<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1996.
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
STORM PRIMAX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7372 77-0432180
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CODE CLASSIFICATION NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
1861 LANDINGS DRIVE
MOUNTAIN VIEW, CA 94043
(415) 691-6600
(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 PRIMAX, INC.
1861 LANDINGS DRIVE
MOUNTAIN VIEW, CALIFORNIA 94043
(415) 691-6600
(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
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<S> <C> <C> <C> <C>
Common Stock ($.001 par
value)................ 4,255,000 shares $12.00 $51,060,000 $17,607
=================================================================================
</TABLE>
(1) Includes 555,000 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.
---------------
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 PRIMAX, 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
Prospectus................ Inside Front and Outside Back Cover Pages;
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 JUNE 26, 1996
3,700,000 SHARES
STORM PRIMAX, INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
-----------
Of the 3,700,000 shares of Common Stock offered hereby, 2,700,000 shares are
being sold by the Company and 1,000,000 shares are being sold by the Selling
Stockholder. See "Principal and Selling Stockholders". The Company will not
receive any of the proceeds from the sale of shares being sold by the Selling
Stockholder.
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 $10 and $12. 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 Company has applied to have the Common Stock 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) STOCKHOLDER
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
Total(3)........... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Before deducting estimated expenses of $750,000 payable by the Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 555,000 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>
[PICTURES]
IN CONNECTION WITH THE 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 TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
2
<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 offering price of $11 per share, (ii) gives effect to the
reincorporation of the Company in Delaware prior to the effectiveness of the
offering and the associated exchange of three shares of the California
predecessor corporation for every one share of the Delaware successor
corporation, (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 4,551 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 Primax, Inc. ("Storm" or 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
("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 chemical photography market is evolving to a
market which will increasingly include digital photos. 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 which
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, 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 5,619,105 shares of Storm Preferred
Stock. As a result of this transaction, and in combination with a small prior
investment in the Company, Primax owned approximately 54% of the Company's
outstanding voting securities as of May 31, 1996. After completion of this
offering, Primax will own approximately 35% 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............. 2,700,000 shares
Common Stock offered by the Selling
Stockholder.................................... 1,000,000 shares
Common Stock to be outstanding after the
offering....................................... 13,319,078 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) 261,562 shares of Common Stock issuable upon exercise of
options outstanding as of March 31, 1996 with a weighted average exercise
price of $0.30 per share, (ii) 130,146 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) 150,000 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) 100,000 shares of
Common Stock reserved for issuance under the Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan"), and (v) 41,514 shares of Common Stock
issuable upon exercise of outstanding warrants. See "Capitalization,"
"Management--Benefit Plans" and Notes 6 and 9 of Notes to the Company's
Consolidated Financial Statements.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------- -------------------------------------
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 $10,332 $ 690 $ 2,529 $ 3,631
Loss from operations..... (1,367) (2,189) (3,452) (5,182) (757) (6,538)(2) (2,014)
Net loss................. (1,325) (2,093) (3,396) (5,238) (741) (6,519)(2) (2,011)
Pro forma:
Net loss per common and
common equivalent
shares(3)............. $ (0.31) $ (0.48) $ (0.07) $ (0.59) $ (0.18)
Weighted average number
of common and common
equivalent shares
outstanding(3)........ 10,923 10,923 10,888 11,055 11,055
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...... $ 1,635 $28,506
Working capital (deficit).............................. (1,531) 25,340
Total assets........................................... 10,135 37,006
Total stockholders' equity (deficit)................... (472) 26,399
</TABLE>
- --------
(1) The unaudited pro forma statement of operations data for the year ended
December 31, 1995 and the three months ended March 31, 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.
(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 2,700,000 shares of Common Stock by
the Company at the initial public offering price of $11.00 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 and shipped its latest
EasyPhoto release in October 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 March 31, 1996, the Company had an
accumulated deficit of $15.0 million.
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.
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
6
<PAGE>
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 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 5,619,105 shares of Storm Preferred Stock. As a
result of this transaction, and in combination with a small prior investment
in the Company, Primax owned approximately 54% of the voting securities of the
Company as of May 31, 1996 (approximately 35% after completion of this
offering) and has two directors on the Company's Board of Directors. 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
7
<PAGE>
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.
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."
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 manufactured by Primax. These key components
include an application specific integrated circuit (ASIC) within the EasyPhoto
Reader product which is currently available only from Epson. There can be no
assurance that the Company's limited source suppliers will be able to meet the
Company's requirements for certain key components. If Primax were unable to
obtain sufficient supplies or develop alternative sources of these components
in the future, the resultant shortage 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
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 which often occurs during product transitions. In order to
respond to competitive pricing
8
<PAGE>
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 both 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--Directors and Executive Officers."
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. 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 that
compete more directly with those of the Company. A second source of potential
future competition may arise from other current
9
<PAGE>
significant participants in the digital photo market. Certain companies,
including Epson America Inc. ("Epson"), Eastman Kodak Company ("Kodak") and
Polaroid Corporation ("Polaroid"), 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 which are targeted toward consumers and directly
compete with those offered by the Company. A third category of competition
pertains to the Company's EasyPhoto software environment and application
products. Such competition in this category 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 one, if not all, of these sources.
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 three months ended March 31, 1996, sales to
America Online Inc. ("America Online"), Best Buy and Ingram Micro Inc.
("Ingram Micro") accounted for 49%, 17% and 15%, respectively, of total
revenues. The Company does not expect that these customer percentages for the
first quarter 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 period. 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.
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,
10
<PAGE>
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 also relies on certain technology which 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.
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 and 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 counsel to assess the basis for any
claims of infringement by the Company's products. While it may be necessary or
desirable in the future to obtain other licenses relating to one or more of
its products or relating to current or future technologies, there can be no
assurance that the Company will be able to do so on commercially reasonable
terms.
