in writing
to Landlord (i) the name and legal composition of the proposed subtenant or
assignee; (ii) the nature of the business proposed to be carried on in the
Premises; (iii) the terms and provisions of the proposed sublease; (iv) such
reasonable financial information as Landlord may request concerning the proposed
subtenant or assignee; and (v) the form of the proposed sublease or assignment.
Within thirty (30) days after Landlord receives all such information it shall
notify Tenant whether it approves such assignment or subletting or if it elects
to proceed under Section 15.8-"Landlord's Right to Space" below.
(b) The parties hereto agree and acknowledge that, among other
circumstances for which Landlord could reasonably withhold its consent to a
sublease or assignment, it shall be reasonable for Landlord to withhold its
consent where (i) less than all of the Premises are proposed to be assigned or
sublet, (ii) the assignee or subtenant (a "Transferee") will not occupy the
entire Premises, (iii) Landlord reasonably disapproves of the Transferee's
reputation or creditworthiness or the character of the business to be conducted
by the Transferee at the Premises, (iv) the rental and other consideration
payable by the Transferee is less than that currently being paid by tenants
under new leases of comparable space in similar buildings, or (v) Landlord
otherwise determines that the assignment or sublease would have the effect of
decreasing the value of the Premises.
15.3 Excess Consideration. If Landlord consents to the assignment or
--------------------
sublease, Landlord shall be entitled to receive as additional Rent hereunder any
consideration paid by the Transferee for the assignment or sublease and, in the
case
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<PAGE>
of a sublease, the excess of the rent and other consideration payable by the
subtenant over the amount of Base Rent payable hereunder applicable to the
subleased space.
15.4 No Release Of Tenant. No consent by Landlord to any assignment
--------------------
or subletting by Tenant shall relieve Tenant of any obligation to be performed
by Tenant under this Lease, whether occurring before or after such consent,
assignment or subletting, and the Transferee shall be jointly and severally
liable with Tenant for the payment of Rent (or that portion applicable to the
subleased space in the case of a sublease) and for the performance of all other
terms and provisions of the Lease. The consent by Landlord to any assignment or
subletting shall not relieve Tenant and any such Transferee from the obligation
to obtain Landlord's express written consent to any subsequent assignment or
subletting. The acceptance of rent by Landlord from any other person shall not
be deemed to be a waiver by Landlord of any provision of this Lease or to be a
consent to any assignment, subletting or other transfer, Consent to one
assignment, subletting or other transfer shall not be deemed to constitute
consent to any subsequent assignment, subletting or other transfer.
15.5 Attorneys' Fees. Tenant shall pay Landlord's reasonable
---------------
attorneys' fees incurred in connection with reviewing any proposed assignment or
sublease.
15.6 Transfer Of Ownership Interest. If Tenant is a business entity,
------------------------------
any direct or indirect transfer of thirty percent (30%) or more of the ownership
interest of the entity (whether all at one time or over the term of the Lease)
shall be deemed a Transfer.
15.7 Effectiveness of Transfer. No permitted assignment (whether or
-------------------------
not requiring Landlords consent) shall be effective until Landlord has received
a counterpart of the assignment and an instrument in recordable form executed by
the assignee in which the assignee assumes all of Tenant's obligations under
this Lease arising on or after the date of assignment. No permitted subletting
(whether or not requiring Landlord's consent) by Tenant shall be effective until
there has been delivered to Landlord a counterpart of the sublease and an
instrument in recordable form executed by the subtenant in which the subtenant
agrees to be and remain jointly and severally liable with Tenant for the payment
of Rent and for the performance of all of the terms and provisions of this
Lease; provided, however, that the subtenant shall be liable to Landlord for
Rent only in the amount set forth in the sublease. The failure or refusal of an
assignee or subtenant to execute any such instrument shall not release or
discharge the assignee or subtenant from its liability set forth above. The
voluntary, involuntary or other surrender of this Lease by Tenant, or a mutual
cancellation by Landlord and Tenant, shall not work a merger, and any such
surrender or cancellation shall, at the option of Landlord, either terminate all
or any existing subleases or operate as an assignment to Landlord of any or all
of such subleases.
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<PAGE>
15.8 Landlord's Right to Space. Notwithstanding any of the above
-------------------------
provisions of this Section 15 to the contrary, if Tenant notifies Landlord that
it desires to assign this Lease or sublet all or any part of the Premises,
Landlord, in lieu of consenting to such assignment or sublease, may elect to
terminate this Lease (in the case of an assignment or a sublease of the entire
Premises), or to terminate this Lease as it relates to the space proposed to be
subleased by Tenant (in the case of a sublease of less than the entire
Premises). In such event, this Lease (or portion thereof) will terminate on the
date the assignment or sublease was to be effective, and Landlord may lease such
space to any party, including the prospective Transferee identified by Tenant.
15.9 Lease Options. Any options, rights of first refusal or rights of
-------------
first offer, whether to extend, renew, lease or purchase this Lease, the
Premises or other property, granted in this Lease or any amendment thereto,
shall be personal to Tenant and shall terminate upon any assignment or
subletting.
15.10 Involuntary Assignment. In the event that Landlord consents,
----------------------
pursuant to Section 365 of the Federal Bankruptcy Code, to any assumption,
assignment or sublease ("transfer") of the rights or interest of Tenant under
this Lease, "adequate assurance of future performance" of this Lease by the
transferee shall include, but not be limited to, establishment by the transferee
of an impound account into which the transferee shall deposit, subject to
withdrawal solely by Landlord from time to time as the same becomes due, an
amount equal to the aggregate amount of all Rent which shall become due under
this Lease during the remainder of the Term.
16. DEFAULT AND REMEDIES.
--------------------
16.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an "Event of Default" by Tenant:
(a) Tenant fails to make any payment of Rent when due and such failure
is not cured within five (5) days after notice to Tenant thereof.
(b) Tenant fails to timely make payments of Rent when due under this
Lease three (3) or more times during any twelve (12) month period during the
Term.
(c) Tenant abandons the Premises for thirty (30) consecutive days,
which failure shall be deemed an abandonment of the Premises by Tenant.
(d) Tenant fails to deliver any estoppel certificate requested by
Landlord within the period described in Section 23-"Estoppel Certificates."
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(e) Tenant fails to comply with any of the provisions of Section
33-"Hazardous Materials."
(f) Tenant ceases doing business as a going concern, makes an
assignment for the benefit of creditors, is adjudicated an insolvent, files a
petition (or files an answer admitting the material allegations of such
petition) seeking relief under any reorganization, arrangement, consolidation,
readjustment, liquidation, dissolution or similar arrangement or proceeding
under any state or federal bankruptcy or other statute, law or regulation, or
Tenant consents to or acquiesces in the appointment, pursuant to any state or
federal bankruptcy or other statute, law or regulation, of a trustee, receiver
or liquidator for the Premises, for Tenant or for all or any substantial part of
Tenant's assets.
(g) Tenant fails, within ninety (90) days after the commencement of
any proceedings against Tenant seeking relief under any reorganization,
arrangement, consolidation, readjustment, liquidation, dissolution or similar
arrangement or proceeding under any state or federal bankruptcy or other
statute, law or regulation, to have such proceedings dismissed, or Tenant fails,
within ninety (90) days after an appointment pursuant to any state or federal
bankruptcy or other statute, law or regulation, without Tenant's consent or
acquiescence, of any trustee, receiver or liquidator for the Premises, for
Tenant or for all or any substantial part of Tenant's assets, to have such
appointment vacated.
(h) Tenant fails to perform or comply with any provision of this Lease
other than those described in (a) through (f) above, and such failure is not
cured within fifteen (15) days after notice to Tenant or, if such failure cannot
be cured within such fifteen (15) business day period, Tenant fails within such
fifteen (15)-day period to commence, and thereafter diligently proceed with, all
actions necessary to cure such failure as soon as reasonably possible but in all
events within ninety (90) days of such notice. In the case of any default that
by its nature cannot be cured, such failure shall constitute an Event of Default
immediately upon such notice to Tenant by Landlord.