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 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 impact the success of
the Company's international operations. There can be no assurance that one or
more of these factors will not have a
11
<PAGE>
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 CURRENT STOCKHOLDERS
After this offering, the Company's executive officers and directors, and
their affiliates, in the aggregate, will own and control approximately 53% of
the Company's Common Stock. In particular, Primax will own approximately 35% 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 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 the
current stockholders of the Company, including its directors and executive
officers, by, among other things, creating 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 beneficially own prior to this offering an
aggregate of 7,897,731 shares of Common Stock. In addition, one director holds
stock options that are presently exercisable, or will be exercisable within 60
days after May 31, 1996, to purchase an additional aggregate of 23,333 shares
of Common Stock for additional aggregate consideration of $7,000. Based on the
assumed public offering price of $11.00 per share, such shares beneficially
owned or subject to such options will have an aggregate market value of
approximately $87.1 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
which 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.
DILUTION
Investors in shares of Common Stock offered hereby will incur immediate and
substantial dilution in the net tangible book value per share of Common Stock
from the assumed initial public offering price. See "Dilution."
12
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
13,319,078 shares of Common Stock (assuming no exercise of outstanding options
after June 25, 1996). Of these shares, the 3,700,000 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 9,619,078 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) 3,890,159 currently outstanding shares (as well as 197,474
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)
5,728,919 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 133,191 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, following the offering, the holders of 5,728,889 shares of
outstanding Common Stock and 41,514 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 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.
13
<PAGE>
Persons who hold approximately 9,619,078 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. 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 and reincorporated
in Delaware in July 1996. The Company's executive offices are located at 1861
Landings Drive, Mountain View, California, 94043; (415) 691-6600. The Company's
Web site can be located at http://www.easyphoto.com/storm/. Information
contained in the Company's Web site shall not be deemed part of this
Prospectus.
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.
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 2,700,000 shares of
Common Stock being offered by the Company in the offering are estimated to be
$26.9 million ($32.5 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $11.00 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 Stockholder.
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 $4.2 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.
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996,
was approximately $(1.3) million or $(0.13) per share after giving effect to
the issuance of 4,551 shares of Common Stock upon the exercise of outstanding
warrants which 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 $26.9 million from the sale of the 2,700,000 shares
of Common Stock offered by the Company at an assumed initial public offering
price of $11.00 per share (assuming no exercise of the Underwriters' over-
allotment option and before deducting the underwriting discount and estimated
offering expenses) and the adjustments set forth above, the pro forma net
tangible book value of the Company as of March 31, 1996 would have been
approximately $25.6 million or $2.00 per share of Common Stock. This
represents an immediate increase in net tangible book value of $2.13 per share
to existing stockholders and an immediate dilution of $9.00 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.............. $11.00
Pro forma net tangible book value per share before
offering.................................................. $(0.13)
Increase per share attributable to new investors........... 2.13
------
Pro forma net tangible book value per share after offering... 2.00
------
Dilution per share to new investors.......................... $ 9.00
======
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 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 $11.00 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)........ 10,055,879 78.8% $14,537,000 32.9% $ 1.45
New investors(1)........ 2,700,000 21.2 29,700,000 67.1 11.00
---------- ----- ----------- -----
Total................. 12,755,879 100.0% $44,237,000 100.0%
========== ===== =========== =====
</TABLE>
- --------
(1) The net effect of sales by the Selling Stockholder in this offering will
reduce the number of shares held by existing stockholders to 9,055,879
shares or approximately 71.0% 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 3,700,000 shares or approximately 29.0% 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 after March 31, 1996. As of March 31, 1996, options to purchase
261,562 shares of Common Stock were outstanding under such plan. In addition,
4,551 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
March 31, 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 March 31, 1996 into shares of Common Stock and (iii) as
adjusted as of such date to reflect the sale by the Company of 2,700,000
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)
MARCH 31, 1996
----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Stockholders' equity (deficit):
Preferred Stock, $.001 par value;
13,333,333 shares authorized and
8,789,647 shares outstanding,
actual; no shares authorized
and issued pro forma;
500,000 shares authorized no
shares issued and outstanding
as adjusted(1) (2)....... $ 9 $ -- $ --
Common Stock; $.001 par value;
13,333,333 shares authorized and
1,261,681 shares outstanding,
actual; 10,051,328 shares outstanding
pro forma; and 30,000,000 shares
authorized and 12,755,879 shares
outstanding, as adjusted (1) (2) (3)... 1 10 13
Additional paid-in capital............. 14,527 14,527 41,395
Accumulated deficit.................... (15,009) (15,009) (15,009)
----------- ----------- -----------
Total stockholders' equity (deficit).. (472) (472) 26,399
----------- ----------- -----------
Total capitalization.................. $ (472) $ (472) $ 26,399
=========== =========== ===========
</TABLE>
- --------
(1) Excludes 161,290 shares of Series F Convertible Preferred Stock, issued on
June 11, 1996. Such shares are convertible into 163,628 shares of Common
Stock assuming an initial public offering price of $11.00 per share. See
"Capitalization," "Description of Capital Stock" and Note 9 of Notes to
the Company's Consolidated Financial Statements.
(2) Includes 500,000 shares of Preferred Stock and 30,000,000 shares of Common
Stock which will be authorized upon filing for reincorporation in Delaware
prior to the effectiveness of this offering.
(3) Excludes (i) 261,562 shares of Common Stock issuable upon exercise of
options outstanding under the Option Plan as of March 31, 1996, (ii)
130,146 shares of Common Stock reserved for issuance upon exercise of
options that may be granted in the future under the Option Plan, (iii)
150,000 shares of Common Stock reserved for issuance upon exercise of
options that may be granted under the Directors Plan, (iv) 100,000 shares
of Common Stock reserved for issuance under the Purchase Plan, and (v)
41,514 shares of Common Stock reserved for issuance upon exercise of
outstanding warrants. See "Capitalization," "Management--Benefit Plans"
and Notes 6 and 9 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 the 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 three-month periods ended March 31, 1995 and 1996 and the
balance sheet data as of March 31, 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
three months ended March 31, 1996 have been derived from the unaudited Pro
Forma Combined Financial Information included elsewhere herein. The results of
the three-month period ended March 31, 1996 are not necessarily indicative of
the results to be expected for any future period.
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------------
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 $ 9,103 $ 285 $ 2,435 $ 3,425
Royalty and other...... 531 215 1,772 2,545 549 1,229 405 94 206
------ ------- ------- ------- ------- ------- ------ ------- -------
Total revenues........ 1,430 2,588 2,983 3,200 5,794 10,332 690 2,529 3,631
Cost of product
revenues............... 374 1,048 276 178 3,735 6,532 178 1,981 2,745
------ ------- ------- ------- ------- ------- ------ ------- -------
Gross profit........... 1,056 1,540 2,707 3,022 2,059 3,800 512 548 886
------ ------- ------- ------- ------- ------- ------ ------- -------
Operating expenses:
Research and
development........... 514 1,219 1,845 2,102 1,494 1,494 455 459 459
Marketing and selling.. 515 922 1,604 1,981 3,384 5,861 626 1,402 1,979
General and
administrative........ 530 500 625 628 633 1,627 188 225 462
In-process research and
development........... -- -- -- 500 -- -- -- 5,000 --
------ ------- ------- ------- ------- ------- ------ ------- -------
Total operating
expenses............. 1,559 2,641 4,074 5,211 5,511 8,982 1,269 7,086 2,900
Loss from operations.... (503) (1,101) (1,367) (2,189) (3,452) (5,182) (757) (6,538) (2,014)
Interest income, net.... 47 69 42 96 56 (56) 16 19 3
------ ------- ------- ------- ------- ------- ------ ------- -------
Net loss................ $ (456) $(1,032) $(1,325) $(2,093) $(3,396) $(5,238) $ (741) $(6,519) $(2,011)
====== ======= ======= ======= ======= ======= ====== ======= =======
Pro Forma:
Net loss per common and
common equivalent
share(2).............. $ (0.31) $ (0.48) $(0.07) $ (0.59) $ (0.18)
======= ======= ====== ======= =======
Weighted average number
of common and common
equivalent shares
outstanding(2)........ 10,923 10,923 10,888 11,055 11,055
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, (UNAUDITED)
---------------------------------- MARCH 31,
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 $ 1,635
Working capital (deficit)...... 2,419 1,870 422 2,396 2,573 (1,531)
Total assets................... 3,170 2,355 2,261 3,026 5,979 10,135
Long-term liability............ -- -- -- 100 -- --
Total stockholders' equity
(deficit)..................... 2,505 2,013 727 2,541 2,733 (472)
</TABLE>
- --------
(1) The unaudited pro forma combined statement of operations data for the year
ended December 31, 1995 and the three months ended March 31, 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.
(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 which 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 which the Company is in the process of
phasing out.
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 which 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 March 31, 1996, the Company had an accumulated deficit of
$15.0 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 $230,000 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 the percentage of revenue of certain items
included in the Company's statement of operations for the periods indicated:
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------------
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% 41.3% 96.3%
Royalty and other...... 59.4 79.5 9.5 58.7 3.7
------- ------- ------- --------- ---------
Total revenues....... 100.0 100.0 100.0 100.0 100.0
Cost of product
revenues................ 9.3 5.6 64.5 25.8 78.3
------- ------- ------- --------- ---------
Gross profit............. 90.7 94.4 35.5 74.2 21.7
------- ------- ------- --------- ---------
Operating Expenses:
Research and
development........... 61.8 65.7 25.8 66.0 18.2
Marketing and selling.. 53.8 61.9 58.4 90.7 55.4
General and
administrative........ 20.9 19.6 10.9 27.2 8.9
In-process research and
development........... -- 15.6 -- -- 197.7
------- ------- ------- --------- ---------
Total operating
expenses............ 136.5 162.8 95.1 183.9 280.2
Loss from operations..... (45.8) (68.4) (59.6) (109.7) (258.5)
Interest income, net..... 1.4 3.0 1.0 2.3 0.7
------- ------- ------- --------- ---------
Net loss................. (44.4)% (65.4)% (58.6)% (107.4)% (257.8)%
======= ======= ======= ========= =========
</TABLE>
20
<PAGE>
COMPARISONS 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 THREE MONTHS ENDED MARCH 31, 1996 AND 1995
REVENUES
Product revenues increased from approximately $0.3 million for the three
months ended March 31, 1995 to approximately $2.4 million for the three months
ended March 31, 1996 due primarily to the introduction of the Company's
EasyPhoto Reader product halfway through the first quarter of 1995 and higher
relative unit sales of such product during the first quarter of 1996.
Royalty and other revenues decreased from $0.4 million for the three months
ended March 31, 1995 to $0.1 million for the three months ended March 31, 1996
primarily due to the Company's focus on the retail distribution of the
EasyPhoto Reader product.
22
<PAGE>
COST OF PRODUCT REVENUES
Cost of product revenues increased from $0.2 million for the three month
period ended March 31, 1995 to $2.0 million for the three months ended March
31, 1996, as the Company incurred higher costs associated with higher unit
sales of the EasyPhoto Reader product.
GROSS PROFIT
Gross profit was $0.5 million for each of the three months ended March 31,
1995 and March 31, 1996, respectively, representing 74.2% and 21.7%,
respectively of total revenues for such periods. The large 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 and incurred lower margins on
product lines acquired from Primax USA which the Company is in the process of
phasing out.
RESEARCH AND DEVELOPMENT
Research and development expenses were $0.5 million for each of the three
months ended March 31, 1995 and March 31, 1996. These expenses as a percentage
of total revenues were 66.0% and 18.2%, respectively, during these periods.
MARKETING AND SELLING
Marketing and selling expenses increased from $0.6 million for the three
months ended March 31, 1995 to $1.4 million for the three months ended March
31, 1996. These expenses as a percentage of total revenues were 90.7% and
55.4%, respectively, during these periods. The increase in these expenses in
dollar amounts from the first quarter of 1995 to the first quarter of 1996 was
primarily the result of incurring a full quarter of such expenses for the
EasyPhoto Reader product in 1996 since this product was introduced midway
through the first quarter of 1995.