16.2 Remedies. Upon the occurrence of an Event of Default, Landlord
--------
shall have the following remedies, which shall not be exclusive but shall be
cumulative and shall be in addition to any other remedies now or hereafter
allowed by law:
(a) Landlord may terminate Tenant's right to possession of the
Premises at any time by written notice to Tenant. Tenant expressly acknowledges
that in the absence of such written notice from Landlord, no other act of
Landlord, including its re-entry into the Premises, its efforts to relet the
Premises, its reletting of the Premises for Tenant's account, its storage of
Tenant's personal property and Trade Fixtures, its acceptance of keys to the
Premises from Tenant or its exercise of any other rights and remedies under this
Section 16.2, shall constitute an acceptance
20
<PAGE>
of Tenant's surrender of the Premises or constitute a termination of this Lease
or of Tenant's right to possession of the Premises.
Upon such termination in writing of Tenant's right to possession of the
Premises, as herein provided, this Lease shall terminate and Landlord shall be
entitled to recover damages from Tenant as provided in California Civil Code
Section 1951.2 or any other applicable existing or future law, ordinance or
regulation providing for recovery of damages for such breach, including the
following:
(1) The reasonable cost of recovering the Premises; plus
(2) The reasonable cost of removing Tenant's Alterations,
Trade Fixtures and Improvements; plus
(3) All unpaid Rent due or earned hereunder prior to the date of
termination, less the proceeds of any reletting or any rental received from
subtenants prior to the date of termination applied as provided in subsection
(b) below, together with interest at the Interest Rate, on such sums from the
date such Rent is due and payable until the date of the award of damages; plus
(4) The amount by which the Rent which would be payable by Tenant
hereunder, as reasonably estimated by Landlord, from the date of termination
until the date of the award of damages exceeds the amount of such rental loss as
Tenant proves could have been reasonably avoided, together with interest at the
Interest Rate on such sums from the date such Rent is due and payable until the
date of the award of damages; plus
(5) The amount by which the Rent which would be payable by Tenant
hereunder, as reasonably estimated by Landlord, for the remainder of the then
Term, after the date of the award of damages exceeds the amount of such rental
loss as Tenant proves could have been reasonably avoided, discounted at the
discount rate published by the Federal Reserve Bank of San Francisco for member
banks at the time of the award plus one percent (1%); plus
(6) Such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.
(b) Landlord may continue this Lease in full force and effect and may
enforce all its rights and remedies under this Lease, including the right to
recover Rent as it becomes due. During the continuance of an Event of Default,
Landlord may enter the Premises without terminating this Lease and sublet all or
any part of the Premises for Tenant's account to any person, for such term
(which may be a period beyond the remaining Term of this Lease), at such rents
and on such other terms and conditions as Landlord deems advisable. In the
event of any such subletting, rents received by Landlord from such subletting
shall be applied (i) first,
21
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to the payment of the costs of maintaining, preserving, altering and preparing
the Premises for subletting and other costs of subletting, including brokers'
commissions, attorneys' fees and expenses of removal of Tenant's personal
property, Trade Fixtures, and Alterations; (ii) second, to the payment of Rent
then due and payable; (iii) third, to the payment of future Rent as the same may
become due and payable hereunder; and (iv) fourth, the balance, if any, shall be
paid to Tenant upon (but not before) expiration of the Term. If the rents
received by Landlord from such subletting, after application as provided above,
are insufficient in any month to pay the Rent due and payable hereunder for such
month, Tenant shall pay such deficiency to Landlord monthly upon demand.
Notwithstanding any such subletting for Tenant's account without termination,
Landlord may at any time thereafter, by written notice to Tenant, elect to
terminate this Lease by virtue of a previous Event of Default.
During the continuance of an Event of Default, for so long as Landlord does
not terminate Tenant's right to possession of the Premises and subject to
Section 15 and the options granted to Landlord thereunder, Landlord shall not
unreasonably withhold its consent to an assignment or sublease of Tenant's
interest in the Premises or in this Lease.
(c) During the continuance of an Event of Default, Landlord may enter
the Premises without terminating this Lease and remove all Tenant's personal
property, Alterations and Trade Fixtures from the Premises. If Landlord removes
such property from the Premises and stores it at Tenant's risk and expense, and
if Tenant fails to pay the cost of such removal and storage after written demand
therefor and/or to pay any Rent then due, after the property has been stored for
a period of thirty (30) days or more Landlord may sell such property at public
or private sale, in the manner and at such times and places as Landlord in its
sole discretion deems commercially reasonable following reasonable notice to
Tenant of the time and place of such sale. The proceeds of any such sale shall
be applied first to the payment of the expenses for removal and storage of the
property, preparation for and conducting such sale, and attorneys' fees and
other legal expenses incurred by Landlord in connection therewith, and the
balance shall be applied as provided in subsection (b) above.
Tenant hereby waives all claims for damages that may be caused by
Landlord's reentering and taking possession of the Premises or removing and
storing Tenant's personal property pursuant to this Section, and Tenant shall
hold Landlord harmless from and against any loss, cost or damage resulting from
any such act. No reentry by Landlord shall constitute or be construed as a
forcible entry by Landlord.
(d) Landlord may require Tenant to remove any and all Improvements
from the Premises or, if Tenant fails to do so within ten (10) business days
after Landlord's request, Landlord may do so at Tenant's expense.
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(e) Landlord may cure the Event of Default at Tenant's expense. If
Landlord pays any sum or incurs any expense in curing the Event of Default,
Tenant shall reimburse Landlord upon demand for the reasonable amount of such
payment or expense with interest at the Interest Rate from the date the sum is
paid or the expense is incurred until Landlord is reimbursed by Tenant.
17. LATE CHARGE; INTEREST.
---------------------
17.1 Late Charge. Tenant acknowledges that the late payment of any
-----------
Rent due hereunder will cause Landlord to incur expenses not contemplated by
this Lease and that the exact amount of such expenses would be extremely
difficult and impracticable to fix. Such expenses include processing and
accounting charges, late charges that may be imposed on Landlord by the terms of
any encumbrance or note secured by the Premises and the loss of the use of
delinquent Rent. Therefore, if any payment of Rent is not received by Landlord
when due, Tenant shall pay to Landlord on demand as a late charge an additional
amount equal to five percent (5%) of the overdue sum, which amount represents a
fair and reasonable estimate of the costs that Landlord will incur by reason of
late payment. Acceptance of any late charge shall not constitute a waiver of
Tenant's default with respect to the overdue sum or prevent Landlord from
exercising any of its other rights and remedies under this Lease.
17.2 Interest. In addition to the late charges referred to above,
--------
which are intended to defray Landlord's costs resulting from late payments, any
late payment of Rent shall, at Landlord's option, bear interest from the due
date of any such payment to the date same is paid at eleven percent (11%) per
annum (the "Interest Rate").
18. WAIVER. No provisions of this Lease shall be deemed waived by
------
Landlord unless such waiver is in a writing signed by Landlord. The waiver by
Landlord of any breach of any provision of this Lease shall not be deemed a
waiver of such Provision or of any subsequent breach of the same or any other
provision of this Lease. No delay or omission in the exercise of any right or
remedy of Landlord upon any default by Tenant shall impair such right or remedy
or be construed as a waiver. Landlord's acceptance of any payments of Rent due
under this Lease shall not be deemed a waiver of any default by Tenant under
this Lease (including Tenant's recurrent failure to timely pay Rent) other than
Tenant's nonpayment of the accepted sums, and no endorsement or statement on any
check or accompanying any check or payment shall be deemed an accord and
satisfaction. Landlord's consent to or approval of any act by Tenant requiring
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.
19. ENTRY AND INSPECTION. Upon reasonable verbal or written notice to
--------------------
Tenant (except where in Landlord's judgment the existence of an emergency
23
<PAGE>
necessitates an immediate entry into the Premises without notice to avoid
damage, loss or injury to persons or property or any part of the Premises),
Landlord and its authorized representatives may enter the Premises, including
the Building, at all reasonable times to determine whether the Premises are in
good condition, to determine whether Tenant is complying with its obligations
under this Lease, to perform any maintenance or repair of the Premises that
Landlord has the right or obligation to perform, to serve, post or keep posted
any notices required or allowed under the provisions of this Lease, to show the
Premises to prospective brokers, agents, buyers, transferees, Mortgagees or
tenants, or to do any other act or thing necessary for the safety or
preservation of the Premises, upon giving reasonable prior notice to Tenant.
Landlord shall not be liable in any manner for any inconvenience, loss of
business or other damage to Tenant or other persons arising out of Landlord's
entry on the Premises as provided in this Section. Landlord shall conduct its
activities under this Section in a manner that will minimize inconvenience to
Tenant without incurring additional expense to Landlord. When necessary for
safety or emergency purposes, or as otherwise required by law, Landlord may
temporarily close entrances, doors, corridors, elevators or other facilities in
the Premises without liability to Tenant by reason of such closure and without
such action being construed as an eviction of Tenant or a release of Tenant from
its obligations under this Lease. In no event shall Tenant be entitled to an
abatement of rent on account of any entry by the Landlord.
20. SURRENDER, HOLDING OVER.
-----------------------
20.1 Surrender. Upon the expiration or termination of this Lease,
---------
Tenant shall surrender the Premises and all Improvements and Alterations to
Landlord broom-clean and in their original condition, except for reasonable wear
and tear, damage from casualty or condemnation and any changes resulting from
approved Alterations; provided, however, that prior to the expiration or
termination of this Lease, Tenant shall remove from the Premises all
Improvements and Alterations that Landlord requires be removed, by notice given
to Tenant prior to such expiration or termination, and Tenant shall also remove
from the Premises all Tenant's personal property and Trade Fixtures that Tenant
has the right to remove under the provisions of this Lease. If such removal is
not completed at the expiration or termination of this Lease, Landlord may
remove the same at Tenant's expense. Tenant shall, at its expense, restore the
Premises after such removal to the condition designated by Landlord and any
damage to the Building caused by such removal shall be repaired promptly by
Tenant or, if Tenant fails to do so, Landlord may do so at Tenant's expense.
Upon expiration or termination of this Lease or of Tenant's possession, Tenant
shall surrender all keys to the Premises or any other part of the Building and
shall make known to Landlord the combination of locks on all safes, cabinets and
vaults that may be located in the Premises. Tenant's obligations under this
Section shall survive the expiration or termination of this Lease.
24
<PAGE>
20.2 Holding Over. If Tenant remains in possession of the Premises
------------
after the expiration or termination of this Lease, Tenant's continued possession
shall be on the basis of a tenancy at the sufferance of Landlord, and Tenant
shall continue to comply with or perform all the terms and obligations of the
Tenant under this Lease, except that the Base Rent during Tenant's holding over
shall be twice the greater of (i) Base Rent payable in the last month prior to
the expiration or termination hereof, or (ii) the fair market rental, as
reasonably determined by Landlord, for the Premises. Tenant shall indemnify and
hold Landlord harmless from and against all Claims incurred by Landlord and
arising directly or indirectly from Tenant's failure to timely surrender the
Premises, including (a) any rent payable by or any loss, cost, or damages,
including lost profits, claimed by any prospective tenant of the Premises, and
(b) Landlord's damages as a result of such prospective tenant rescinding or
refusing to enter into the prospective lease of the Premises by reason of such
failure to timely surrender the Premises.
21. SUBORDINATION; ATTORNMENT; NONDISTURBANCE. This Lease is expressly
-----------------------------------------
made subject and subordinate to any mortgage, deed of trust, ground lease,
underlying lease or like encumbrance affecting any part of the Premises or any
interest of Landlord therein which is now existing or hereafter executed or
recorded ("Encumbrance"), and any memorandum of this Lease, whether or not
recorded in the public records of the county in which the Premises is located,
shall so state; provided, however, that such subordination shall only be
effective, as to future Encumbrances, if the holder of the Encumbrance agrees
that this Lease shall survive the termination of the Encumbrance by lapse of
time, foreclosure or otherwise so long as Tenant is not in default under this
Lease. Provided the conditions of the preceding sentence are satisfied, Tenant
covenants and agrees to execute and deliver, upon request by Landlord and in a
form reasonably requested by Landlord, any additional documents evidencing the
subordination of this Lease with respect to any such Encumbrance and the
nondisturbance agreement of the holder of any such Encumbrance. If the interest
of Landlord in the Premises is transferred to any person ("Purchaser") pursuant
to or in lieu of proceedings for enforcement of any Encumbrance, Tenant shall
immediately and automatically attorn to the Purchaser, and this Lease shall
continue in full force and effect as a direct lease been the Purchaser and
Tenant on the terms and conditions set forth in this Lease.
22. MORTGAGE PROTECTION. Tenant agrees to give any holder of any
-------------------
Encumbrance covering any part of the Premises ("Mortgagee"), by registered mail,
a copy of any notice of default served upon Landlord, provided that prior to
such notice Tenant has been notified in writing (by way of notice of assignment
of rents and leases, or otherwise) of the address of such Mortgagee. If
Landlord shall have failed to cure such default within thirty (30) days from the
effective date of such notice of default, then Mortgagee shall have an
additional thirty (30) days within which to cure such default, or if such
default cannot be cured within that time, then such additional time as may be
necessary to cure such default (including the time necessary to foreclose or
otherwise terminate its Encumbrance, if necessary to effect
25
<PAGE>
such cure), and this Lease shall not be terminated so long as such remedies are
being diligently pursued.
23. ESTOPPEL CERTIFICATES. Upon ten (10) days' notice from Landlord,
---------------------
Tenant shall execute and deliver to Landlord, in form provided by or
satisfactory to Landlord, a certificate stating that this Lease is in full force
and effect, describing any amendments or modifications hereto, acknowledging
that this Lease is subordinate or prior, as the case may be, to any Encumbrance
and stating any other information Landlord may reasonably request, including the
term of this Lease, the monthly Base Rent, the date to which Rent has been paid,
the amount of any security deposit or prepaid Rent, whether either party hereto
is in default under the terms of the Lease, whether Landlord has completed its
construction obligations hereunder and any other information reasonably
requested by Landlord. Any person or entity purchasing, acquiring an interest
in or extending financing with respect to the Premises shall be entitled to rely
upon any such certificate. Tenant shall be liable to Landlord for any damages
incurred by Landlord including any profits or other benefits from any financing
of the Premises or any interest therein which are lost or made unavailable as a
result, directly or indirectly, of Tenant's failure or refusal to timely execute
or deliver such estoppel certificates.
24. NOTICES. Any notice, demand, request, consent, approval or
-------
communication that either party desires or is required to give to the other
party under this Lease shall be in writing and shall be sent, transmitted or
delivered to such party by personal delivery, telecopy, independent messenger or
courier service, or sent by U.S. registered or certified mail, return receipt
requested, postage prepaid, addressed to the other party at the address set
forth below the respective signatures to this Lease. Either party may change
its address for notice by notifying the other party as provided in this Section.
In the event Tenant sublets the Premises, notices from Landlord shall be
effective on the subtenant when given to Tenant pursuant to this Section. All
notices will be effective (i) upon receipt if delivered personally or by
independent messenger or courier service or sent by telecopy, and (ii) two (2)
days after posting when sent via U.S. mail as provided above. In the event a
party requests dual notices hereunder, such party will be bound by such notice
from the earlier of the effective times of the dual notices.
25. ATTORNEYS' FEES. If Tenant or Landlord brings any action for the
---------------
enforcement or interpretation of this Lease, including any suit by Landlord for
the recovery of Rent or possession of the Premises, the losing party shall pay
to the prevailing party a reasonable sum for attorneys fees. The "prevailing
party" will be determined by the court before whom the action was brought based
upon an assessment of which party's major arguments or positions taken in the
suit or proceeding could fairly be said to have prevailed over the other party's
major arguments or positions on major disputed issues in the court's decision.