GENERAL AND ADMINISTRATIVE
General and administrative expenses were $0.2 million for each of the three
months ended March 31, 1995 and March 31, 1996. These expenses as a percentage
of total revenues were 27.2% and 8.9%, respectively, during these periods. As
part of the Primax acquisition transaction, the Company recorded $0.8 million
of goodwill, which the Company plans to amortize 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 five quarters in the period ended March 31, 1996 and the
percentage relationship of certain items to revenue 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,
1995 1995 1995 1995 1996
--------- -------- ------------- ------------ -------------------
ACTUAL PRO FORMA
------- ---------
(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 $ 3,425
Royalty and other...... 405 56 51 37 94 206
------ ------ ------- ------ ------- -------
Total revenues......... 690 1,313 846 2,945 2,529 3,631
Cost of product
revenues............... 178 896 576 2,085 1,981 2,745
------ ------ ------- ------ ------- -------
Gross profit............ 512 417 270 860 548 886
------ ------ ------- ------ ------- -------
Operating expenses:
Research and
development........... 455 294 358 387 459 459
Marketing and selling.. 626 763 890 1,105 1,402 1,979
General and
administrative........ 188 153 145 147 225 462
In-process research and
development........... -- -- -- -- 5,000 --
------ ------ ------- ------ ------- -------
Total operating
expenses.............. 1,269 1,210 1,393 1,639 7,086 2,900
------ ------ ------- ------ ------- -------
Loss from operations.... (757) (793) (1,123) (779) (6,538) (2,014)
Interest income, net.... 16 9 8 23 19 3
------ ------ ------- ------ ------- -------
Net loss................ $ (741) $ (784) $(1,115) $ (756) $(6,519) $(2,011)
====== ====== ======= ====== ======= =======
AS A PERCENTAGE OF TOTAL
REVENUES:
Revenues:
Product................ 41.3% 95.7% 94.0% 98.7% 96.3% 94.3%
Royalty and other...... 58.7 4.3 6.0 1.3 3.7 5.7
------ ------ ------- ------ ------- -------
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 75.6
------ ------ ------- ------ ------- -------
Gross profit............ 74.2 31.8 31.9 29.2 21.7 24.4
------ ------ ------- ------ ------- -------
Operating expenses:
Research and
development........... 66.0 22.4 42.3 13.1 18.2 12.6
Marketing and selling.. 90.7 58.1 105.2 37.5 55.4 54.5
General and
administrative........ 27.2 11.7 17.1 5.0 8.9 12.8
In-process research and
development........... -- -- -- -- 197.7 --
------ ------ ------- ------ ------- -------
Total operating
expenses.............. 183.9 92.2 164.6 55.6 280.2 79.9
------ ------ ------- ------ ------- -------
Loss from operations.... (109.7) (60.4) (132.7) (26.4) (258.5) (55.5)
Interest income, net.... 2.3 0.7 0.9 0.7 0.7 0.1
------ ------ ------- ------ ------- -------
Net loss................ (107.4)% (59.7)% (131.8)% (25.7)% (257.8)% (55.4)%
====== ====== ======= ====== ======= =======
</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. 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 larger orders received from two large retail
accounts as initial purchases from such accounts 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 quarter of 1996 as a result of the
inclusion of Primax USA administrative personnel at the end of the first
quarter of 1996. The pro forma general and administrative expenses for the
first quarter of 1996 are higher also due to the cost of a lease for an
additional facility which 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 $11.2 million
25
<PAGE>
and cash generated from operations in 1993. In 1994, 1995 and for the three
months ended March 31, 1996, approximately $2.8 million, $3.9 million and $0.6
million, respectively, of cash was used in operations. The cash generated
during 1993 was used to support the Company's working capital requirements.
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 three months ended March 31, 1996, the Company's investing activities
used cash of approximately $582,000. The Company's investing activities
consisted primarily of purchases of property and equipment and purchases and
sales of short-term investments. As of March 31, 1996, the Company's principal
commitments consisted primarily of a lease line of credit for equipment and
leases for office facilities. See Note 9 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 March 31, 1996, the Company had $1.6 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. See Note 9 of Notes to the Company's
Consolidated Financial Statements.
The Company believes that the net proceeds from the offering, existing cash
balances, the bank line 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 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
OVERVIEW
Storm Primax, Inc. ("Storm" or 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
("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 chemical photography market is evolving to a
market which will increasingly include digital photos. 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 which 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 which 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 which 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
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 computer
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-ready 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 or greeting cards, allow for the use of digital photos.
However, these applications have not been optimized for photo usage, with
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 affordable prices. The Company's
first digital photo scanner product, the EasyPhoto Reader, 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, which was introduced in 1995:
[DIGITIZED ARTWORK]
[Photo of [Photo of [Photo of [Photo of
Letter] Scanner] Computer Screen] Letter]
Begin by The EasyPhoto Drag and drop Print out a great
typing an Reader plugs your photo looking document
ordinary directly into anywhere with with sharper,
letter, your computer (no EasyPhoto true color
invitation, boards to software results.
flyer, etc. on install) and lets (included).
your computer you add your
using any of photos quickly
your 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 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 EasyPhoto to become
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 is presently 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 Easy Photo 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 a beta agreement for the bundling of its
EasyPhoto software with Netscape's Navigator Gold Internet product and
expects to enter into a full distribution agreement for such product
with Netscape in the near future.
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
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<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. 1995 Version 2.0
x 7 in. photos) October 1995
EasyPhoto External large form Retail $299 Version 1.0 June
SmartPage factor 1996
photo/document
reader (up to 8 1/2 in.
x 14 in.)
EasyPhoto Drive Internal photo Retail $199 Version 1.0 expected
reader (up to 5 in. in third quarter of
x 7 in. photo) 1996
PhotoDrives (OEM) Internal photo OEM N/A April 1996
readers (up to 5 in.
x 7 in. photo) designed
to be incorporated
into 5 1/4 in. PC drive
bays
PhotoReaders (OEM) External photo OEM N/A January 1996
readers (up to 5 in.
x 7 in. 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 Software application OEM or N/A Expected in fourth
DesignWorks 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.
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<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, 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 which 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 700,000 units as of May 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 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 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 and documents (up to 8 1/2 in. x 14
in.). While alternative products exist in the larger size sheetfed category, the
EasyPhoto SmartPage is uniquely positioned beyond the capabilities of text-
32
<PAGE>
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 presently purchased on an OEM basis from a third party.