26
<PAGE>
26. QUIET POSSESSION. Subject to Tenant's full and timely performance of
----------------
all its obligations under this Lease and subject to the terms of this Lease,
Tenant shall have the quiet possession of the Premises throughout the term of
this Lease as against any persons or entities lawfully claiming by, through or
under Landlord. Tenant acknowledges, however, that this is an industrial
building in an industrial area, and that the noise and activity common to or
that might be reasonably or customarily be expected from industrial operations
(including any operations conducted in the remainder of the Building) do not
constitute a violation of Tenant's rights under this Section.
27. FORCE MAJEURE. In the event Landlord or Tenant is delayed,
-------------
interrupted or prevented from performing any of its obligations under this
Lease, including its obligations under the Construction Rider, and such delay,
interruption or prevention is due to fire, act of God, governmental act, strike,
labor dispute, unavailability of materials or any other cause outside the
reasonable control of such party (financial inability excepted), then the time
for performance of the affected obligations of such party shall be extended for
a period equivalent to the period of such delay, interruption or prevention.
28. RULES AND REGULATIONS. Tenant shall be bound by and shall comply with
---------------------
the rules and regulations attached to and made a part of this Lease as Exhibit
-------
C, as well as any reasonable rules and regulations hereafter adopted by Landlord
- -
for the Building, to the extent those rules and regulations are not in conflict
with the terms of this Lease, upon notice to Tenant thereof (collectively, the
"Building Rules"). Tenant's failure to comply with such Building Rules shall
constitute a default under this Lease.
29. LANDLORD'S LIABILITY. The term "Landlord," as used in this Lease,
--------------------
shall mean only the owner or owners of the Premises at the time in question.
Notwithstanding any other term or provision of this Lease, the liability of
Landlord for its obligations under this Lease is limited solely to Landlord's
interest in the Premises as the same may from time to time be encumbered, and no
personal liability shall at any time be asserted or enforceable against any
other assets of Landlord or against Landlord's partners or their stockholders,
directors or officers on account of any of Landlord's obligations or actions
under this Lease. In addition, in the event of any conveyance of title to the
Building or the Premises, then from and after the date of such conveyance,
Landlord shall be relieved of all liability with respect to Landlord's
obligations to be performed under this Lease after the date of such conveyance.
Upon any conveyance of title to the Building or the Premises, the grantee or
transferee, by accepting such conveyance, shall be deemed to have assumed
Landlord's obligations to be performed under this Lease from and after the date
of transfer, subject to the limitations on liability set forth above in this
Section 29.
27
<PAGE>
30. CONSENTS AND APPROVALS. Wherever the consent, approval, judgment or
----------------------
determination of Landlord is required or permitted under this Lease, such
consent, approval, judgment or determination shall be reasonably made, unless
the provision providing for the same specifies that Landlord may exercise its
good faith business judgment or use another standard in granting or withholding
such consent or approval or in making such judgment or determination. If it is
determined that Landlord failed to give its consent where it was required to do
so under this Lease, Tenant shall be entitled to specific performance but not to
monetary damages for such failure.
The review and/or approval by Landlord of any item to be reviewed or
approved by Landlord under the terms of this Lease or any Exhibits hereto shall
not impose upon Landlord any liability for accuracy or sufficiency of any such
item or the quality or suitability of such item for its intended use. Any such
review or approval is for the sole purpose of protecting Landlord's interest in
the Premises under this Lease, and no third parties, including Tenant or the
Representatives and Visitors of Tenant or any person or entity claiming by,
through or under Tenant, shall have any rights hereunder.
31. BROKERS. Tenant warrants and represents to Landlord that in the
-------
negotiating or making of this Lease neither Tenant nor anyone acting on its
behalf has dealt with any real estate broker or finder who might be entitled to
a fee or commission for this Lease other than BT Commercial Real Estate, whose
commission is to be paid by Colliers Parrish. Tenant shall indemnify, defend
and hold Landlord harmless from and against any claim by any person or real
estate broker that it is entitled to a commission in connection with this Lease
as the result of the Tenant's dealings with such person.
32. RIGHTS RESERVED BY LANDLORD. Landlord retains and shall have the
---------------------------
rights set forth below, exercisable without notice and without liability to
Tenant for damage or injury to property, person or business and without
effecting an eviction, constructive or actual, or disturbance of Tenant's use or
possession of the Premises or giving rise to any claim for set-off or abatement
of Rent:
(a) To change the Building's name or street address.
(b) To install, affix and maintain any and all signs on the exterior
of the Building.
(c) Except as otherwise provided herein, to grant to anyone the
exclusive right to conduct any business or render any service in or to the
Building and its tenants, provided such exclusive right shall not operate to
require Tenant to use or patronize such business or service or to exclude Tenant
from its use of the Premises expressly permitted herein.
28
<PAGE>
33. HAZARDOUS MATERIALS.
-------------------
33.1 Definitions.
-----------
(a) "Hazardous Materials" shall mean any substance that now or in the
future requires investigation or remediation under, or is regulated or defined
as a hazardous waste or hazardous substance, by any governmental authority or
instrumentality or any law, regulation, rule or order, or any amendment thereto,
including the Comprehensive Environmental Response Compensation and Liability
Act, 42 U.S.C. (S) 9601 et seq., the Resource Conservation and Recovery Act, 42
-- ---
U.S.C. (S) 6901 et seq., the California Health and Safety Code, and the
-- ---
California Water Code, or that is otherwise toxic, explosive, corrosive,
flammable, infectious, mutagenic, radioactive, carcinogenic, a pollutant or a
contaminant, including gasoline, diesel, petroleum hydrocarbons, polychlorinated
biphenyls (PCBs), asbestos, radon and urea formaldehyde foam insulation.
(b) "Environmental Requirements" shall mean all present and future
governmental laws, regulations, rules, orders, permits, licenses, approvals,
authorizations and other requirements of any kind applicable to Hazardous
Materials, including common law tort principles (such as public and private
nuisance and strict liability for conducting abnormally dangerous activities).
(c) "Handle," "Handled," or "Handling" shall mean any installation,
handling, generation, storing, treatment, use, disposal, discharge, release,
manufacture, refinement, emission, abatement, removal, transportation, presence
or migration of any Hazardous Materials, or any other activity of any type in
connection with or involving Hazardous Materials.
(d) "Tenant's Representatives," as used in this Section, shall mean
all Tenant's officers, employees, contractors, representatives, assignees,
sublessees, agents, invitees, and any trespassers on the Property.
33.2 Tenant's Covenants. Tenant and Tenant's Representatives shall
------------------
not Handle any Hazardous Materials at or about the Premises without Landlord's
prior written consent, which consent may be granted, denied, or conditioned upon
compliance with Landlord's requirements, all in Landlord's absolute discretion.
Notwithstanding the foregoing, normal quantities and use of those Hazardous
Materials customarily used in the conduct of general office activities (for
example, copier fluids and cleaning supplies), may be used and stored at the
Premises without Landlord's prior written consent.
Prior to the commencement of the term of the Lease, and again prior to the
execution of any agreement extending or renewing the Term or upon request by
Landlord, Tenant shall deliver to Landlord copies of all permits,
authorizations, plans and reports, and supporting documentation therefor,
including any Hazards
29
<PAGE>
Materials Management Plan, which are required by law or by any governmental
authority with respect to Tenant's use or proposed use of the Premises,
including any Handling of Hazardous Materials. The provisions of this Section
shall apply to all Hazardous Materials, whether or not Landlord has given Tenant
its consent to Handle such Hazardous Materials. Tenant's and Tenant's
Representatives Handling of all Hazardous Materials shall comply at all times
with all Environmental Requirements and Tenant shall, at its own expense,
promptly take all actions required by any governmental authority in connection
with Tenant's or Tenant's Representatives Handling of Hazardous Materials at or
about the Premises. Tenant shall keep Landlord fully and promptly informed of
all Handling of Hazardous Materials on the Premises, including notifying
Landlord within twenty-four (24) hours of any spill, release, discharge, or
emission.
Tenant shall maintain, at its own expense, a written program to ensure and
monitor Tenant's continued compliance with this Section and all Environmental
Requirements. At Landlord's request, Tenant shall provide Landlord with a copy
of such program, including monitoring results; provided, however, that Tenant
acknowledges that such program will be supplied to Landlord solely for
informational purposes, and that Landlord shall have no obligation to review the
information provided, shall not be deemed to have approved or consented to any
matter set forth therein, and shall have no liability for any deficiencies
therein.
Prior to the expiration or termination of the Lease, Tenant shall, at its
sole expense, promptly remove from the Premises, using the then best available
technology, all Hazardous Materials Handled by Tenant or Tenant's
Representatives ("Lease Closure"), notwithstanding any lesser standard of
removal or remediation which might be allowable under applicable law or
governmental policies, and perform or cause to be performed all actions
necessary, as determined by Landlord in its reasonable business judgment, to
ensure that Lease Closure has been completed, including inspection, testing and
post-Lease Closure monitoring. Tenant, at its sole expense, shall repair any
damage caused by such work and unless otherwise requested by Landlord, shall
close, at the completion of all testing and monitoring, in accordance with
applicable law, any and all monitoring and extraction wells and boreholes
installed as a result of or in connection with Tenant's occupancy of the
Premises or otherwise installed by Tenant, or at Tenant's direction. All
consultants or contractors performing work on behalf of Tenant pursuant to this
Section shall be qualified and licensed to undertake the applicable work and
shall be subject to Landlord's prior approval. All work required to be
performed under this Section, and Tenant's and Tenant's Representatives Handling
of all Hazardous Materials, shall be performed in a good, safe and workmanlike
manner and in a manner that will not interfere with Landlord's use, operation,
leasing or sale of the Premises or the use or occupancy of any other tenant of
the Property.
Tenant shall be responsible and liable for the compliance with all of the
provisions of this Section by Tenant's Representatives.
33
<PAGE>
33.3 Compliance. Tenant shall deliver to Landlord prior to delivery
----------
to, or promptly after receipt from, any governmental authority or other person
or entity copies of all permits, manifests, closure or remedial action plans,
notices, investigations, inquiries, claims, citations, summons, complaints,
writs, orders and all other communications or documents relating to (a) the
Handling of Hazardous Materials at or about the Premises or Property, (b) the
actual, alleged or threatened violation of Environmental Requirements or (c) the
liability of Tenant for Environmental Losses. Any communications, written or
oral, regarding any release, discharge, emission or any other occurrence posing
an imminent threat of damage or contamination to the Property or the environment
shall be delivered or, if oral, communicated, to Landlord within twenty-four
(24) hours of receipt; all other communications shall be delivered to Landlord
within five (5) days of receipt. Landlord shall have no obligation to review or
evaluate any such communication and shall not be deemed to have approved,
consented to or participated in any act or omission described or required by
such communication.
Tenant shall remove at its own expense, by bond or otherwise, all liens or
charges of any kind filed or recorded against the Premises in connection with
Tenant's or Tenant's Representatives' Handling of Hazardous Materials, within
ten (10) days after the filing or recording of such lien or charge, and if
Tenant fails to do so, Landlord shall have the right, but not the obligation, to
remove the lien or charge at Tenant's expense in any manner Landlord deems
expedient.
33.4 Landlord's Rights. Landlord and its representatives and
-----------------
consultants shall have the right, but not the obligation, to enter the Premises
at any reasonable time (a) to confirm Tenant's compliance with the provisions of
this Section, including the right to physically investigate the condition of the
Premises and review all permits, reports, plans, and other documents regarding
the Handling of Hazardous Materials, and (b) to perform Tenant's obligations
under this Section if Tenant has failed to timely do so. Tenant shall pay the
costs of Landlord's consultants' fees and all other costs incurred by Landlord
pursuant to clause (a) above if such investigation is undertaken because
Landlord reasonably believes Tenant has failed to provide full and complete
information regarding any release, discharge or other Handling of Hazardous
Materials and shall pay, in any case, all such costs incurred pursuant to clause
(b). Landlord shall use reasonable efforts to minimize any interference with
Tenant's business caused by Landlord's entry into the Premises, but Landlord
shall not be responsible for any interference caused thereby.
Landlord shall have the right, but not the obligation, to require, annually
during the term of the Lease and again within five (5) business days after the
termination or expiration of the Lease, that a detailed review ("Environmental
Audit") be undertaken to determine whether the Premises and Tenant and Tenant's
Representatives' Handling of all Hazardous Materials comply with this Section.
The Environmental Audit shall be conducted by independent, qualified, licensed
environmental consultants selected by Tenant and acceptable to Landlord. If the
31
<PAGE>
consultants chosen by Tenant are unacceptable to Landlord, Landlord shall be
entitled to engage its own consultants to conduct the Environmental Audit, and
Tenant shall pay Landlord's consultants' fees and all costs incurred by Landlord
in performing the Environmental Audit. The Environmental Audit shall include an
inspection of the Premises, interviews with the occupants of the Premises and
any other matters which the consultants believe, in the exercise of their
professional judgment, are necessary to ascertain whether the Premises are in
compliance with this Section, including the installation of monitoring wells,
and seats and water testing. Tenant shall fully cooperate with the consultants
and comply with all information requests. After the completion of the
Environmental Audit, a written report shall be prepared and copies shall be
distributed to both Landlord and Tenant.
If the Premises are not in compliance with this Section, Tenant shall
promptly take all action necessary to bring the Premises into compliance with
this Section, including all testing, removal and remediation.
33.5 Landlord's Representations and Warranties as to Hazardous
---------------------------------------------------------
Materials. Landlord makes no representation and assumes no obligation regarding
- ---------
the presence or absence of toxic or hazardous wastes or substances or other
undesirable material on or about the Premises. Tenant acknowledges that
Landlord has requested Tenant to inspect fully the Premises and investigate all
matters relevant thereto and to rely solely upon the results of such inspection
and investigation rather than any representation that may have been made by
Landlord or its agents.
33.6 Tenant's Indemnification. In addition to, and not in derogation
------------------------
of any other indemnification contained in the Lease, Tenant agrees to indemnify,
defend and hold harmless Landlord, its successors and assigns, and its and their
trustees, beneficiaries, directors, officers, shareholders, employees, agents,
and partners from all costs, expenses, damages, liabilities, claims, fines,
penalties, interest, judgments, and losses of any kind arising from or in any
way related to Tenant's or Tenant's Representatives' Handling of Hazardous
Materials or failure to comply in full with this Section (collectively,
"Environmental Losses"), including consequential damages, damages for personal
or bodily injury, property damage, damage to natural resources occurring on or
off the Premises, encumbrances, liens, costs and expenses of investigations,
monitoring, clean up, removal or remediation of Hazardous Materials, defense
costs of any claims (whether or not such claim is ultimately defeated), good
faith settlements, attorneys' and consultants' fees and costs, and losses
attributable to the diminution of value, loss of use or adverse effects on
marketability or use of any portion of the Premises, whether or not such
Environmental Losses are contingent or otherwise, matured or unmatured,
foreseeable or unforeseeable.
33.7 Insurance. Tenant shall maintain insurance with coverage of no
---------
less than Five Million and No/100 Dollars ($5,000,000) insuring against
Environmental Losses which may result from the presence or other Handling of
32
<PAGE>
Hazardous Materials on or about the Premises by Tenant or Tenant's
Representatives. Such policy of insurance shall name Landlord as additional
insured and the proceeds thereunder shall be payable notwithstanding any act,
omission or negligence of Landlord, Tenant or Tenant's Representatives, or their
respective employees, agents, invitees or contractors. Such policy of insurance
shall otherwise comply with the provisions of Section 12 of this Lease. If such
insurance is written on a "claims-made" basis, Tenant shall maintain such
insurance for a period of five (5) years after the expiration or earlier
termination of the Lease. If Tenant fails to maintain such insurance, Landlord
shall be entitled to do so at Tenant's expense.