EASYPHOTO DRIVE
The EasyPhoto Drive performs the same photo reading functions as the
EasyPhoto Reader but is embedded within a 5 1/4 in. 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.
PHOTODRIVE (OEM)
The PhotoDrive product first began shipping in April 1996 and is an OEM-only
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 OEM personal computer 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 its PhotoDrive product to additional OEM's 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
33
<PAGE>
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 which 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.
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 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
34
<PAGE>
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
distribution of the Company's EasyPhoto software environment by Intel to its
motherboard customers. In addition, the Company has entered into a beta
agreement for the bundling of its EasyPhoto software with Netscape's Navigator
Gold Internet product and expects to enter into a full distribution agreement
for such product with Netscape in the near future.
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>
<CAPTION>
RETAIL CHAINS CATALOGS
- ------------------------------------------------------------------- -------------------
<S> <C> <C> <C>
Best Buy Fry's Electronics OfficeMax MicroWarehouse
Circuit City Future Shop Ltd. Price/Costco Inc. MidWest Micro
CompUSA Incredible Universe Staples Multiple Zoner
Computer City Media Play The Good Guys PC Connection, Inc.
Egghead Software MicroCenter Tops Appliance City, Inc. Tiger Direct Inc.
Elek-Tek, Inc. Nobody Beats the Wiz Ultimate Electronics Inc.
</TABLE>
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 three months ended March 31, 1996, sales to America Online, Best Buy and
Ingram Micro accounted for 49%, 17% and 15%, respectively, of total revenues.
The Company does not expect that these customer percentages for the first
quarter 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 period.
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 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
35
<PAGE>
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 that more directly compete 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, 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 which are targeted
toward consumers and directly compete with those offered by the Company. A
third category of competition pertains to the Company's EasyPhoto software
environment and application products. Such competition in this category 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 one, if not all, of these sources.
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 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 at 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.
36
<PAGE>
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 manufactured by Primax. These
key components include an ASIC within the EasyPhoto Reader product which is
currently available only from Epson. There can be no assurance that these
suppliers will be able to meet the Company's requirements for these
components. If Primax were unable to obtain sufficient supplies or develop
alternative sources of these components in the future, the resultant shortage
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 May 31, 1996, employed
18 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.
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, 1994 and 1995 and the quarters
ended March 31, 1995 and 1996, the Company's research and development expenses
were approximately $2.1 million, $1.5 million, $0.5 million, and $0.5 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
37
<PAGE>
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 and 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 counsel to assess the basis for any
claims of infringement by the Company's products. While it may be necessary or
desirable in the future to obtain other licenses relating to one or more of
its products or relating to current or future technologies, there can be no
assurance that the Company will be able to do so on commercially reasonable
terms.
EMPLOYEES
As of May 31, 1996, the Company had a total of 64 employees. Of this total,
18 were engaged in research, product development and engineering, 32 were
engaged in sales, marketing and customer support, and 14 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. 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.
38
<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 24, 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, 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).................. 49 Director
Andrew S. Rappaport(2)............ 38 Director
</TABLE>
An additional key employee of the Company is:
<TABLE>
<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 as Chief Executive Officer between January 1990 and October
1991. Prior to Storm, Mr. Ligtenberg co-founded C-Cube Microsystems Inc., a
manufacturer of video compression hardware, and served as Vice President,
Engineering 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 and as Director
of Finance and Administration since June 1992 when he received 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.
39
<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 Operations 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 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, an affiliate and, after
giving effect to the offering, a 34.9% 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
40
<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 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 four
additional most highly compensated executive officers (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 -- -- --
CEO, President
Dr. Adriaan Ligtenberg.............. 125,000 -- -- --
Chief Technical Officer, Vice
President, Engineering
Rick M. McConnell................... 90,000 -- -- 5,833
Chief Financial Officer, Vice
President, Finance and
Administration
Robert F. Preston................... -- -- -- --
Vice President, Sales
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.
41
<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>
INDIVIDUAL GRANTS
------------------------------------------
POTENTIAL REALIZABLE
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).... 3,333 6.8% $0.30 1/19/05 $ 629 $1,593
2,500 5.1% $0.30 8/31/05 $472 $1,195
Robert F. Preston....... 0 -- -- -- -- --
Barbara K. Windham(5)... 4,000 8.2% $0.30 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 3,333 options on January 19, 1995 and 2,500
options on August 31, 1995.
(5) Ms. Windham's option was granted on August 31, 1995.
42
<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 -- 10,833 0
Robert F. Preston....... 0 -- 0 --
Barbara K. Windham...... 44,000 0 0 0
Former Officer:
Rick Cavin (3).......... 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 $0.30 per share, as determined by the
Company's Board of Directors, less the aggregate exercise price.
(3) The Company granted Mr. Cavin an option to purchase 3,333 shares of Common
Stock on August 31, 1995. Such option was cancelled in November 1995 when
Mr. Cavin ceased to be an executive officer of the Company.
BENEFIT PLANS
AMENDED AND RESTATED STOCK OPTION PLAN
The Board of Directors has reserved a total of 1,481,614 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 March 31, 1996, 46,423 shares subject to repurchase by
the Company had been issued upon the exercise of options granted under the
Option Plan, 256,379 shares not subject to repurchase had been issued upon the
exercise of options granted under the Option Plan, 261,562 shares were subject
to outstanding options granted under the Option Plan at a weighted average
exercise price of $.30 and 130,146 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.
43
<PAGE>
1996 EMPLOYEE STOCK PURCHASE PLAN
A total of 100,000 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 150,000 shares of Common Stock have been reserved for issuance
under the Company's 1996 Outside Directors Stock Option Plan (the "Directors
Plan"). Prior to the effective date of this offering, no options have been
granted under 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 ("Outside Directors"). On the
effective date of the offering, each Outside Director will automatically be
granted under the Directors Plan an option to purchase 15,000 shares of Common
Stock at an exercise price equal to the initial public offering price.
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 15,000 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 8,000 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.