33.8 Tolling. Landlord and Tenant agree that the statute of
-------
limitations shall be tolled from the Commencement Date through the expiration or
termination of the Lease (including any renewal or extension periods), for any
and all claims either may have against the other arising out of any leak,
release or discharge of Hazardous Materials at the Property, or in connection
with any remediation of any such leak, release or discharge.
33.9 Survival. Tenant's obligations under this Section shall survive
--------
the expiration or termination of the Lease.
34. SECURITY DEPOSIT. On execution of this Lease, Tenant shall deposit
----------------
with Landlord Fifty-Seven Thousand Two Hundred Thirteen Dollars ($57,213.00) as
a security deposit for the performance by Tenant of the provisions of this
Lease. Landlord may use the security deposit or any portion thereof to cure any
Event of Default under this Lease or to compensate Landlord for any damage it
incurs as a result of Tenant's failure to perform any of its obligations
hereunder. In such event Tenant shall immediately pay to Landlord an amount
sufficient to replenish the security deposit to the sum initially deposited with
Landlord. If Tenant is not in default at the expiration or termination of this
Lease, Landlord shall return to Tenant the security deposit or the balance
thereof then held by Landlord. Landlord may commingle the security deposit with
Landlord's general and other funds. Upon termination of Landlord's interest in
the Property, whether by sale of the Property or otherwise, Landlord shall have
no further obligation to Tenant with respect to the security deposit or any
other sums due hereunder and prepaid by Tenant upon transfer of the security
deposit to Landlord's successor in interest. Provided Tenant is not in default
of the Lease in the 12th month of the lease, one third of the Security Deposit
shall be applied to the 13th month's rent. Additionally, provided Tenant is not
in default of the Lease in the 24th month, one third of the Security Deposit
shall be applied to the 25th month's rent.
35. TENANT'S FINANCIAL CONDITION. Tenant shall deliver Tenant's financial
----------------------------
statements to Landlord on a quarterly basis. In addition, within ten (10) days
after written request from Landlord, Tenant will deliver such monthly financial
statements as Landlord reasonably requires to verify the financial condition of
tenant or any assignee, subtenant or guarantor of tenant. In addition, Tenant
shall deliver
33
<PAGE>
to any lender designated by Landlord any financial statements required by such
lender to facilitate the financing or refinancing of the Premises. Tenant
represents and warrants to Landlord that each such financial statement is a true
and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
36. ENTIRE AGREEMENT. This Lease, including the Exhibits and any addenda
----------------
attached hereto and the documents referred to herein, if any, constitute the
entire agreement between Landlord and Tenant with respect to the leasing of the
Premises by Tenant, and supersede all prior or contemporaneous agreements,
understandings, proposals and other representations by or between Landlord and
Tenant, whether written or oral. Neither Landlord nor Landlord's agents have
made any representations or warranties with respect to the Building, the
Premises or this Lease except as expressly set forth herein, and no rights,
easements or licenses shall be acquired by Tenant by implication or otherwise
unless expressly set forth herein. The submission of this Lease for examination
does not constitute an option for the Premises and this Lease shall become
effective as a binding agreement only upon execution and delivery thereof by
Landlord to Tenant.
37. MISCELLANEOUS. This Lease may not be amended or modified except by a
-------------
writing signed by Landlord and Tenant. Subject to Sections 15 "Assignment and
Subletting" and 29 "Landlord's Liability," this Lease shall be binding on and
shall inure to the benefit of the parties and their respective successors,
assigns and legal representatives. The determination that any provisions hereof
may be void,' invalid, illegal or unenforceable shall not impair any other
provisions hereof and all such other provisions of this Lease shall remain in
full force and effect. The unenforceability, invalidity or illegality of any
provision of this Lease under particular circumstances shall not render
unenforceable, invalid or illegal other provisions of this Lease or the same
provisions under other circumstances. So as to avoid the rule against
perpetuities, in all events if the Commencement Date has not occurred within the
period provided by Civil Code (S) 715, all rights and obligations of the parties
hereunder shall terminate. This Lease shall be construed and interpreted in
accordance with the laws of the state of California. The provisions of this
Lease shall be construed in accordance with the fair meaning of the language
used and shall not be strictly construed against either party. When required by
the contents of this Lease, the singular includes the plural. Wherever the term
"including" is used in this Lease, it shall be interpreted as meaning
"including, but not limited to," the matter or matters thereafter enumerated.
The captions contained in this Lease are for purposes of convenience only and
are not to be used to interpret or construe this Lease. If there be more than
one person or entity as Tenant hereunder, the obligations imposed hereunder
shall be joint and several. Time is of the essence with respect to this Lease,
except as to the conditions relating to the delivery of possession of the
Premises to Tenant. Neither Landlord nor Tenant shall record this Lease.
34
<PAGE>
38. Authority. If the Tenant is a corporation or a partnership, each of
---------
the persons executing this Lease on behalf of Tenant warrants and represents
that Tenant is a duly organized and validly existing entity, that Tenant has
full right and authority to enter into this Lease and that the persons signing
on behalf of Tenant are authorized to do so and have the power to bind Tenant to
this Lease. Tenant shall provide Landlord upon request, with evidence
reasonably satisfactory to Landlord confirming the foregoing representations.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
Landlord: Tenant:
BRE PROPERTIES, INC., ---------------------------------
a Delaware corporation a
-------------------------------
By: By:
------------------------------- ------------------------------
Ronald P. Wargo
Senior Vice President Name:
----------------------------
Title:
---------------------------
By:
-------------------------------
Bruce E. Rueppel
Vice President
Address for Notices Address for Notices:
One Montgomery Street
Telesis Tower, Suite 2500 -------------------------------
San Francisco, CA 94104 -------------------------------
Attention: Ronald P. Wargo -------------------------------
35
<PAGE>
EXHIBIT A
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF ____________________________
BETWEEN
BRE PROPERTIES, INC., AS LANDLORD
AND
PRIMAX ELECTRONICS, INC.
AS TENANT ("LEASE")
THE PREMISES
------------
36
<PAGE>
EXHIBIT B
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF ____________________________
BETWEEN
BRE PROPERTIES, INC., AS LANDLORD
AND
PRIMAX ELECTRONICS, INC.
AS TENANT ("LEASE")
CONSTRUCTION RIDER
------------------
1. Improvements. Landlord shall, with reasonable diligence thorough a
------------
contractor designated by Landlord, perform the work provided for in this
Construction Rider ("Improvements").
1.1 Plans. The conceptual space plan ("Space Plan") for the Premises
-----
is attached as Schedule 1 hereto, which Space Plan has been approved by Tenant.
Landlord has caused to be prepared and delivered to Tenant detailed plans and
specifications sufficient to permit the construction of the Improvements by
Landlord's contractor based on the Space Plan ("Construction Documents"),
together with a cost estimate for such work, both of which have been approved by
Tenant. The Construction Documents and cost estimate, as approved by Tenant,
are hereinafter referred to as the Final Construction Documents and Final Cost
Estimate, respectively.
Additional interior decorating services and advice on the furnishing and
decoration of the Premises, such as the selection of fixtures, furnishings, or
other improvements required by Tenant, shall be provided to Tenant at Tenant's
expense, but shall be subject to the reasonable approval of Landlord.
1.2 Construction. Upon completion of the Final Construction
------------
Documents, Landlord shall proceed with reasonable diligence to cause the
Improvements to be Substantially Completed on or prior to the Scheduled
Commencement Date. The Improvements shall be deemed to be "Substantially
Completed" when they have been completed in accordance with the Final
37
<PAGE>
Construction Documents except for finishing details, minor omissions,
decorations, and mechanical adjustments of the type normally found on an
architectural "punch list". The punch list work shall be completed to Tenant's
reasonable satisfaction within sixty (60) business days after the preparation of
the punch list.
Following Substantial Completion of the Improvements and within thirty (30)
days after Tenant takes possession of the Premises, Landlord and Tenant shall
inspect the Premises and jointly prepare a "punch list" of agreed items of
construction remaining to be completed. Landlord shall complete the items set
forth in the punch list as soon as reasonably possible. Tenant shall cooperate
with and accommodate Landlord and its workers in completing the items on the
punch list.
1.3 Cost of Improvements.
--------------------
(a) The cost of the construction and installation of the Improvements
(which cost shall include, without limitation, all architectural fees,
permitting fees, governmental requirements and utility hookup fees) shall be
paid as follows: For the first $146,700 in costs, Landlord will pay 100% of each
payment due to the contractor. Tenant will bear all costs of the Improvements
in excess of $146,700 and shall pay such costs as and when due to the
contractor. Landlord will use reasonable care in preparing its cost estimates,
but they are estimates only and do not limit Tenant's obligation to pay Tenant's
costs of the Improvements, whether or not it exceeds the estimated amounts.
1.4 Changes. If Tenant requests any change, addition or alteration
-------
in or to any Final Construction Documents ("Changes"), Landlord shall cause the
Space Planner to prepare additional Plans implementing such Change. As soon as
practicable after the completion of such additional Construction Documents,
Landlord shall notify Tenant of the estimated cost of the Changes. Within three
(3) business days after receipt of such cost estimate, Tenant shall notify
Landlord in writing whether Tenant approves the Change. If Tenant approves the
Change, Landlord shall proceed with the Change and Tenant shall pay for any cost
resulting from the Change within five (5) business days after demand, including
any costs of revising the Construction Documents, but only to the extent such
costs would cause the aggregate cost of the Improvements to exceed $146,700;
provided, however, that no work shall commence on the Change until Tenant pays
any such excess cost. If Tenant fails to approve the Change within such three
(3) day period, construction of the Improvements shall proceed as provided in
accordance with the original Construction Documents.
1.5 Delays. Tenant shall be responsible for, and shall pay to
------
Landlord (to the extent such costs would cause the aggregate cost of the
Improvements to exceed $146,700), in the commencement or completion of any
Improvements and any increase in the cost of the Improvements caused by (i)
Tenant's failure to submit information or approve any Construction Documents or
38
<PAGE>
cost estimates within the time periods required herein, (ii) any changes,
including any delays in obtaining any items or materials constituting part of
the Changes requested by Tenant, or (iii) any other delay requested or caused by
Tenant (collectively, "Tenant Delays").
2. Commencement Date. Upon Substantial Completion of the Improvements,
-----------------
Landlord shall deliver possession of the premisses to Tenant. If Landlord has
not Substantially Completed the Improvements and tendered possession of the
Premises to Tenant on or before the Scheduled Commencement Date specified in
Section 2 of the Lease, or if Landlord is unable for any other reason to deliver
possession of the Premises to Tenant on or before such date, neither Landlord
nor its representatives shall be liable to Tenant for any damage resulting from
the delay in completing such construction obligations and/or delivering
possession to Tenant, and the Lease shall remain in full force and effect unless
and until it is terminated under the express provisions of this Paragraph. If
any delays in Substantially Completing the Improvements are attributable to
Tenant Delays, then the Premises shall be deemed to have been Substantially
Completed and delivered to Tenant on the date on which Landlord could have
Substantially Completed the Premises and tendered the Premises to Tenant but for
such Tenant Delays.
Notwithstanding the foregoing, if the Commencement Date has not occurred or
been deemed to have occurred within one hundred twenty (120) days after the
Scheduled Commencement Date, either party, by written notice to the other given
within ten (10) days after the expiration of such one hundred twenty (120) day
period, may terminate this Lease, and thereupon neither party shall have any
liability to each other with respect to this Lease.
3. Access to Premises. Landlord shall allow Tenant or Tenant's
------------------
Representatives to enter the Premises prior to the Commencement Date to permit
Tenant to make the Premises ready for its use and occupancy; provided, however,
that prior to such entry of the premises, Tenant shall provide evidence
reasonably satisfactory to Landlord that Tenant's insurance, as described in
Section 12.1 of the Lease, shall be in effect as of the time of such entry.
Such permission may be revoked at any time upon twenty-four (24) hours' notice,
and Tenant and its Representatives shall not interfere with Landlord or
Landlord's contractor in completing the Improvements.
Tenant agrees that Landlord shall not be liable in any way for any injury,
loss or damage which may occur to any of Tenant's property placed upon or
installed in the Premises prior to the Commencement Date, the same being at
Tenant's sole risk, and Tenant shall be liable for all injury, loss or damage to
persons or property arising as a result of such entry of the Premises by Tenant
or its Representatives.
39
<PAGE>
4. Ownership of Improvements. All Improvements shall become a part
-------------------------
of the Premises, shall be the property of Landlord shall be surrendered by
Tenant with the Premises without any compensation to Tenant, or removed at
Landlord's request, at the expiration or termination of the Lease in accordance
with Section 20.
40
<PAGE>
EXHIBIT C
---------
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF ____________________________
BETWEEN
BRE PROPERTIES, INC., AS LANDLORD
AND
PRIMAX ELECTRONICS, INC.
AS TENANT ("LEASE")
BUILDING RULES
--------------
The following Building Rules are additional provisions of the foregoing
Lease to which they are attached. The capitalized terms used herein have the
same meanings as these terms are given in the Lease.
1. No Access to Roof. Subject to the terms of Section 35 "Antenna
-----------------
Equipment" of the lease, Tenant has no right of access to the roof of the
Building and will not install, repair or replace any antenna, aerial, aerial
wires, fan, air conditioner or other device on the roof or the Building, without
the prior written consent of Landlord. Any such device installed without such
written consent is subject to removal at Tenant's expense without notice at any
time. In any event Tenant will be liable for any damages or repairs incurred or
required as a result of its installation, use, repair, maintenance or removal of
such devices on the roof and agrees to indemnify and hold harmless Landlord from
any Claims arising from any activities of Tenant or of Tenant's Representatives
on the roof of the Building.
2. Signage. No sign, placard, picture, name, advertisement or notice
-------
visible from the exterior of the Premises will be inscribed, painted, affixed or
otherwise displayed by Tenant on or in any part of the Building or the Property
without the prior written consent of Landlord, which shall not be withheld so
long as such signage meets with all required governmental approvals, including
without limitation the City of Sunnyvale. Landlord reserves the right to adopt
and furnish Tenant with general guidelines relating to signs in or on the
Building and Property.
41
<PAGE>
All approved signage will be inscribed, painted or affixed at Tenant's expense
by a person approved by Landlord, which approval will not be unreasonably
withheld.
3. Prohibited Uses. The Premises will not be used for the storage of
---------------
merchandise held for sale to the general public, for lodging or for the sale of
goods to the general public. Tenant will not permit any food preparation on the
Premises, except that Tenant may use Underwriters' Laboratory approved equipment
for brewing coffee, tea, hot chocolate and similar beverages and for the heating
of food so long as such use is in accordance with all applicable Legal
Requirements.
4. Keys and Locks. Landlord will furnish Tenant, free of charge, five
--------------
keys to each door or lock in the Premises. Landlord may make a reasonable
charge for any additional or replacement keys. Tenant will not duplicate any
keys, alter any locks or install any new or additional lock or bolt on any door
of its Premises or on any other part of the Building without the prior written
consent of Landlord and, in any event, Tenant will provide Landlord with a key
for any such lock. On the termination of the Lease, Tenant will deliver to
Landlord all keys to any locks or doors in the Building which have been obtained
by Tenant.
5. Nuisances and Dangerous Substances. Tenant will not conduct itself or
----------------------------------
permit its agents, employees, contractors or invitees to conduct themselves, in
the Premises or anywhere on or in the Premises in a manner which is offensive or
unduly disturbing or annoying to adjoining neighbors. Tenant will not bring or
keep any animals in or about the Premises.