44
<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 and warrants as follows: an aggregate
of 1,000,000 shares of Series A Preferred Stock at $3.00 per share on November
27, 1991; an aggregate of 159,722 shares of Series B Preferred Stock at $3.60
per share on January 30, 1992; an aggregate of 1,090,957 shares of Series C
Preferred Stock at $3.60 per share on May 19, 1994; an aggregate of 919,863
shares of Series D Preferred Stock at $3.90 per share on July 27, 1995 and
October 11, 1995; an aggregate of 5,619,105 shares of Series E Preferred Stock
at $0.60 per share on March 18, 1996; and an aggregate of 161,290 shares of
Series F Preferred Stock at $9.30 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 161,290 shares of Series F
Preferred Stock held by Intel will convert into 163,628 shares of Common Stock
assuming a $11.00 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.(2)................ -- 97,222 180,555 64,102 -- --
Institutional Venture
Partners V(2)(3)....... 567,816 -- 244,167 133,732 -- --
L. William Krause....... 31,033 -- 27,777 25,641 -- --
Merrill, Pickard,
Anderson & Eyre V,
L.P.(2)(4)............. -- -- 444,444 73,199 -- --
Nazem & Company(2)...... -- -- -- 482,683 -- --
Primax Electronics,
Ltd.(2)(4)............. -- -- -- 25,641 5,619,105 --
Sequoia Capital V(2).... -- 55,555 21,513 12,693 -- --
Technology Venture
Investors IV(2)........ 401,150 -- 172,499 94,478 -- --
Intel(2)................ -- -- -- -- -- 161,290
</TABLE>
- --------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal and Selling Stockholders."
(2) Holder of 5% or more of a class of Company's stock.
(3) 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.
(4) Raymond Liang, a director of the Company, serves as Chairman and Chief
Executive Officer of Primax, which owned approximately 54% of the
Company's Common Stock as of May 31, 1996.
(5) 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.
45
<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 54.0% of the Company's Common Stock as of May 31, 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, 1,666,666 shares of
Storm Series E Preferred Stock was issued for all outstanding shares of Common
Stock of Primax USA and 3,952,439 shares of Storm Series E Preferred Stock was
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 3,952,439 shares of Series E Preferred Stock at $0.60
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
the United States and Canada and nonexclusive with respect to 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 will receive commissions for all sales of
pointing devices. If the Company fails to satisfy certain sales quotas, its
exclusive appointment as sales representative for pointing device products
will result in a nonexclusive representation agreement.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of May 31, 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 SHARES
BENEFICIALLY BEING PERCENTAGE OF
OWNED(1) OFFERED SHARES OWNED
------------ --------- -----------------
BEFORE AFTER
NAME NUMBER NUMBER OFFERING OFFERING
---- ------------ --------- -------- --------
<S> <C> <C> <C> <C>
Primax Electronics, Ltd.(2)........... 5,644,746 1,000,000 54.0% 34.9%
Raymond Liang
6F, N. 159 Kang Ning St.
Shi Chi Town, Taipei Hsien
Taiwan R.O.C.
Institutional Venture Partners V(3)... 945,714 -- 9.0% 7.2%
Mary Jane Elmore
3000 Sand Hill Road
Menlo Park, CA 94025
Dr. Adriaan Ligtenberg................ 565,111 -- 5.4% 4.3%
L. William Krause (4)................. 487,884 -- 4.6% 3.7%
Barbara K. Windham ................... 96,200 -- * *
Robert F. Preston .................... 75,000 -- * *
Rick M. McConnell .................... 66,666 -- * *
Andrew S. Rappaport (5)............... 29,743 -- * *
Rick Cavin............................ 10,000 -- * *
Richard C. Alberding.................. 0 -- * *
All directors and executive officers
as a group (9 persons)(6)............ 7,921,064 -- 75.8% 52.5%
</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) Mr. Liang, a director of the Company, is Chairman and Chief Executive
Officer of Primax with 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.
(3) Includes 16,075 shares held by Institutional Venture Management V and
929,641 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 with
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.
(4) Includes 462,244 shares held as Trustee of the Krause Trust dated June 21,
1994, as amended, 17,948 shares held as Trustee for LWK Ventures Money
Purchase Pension Plan dated January 1, 1991, and 7,692 shares held as
Trustee for LWK Ventures Profit Sharing Plan dated January 1, 1991.
(5) Includes 23,333 shares subject to options exercisable within 60 days of
May 31, 1996.
(6) Includes 23,333 shares subject to options exercisable within 60 days of
May 31, 1996.
47
<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 March 31, 1996, assuming the conversion of all shares of Preferred
Stock into Common Stock, there were 10,055,879 shares of Common Stock
outstanding held of record by approximately 63 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 4,181 shares of Series B Preferred Stock.
This warrant has an exercise price of $3.60 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 4,551 shares of Common Stock. The warrants have an
exercise price of $0.30 per share and expire in 1999.
48
<PAGE>
In May 1996, in connection with a certain strategic marketing alliance, the
Company issued a warrant to Intel to purchase 37,333 shares of Series F
Preferred Stock at a price of $9.30 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.
49
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
13,319,078 shares of Common Stock (assuming no exercise of outstanding options
after June 25, 1996). Of these shares, the 3,700,000 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 9,619,078 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) 3,890,159 currently outstanding shares (as well as 197,474
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)
5,728,919 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 133,191 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, following the offering, the holders of 5,728,889 shares of
outstanding Common Stock and 41,514 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
50
<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 9,619,078 shares of the Company's Common Stock
after completion of the offering, including the Selling Stockholder 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. 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."
51
<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 6,951 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.
52
<PAGE>
STORM PRIMAX, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STORM PRIMAX, 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 Primax, Inc. and Primax Electronics (USA),
Inc.:.................................................................. F-19
Unaudited Pro Forma Combined Statement of Operations for the Three
Months Ended March 31, 1996 for Storm Primax, Inc. and Primax
Electronics (USA), Inc.:............................................... F-20
PRIMAX ELECTRONICS (USA), INC.:
Report of Independent Accountants....................................... F-22
Balance Sheet........................................................... F-23
Statement of Operations................................................. F-24
Statement of Shareholders' Equity (Deficit)............................. F-25
Statement of Cash Flows................................................. F-26
Notes to Financial Statements........................................... F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Storm Primax, Inc.