42
<PAGE>
EXHIBIT D
---------
GUARANTY OF LEASE
-----------------
This Guaranty of Lease is executed by ____________________________
____________________________, a __________________________________________
("Guarantor") in favor of BRE Properties, Inc., a Delaware corporation
("Landlord").
RECITAL
As a condition to Landlord's entering into that certain Lease (the "Lease")
dated March ______________, 1995, between Landlord and Primax Electronics, Inc.,
as tenant ("Tenant") for approximately 29,340 square feet of space (the
"Premises") in the building located at 525 Almanor Avenue, Sunnyvale,
California, Landlord is requiring Guarantor to guarantee Tenant's obligations
under the Lease, and would not execute such lease without the guarantee.
Guarantor will derive substantial benefit from the Lease by virtue of [owning
____% of the outstanding stock of Tenant, or similar benefit].
NOW, THEREFORE, as a material inducement to Landlord's agreement to enter
into the Lease, Guarantor agrees as follows:
1. Guaranty. Guarantor hereby agrees to unconditionally guarantee the
--------
prompt, full and complete performance of all of the obligations of Tenant under
the Lease. If Tenant at any time fails to make any payment under the Lease when
due or fails to perform or comply with any covenant, condition or term of the
Lease, Guarantor will, upon notice from Landlord and without further demand,
pay, perform or comply with the same in the same manner and to the same extent
as is required of Tenant.
2. Covenants and Acknowledgments. Guarantor further agrees that:
-----------------------------
(a) The Lease may be modified or amended in whole or in part without
notice to Guarantor and without releasing Guarantor or affecting its obligations
under this Guaranty in any way.
(b) Landlord may, from time to time, and without notice to Guarantor,
release any security that Landlord may have for the obligations of Tenant under
the Lease or accept security therefor, add, substitute or release guarantors, or
compromise or settle any amount due or owing or claimed to be owing under the
Lease. No such action by Landlord or any other action which Landlord may take
or omit to take in connection with the Lease shall affect this Guaranty or
Guarantor's obligations in any way.
43
<PAGE>
(c) Guarantor expressly waives (i) notice of acceptance of this
Guaranty, (ii) notice of Tenant's default in the payment of rent or other sums
required under the Lease, (iii) notice of demand by Landlord and (iv) diligence
of collecting any sums due under the Lease or the taking of any action with
reference to any default under the Lease or to any liability under this
Guaranty.
(d) Landlord has no duty to disclose to Guarantor any information it
receives regarding the financial status of Tenant, whether or not such
information indicates that the risk of Guarantor under this Guaranty has been or
may be increased. Guarantor assumes full responsibility for being and keeping
informed of Tenant's financial condition, Tenant's performance under the Lease,
and Tenant's use and operation of the Leased Premises.
(e) Guarantor hereby subordinates all its claims for payment or liens
securing indebtedness of Tenant to Guarantor, if any, to Landlord's right to
receive payment from Tenant of all sums due under the Lease.
(f) The obligations of Guarantor under this Guaranty are primary and
are independent of the obligations of Tenant, and Landlord may directly enforce
its rights under this Guaranty without proceeding against or joining Tenant,
without applying or enforcing any security for the Lease, and without first
proceeding against Tenant.
(g) Guarantor's obligations hereunder shall not be affected by any
bankruptcy, insolvency, or reorganization of Tenant or any successor or assignee
of the Tenant or by any disaffirmance or abandonment by a trustee of Tenant.
(h) Landlord may, without notice, assign this Guaranty in whole or in
part. No assignment or transfer of the Lease by Landlord or by Tenant or any
subletting by Tenant shall extinguish or reduce the liability of Guarantor
hereunder.
3. Miscellaneous.
-------------
(a) This Guaranty shall inure to the benefit of any person or persons,
entity or entities who at any time may be entitled to the benefits of, and
obligated to perform the duties of, Landlord under the Lease and shall be
binding upon the heirs, administrators, successors and assigns of Guarantor.
(b) Guarantor agrees to pay all costs and expenses, including court
costs and attorneys' fees, incurred or paid by Landlord in enforcing this
Guaranty or collecting any sums due hereunder.
(c) This Guaranty may not be changed orally, and no obligation of
Guarantor can be released or waived except by a writing signed by Landlord.
44
<PAGE>
(d) If any term or provision of this Guaranty is ever determined to be
illegal or unenforceable, all other terms and provisions of this Guaranty shall
remain effective and enforceable to the fullest extent permitted by law.
(e) This Guaranty and the rights and obligations of Guarantor and
Landlord under this Guaranty shall be governed by and construed in accordance
with the laws of the State of California.
IN WITNESS WHEREOF, this Guaranty has been executed by Guarantor, effective
as of ____________________________, 19____.
Guarantor
----------------------------------
----------------------------------
----------------------------------
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Address of Guarantor:
----------------------------------
----------------------------------
----------------------------------
45
<PAGE>
EXHIBIT 10.30
AMENDMENT ONE TO THE
DISTRIBUTION AGREEMENT
BETWEEN
STORM PRIMAX, INC.
AND
PRIMAX ELECTRONICS, LTD.
This Amendment One ("Amendment") to the above-referenced agreement with an
effective date of February 29, 1996 ("Agreement") is entered into this day of
September ____, 1996 by and between Storm Primax, Inc. ("Storm Primax"), a
California corporation, and Primax Electronics, Ltd. ("Primax Taiwan"), an ROC
corporation. Unless otherwise set forth herein, all capitalized terms used in
this Amendment shall have the meanings ascribed to them in the Agreement.
NOW, THEREFORE, the parties agree to amend the Agreement as follows:
1. Section 2.1(C) is amended to read in full as follows:
(C) (i) a non-exclusive, non-transferable license (including the right
to sublicense through multiple tiers of sublicenses) to distribute the
unmodified Products, Documentation, Localized Software Products and
Localized Documentation to OEM Customers in the Non-Exclusive
Territory and (ii) an exclusive, non-transferable license (including
the right to sublicense through multiple tiers of sublicenses) to
distribute the unmodified Products, Documentation, Localized Software
Products and Localized Documentation to Retail Customers in the
Exclusive Territory; and
2. Section 2.3 is amended to read in full as follows:
2.3 Exceptions to Exclusivity. Notwithstanding Primax Taiwan's grant
-------------------------
to Storm Primax of certain exclusive distribution rights under this
Agreement, Primax Taiwan may distribute Non-A6 Products to Retail
Customers in the Exclusive Territory if the Retail Customer is not
domiciled in the Exclusive Territory provided that: (i) the Retail
Customer agrees to purchase a Non-A6 Product with a substantially
different design than that offered by Storm Primax; (ii) the Retail
Customer would utilize a software application other than a proprietary
Storm Primax software product; (iii) Storm Primax maintains the lowest
customer price relative to all such similar Retail Customers with a
substantially similar Product sales volume; and (iv) Primax Taiwan
notifies Storm Primax of such
<PAGE>
prospective relationship not less than 120 days prior to launch of the
Non-A6 Product in the Exclusive Territory.
3. Exhibit 1.25 is amended to read in full as follows:
------------
Exhibit 1.25
------------
Territory
---------
*Exclusive Territory
--------------------
United States
Canada
Non-Exclusive Territory
-----------------------
South America
Mexico
Central America
*Non-Exclusive as to OEM Customers
4. Except as amended herein, all terms and conditions of the Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to the Agreement as
of the date set forth above.
STORM PRIMAX, INC. PRIMAX ELECTRONICS, LTD.
By:_________________________ By:____________________________
Title:______________________ Title:_________________________
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 19, 1996
relating to the financial statements of Storm Technology, Inc., and our report
dated February 29, 1996, except as to Note 7 which is as of March 18, 1996
relating to the financial statements of Primax Electronics (USA), Inc., which
appear in such Prospectus. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Prospectus. However,
it should be noted that Price Waterhouse LLP has not prepared or certified
such "Selected Financial Data."
Price Waterhouse LLP
San Jose, California
September 27, 1996