The Delaware reincorporation, including a reverse stock split described in
Note 9 to the consolidated financial statements has not been completed at June
26, 1996. When it has been completed, we will be in a position to furnish the
following report:
"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 Primax, 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 PRIMAX, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MARCH 31, 1996
---------------- ---------------------
PRO FORMA
1994 1995 ACTUAL (NOTE 2)
------- ------- -------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 542 $ 1,865 $ 703 $ 703
Short-term investments................ 1,747 -- 932 932
Accounts receivable, net (Note 4)..... 231 2,676 3,343 3,343
Receivable from related party......... -- -- 551 551
Inventories........................... 31 1,212 3,392 3,392
Other current assets.................. 230 66 155 155
------- ------- -------- --------
Total current assets................ 2,781 5,819 9,076 9,076
Property and equipment, net (Note 4).... 245 160 190 190
Goodwill................................ -- -- 834 834
Other assets............................ -- -- 35 35
------- ------- -------- --------
Total assets...................... $ 3,026 $ 5,979 $ 10,135 $ 10,135
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable...................... $ 99 $ 342 $ 363 $ 363
Accrued liabilities (Note 4).......... 286 314 2,542 2,542
Payable to related party.............. -- 2,590 7,702 7,702
------- ------- -------- --------
Total current liabilities........... 385 3,246 10,607 10,607
------- ------- -------- --------
Long-term liability..................... 100 -- -- --
------- ------- -------- --------
Commitments (Note 8)
Stockholders' equity (deficit) (Note 6):
Convertible preferred stock, $0.001
par value, 13,333,333 shares
authorized; 2,250,679, 3,170,542 and
8,789,647 shares issued and
outstanding at December 31, 1994 and
1995 and March 31, 1996,
respectively; no shares issued or
outstanding at March 31, 1996 pro
forma (unaudited).................... 2 3 9 --
Common stock, $0.001 par value,
13,333,333 shares authorized,
1,172,668, 1,251,681 and 1,261,681
shares issued and outstanding at
December 31, 1994 and 1995 and March
31, 1996, respectively; 10,051,328
shares issued and outstanding at
March 31, 1996 pro forma
(unaudited).......................... 1 1 1 10
Additional paid-in capital............ 7,632 11,219 14,527 14,527
Accumulated deficit................... (5,094) (8,490) (15,009) (15,009)
------- ------- -------- --------
Total stockholders' equity
(deficit).......................... 2,541 2,733 (472) (472)
------- ------- -------- --------
Total liabilities and
stockholders' equity (deficit)... $ 3,026 $ 5,979 $ 10,135 $ 10,135
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
STORM PRIMAX, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Product..................... $ 1,211 $ 655 $ 5,245 $ 285 $ 2,435
Royalty and other........... 1,772 2,545 549 405 94
------- ------- ------- -------- ---------
Total revenues............ 2,983 3,200 5,794 690 2,529
Cost of product revenues...... 276 178 3,735 178 1,981
------- ------- ------- -------- ---------
Gross profit.................. 2,707 3,022 2,059 512 548
------- ------- ------- -------- ---------
Operating expenses:
Research and development.... 1,845 2,102 1,494 455 459
Marketing and selling....... 1,604 1,981 3,384 626 1,402
General and administrative.. 625 628 633 188 225
In-process research and
development................ -- 500 -- -- 5,000
------- ------- ------- -------- ---------
Total operating expenses.. 4,074 5,211 5,511 1,269 7,086
------- ------- ------- -------- ---------
Loss from operations.......... (1,367) (2,189) (3,452) (757) (6,538)
Interest income, net.......... 42 96 56 16 19
------- ------- ------- -------- ---------
Net loss...................... $(1,325) $(2,093) $(3,396) $ (741) $ (6,519)
======= ======= ======= ======== =========
Pro forma net loss per common
and common equivalent share
(unaudited--Note 2).......... $ (0.31) $ (0.07) $ (0.18)
======= ======== =========
Pro forma weighted average
number of common and common
equivalent shares
(unaudited--Note 2).......... 10,923 10,888 11,055
======= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
STORM PRIMAX, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ --------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1992................... 1,159,722 $ 1 1,040,574 $ 1 $ 3,687 $ (1,676) $ 2,013
Issuance of common stock
under stock
option plan............ -- -- 131,081 -- 39 -- 39
Net loss................ -- -- -- -- -- (1,325) (1,325)
--------- ---- --------- ---- ------- -------- -------
BALANCE AT DECEMBER 31,
1993................... 1,159,722 1 1,171,655 1 3,726 (3,001) 727
Issuance of common stock
under stock
option plan............ -- -- 28,999 -- 10 -- 10
Repurchase of common
stock.................. -- -- (27,986) -- (10) -- (10)
Issuance of Series C
convertible preferred
stock for cash, net of
issuance costs of $20.. 1,090,957 1 -- -- 3,906 -- 3,907
Net loss................ -- -- -- -- -- (2,093) (2,093)
--------- ---- --------- ---- ------- -------- -------
BALANCE AT DECEMBER 31,
1994................... 2,250,679 2 1,172,668 1 7,632 (5,094) 2,541
Issuance of common stock
under stock
option plan............ -- -- 79,013 -- 24 -- 24
Issuance of Series D
convertible preferred
stock for cash, net of
issuance costs of $23.. 919,863 1 -- -- 3,563 -- 3,564
Net loss................ -- -- -- -- -- (3,396) (3,396)
--------- ---- --------- ---- ------- -------- -------
BALANCE AT DECEMBER 31,
1995................... 3,170,542 3 1,251,681 1 11,219 (8,490) 2,733
Issuance of common stock
under stock option plan
(unaudited)............ -- -- 10,000 -- 3 -- 3
Issuance of Series E
convertible preferred
stock for acquired
business and
technology, net of
issuance costs of $128
(unaudited)............ 5,619,105 6 -- -- 3,237 -- 3,243
Other (unaudited)....... -- -- -- -- 68 -- 68
Net loss (unaudited).... -- -- -- -- -- (6,519) (6,519)
--------- ---- --------- ---- ------- -------- -------
BALANCE AT MARCH 31,
1996 (UNAUDITED)....... 8,789,647 $ 9 1,261,681 $ 1 $14,527 $(15,009) $ (472)
========= ==== ========= ==== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
STORM PRIMAX, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- --------------------
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net loss...................... $(1,325) $(2,093) $(3,396) $ (741) $ (6,519)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities:
Depreciation................ 80 143 142 40 33
Write-off of purchased in-
process research and
development (Note 3)....... -- 500 -- -- 5,000
Changes in assets and
liabilities:
Accounts receivable....... 287 (58) (2,445) (7) 1,195
Inventories............... (12) 7 (1,181) (742) 272
Other current assets...... (68) (139) 164 167 (77)
Other long-term assets.... -- -- -- -- (35)
Accounts payable.......... 101 (125) 2,833 116 (139)
Accrued liabilities....... 1,091 (1,024) 28 (28) 226
Payable to affiliate...... -- -- -- 29 (539)
------- ------- ------- --------- ---------
Net cash provided by
(used in) operating
activities............. 154 (2,789) (3,855) (1,166) (583)
------- ------- ------- --------- ---------
Cash flows from investing
activities:
Purchase of property and
equipment.................. (187) (147) (57) (18) (18)
(Purchases) sales of short-
term investments........... (90) (451) 1,747 1,300 (832)
Other....................... -- (345) (100) -- 268
------- ------- ------- --------- ---------
Net cash (used in)
provided by investing
activities............. (277) (943) 1,590 1,282 (582)
------- ------- ------- --------- ---------
Cash flows from financing
activities:
Proceeds from issuance of
convertible preferred
stock, net................. -- 3,907 3,564 -- --
Proceeds from issuance of
common stock............... -- 10 24 6 3
Repurchase of common stock.. -- (10) -- -- --
------- ------- ------- --------- ---------
Net cash provided by
financing activities... -- 3,907 3,588 6 3
------- ------- ------- --------- ---------
Net increase (decrease) in
cash and cash equivalents.... (123) 175 1,323 122 (1,162)
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 $ 664 $ 703
======= ======= ======= ========= =========
</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 PRIMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1--DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Storm Primax, 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 5,619,105 shares of the
Company's Series E Preferred Stock. The accompanying financial statements
present the accounts of Storm Primax for the three year periods ended December
31, 1993, 1994 and 1995 and for the unaudited three month periods ended March
31, 1995 and 1996. The consolidated financial statements for the three month
period ended March 31, 1996 include the results of Primax USA for the period
subsequent to the acquisition date through March 31, 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 PRIMAX, 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:
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS
DECEMBER 31, ENDED
---------------- MARCH 31,
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% 17%
Ingram Micro Inc. .......................... -- -- -- 15%
America Online Inc. ........................ -- -- -- 49%
</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 March
31, 1996, Ingram Micro Inc. accounted for 11% of total accounts receivable
(unaudited). There were no receivables due from Best Buy Company, Inc. and
America Online Inc. at March 31, 1996 (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. At
March 31, 1996, inventories include approximately $520 of discontinued
products which were acquired in the acquisition of Primax USA and are valued
at their estimated fair value (unaudited).
The Company currently buys all 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 PRIMAX, 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. 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, $18 and
$146 for the years ended December 31, 1993, 1994 and 1995 and the three months
ended March 31, 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.
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 on a one for one basis.
F-9
<PAGE>
STORM PRIMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The pro forma balance sheet information at March 31, 1996 is adjusted to
reflect the conversion of the outstanding shares of convertible preferred
stock into 8,789,647 shares of common stock at March 31, 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 three months ended March 31, 1995 and 1996 have been made. The
results for the three months ended March 31, 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 5,619,105 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>
The Company's consolidated financial statements for the three month period
ended March 31, 1996 include Primax USA for the period subsequent to the
acquisition date.
F-10
<PAGE>
STORM PRIMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table presents the unaudited pro forma consolidated results of
operations for the three months ended March 31, 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 discontinuance of
certain product lines offered by Primax USA, the elimination of service
revenues recognized by Primax USA related to services performed for Storm and
the amortization of goodwill:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
-------------------- DECEMBER 31,
1995 1996 1995
--------- --------- ------------
<S> <C> <C> <C>
Total revenues.......... $ 1,370 $ 3,631 $10,332
Net loss................ (1,087) (2,011) (5,238)
Pro forma net loss per
common and common
equivalent share (see
Note 2)................ $ (0.10) $ (0.18) $ (0.48)
</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 Storm Primax in both
domestic and international markets for a term of four years.
NOTE 4--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31, (UNAUDITED)
------------- --------------
1994 1995 MARCH 31, 1996
----- ------ --------------
<S> <C> <C> <C>
Accounts receivable, net
consisted of:
Accounts receivable..... $ 298 $2,832 $4,042
Allowance for sales re-
turns.................. (64) (137) (406)
Allowance for doubtful
accounts............... (3) (19) (293)
----- ------ ------
$ 231 $2,676 $3,343
===== ====== ======
Property and equipment,
net consisted of:
Computer equipment...... $ 464 $ 521 $ 573
Furniture and fixtures.. 46 46 58
----- ------ ------
510 567 631
Less: accumulated depre-
ciation................ (265) (407) (441)
----- ------ ------
$ 245 $ 160 $ 190
===== ====== ======
Accrued liabilities con-
sisted of:
Accrued employee bene-
fits................... $ 85 $ 92 $ 199
Reserve for returns of
discontinued products.. -- -- 1,486
Marketing costs......... 70 132 380
Other................... 131 90 477
----- ------ ------
$ 286 $ 314 $2,542
===== ====== ======
</TABLE>
F-11
<PAGE>
STORM PRIMAX, 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 three months ended March 31,
1996, Storm purchased inventories from Primax Taiwan totaling $4,665 and
$1,336, respectively.
The receivable from related party at March 31, 1996 of $551 is due from
Primax Taiwan and was 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
March 31, 1996, the payable to related party of $7,702 includes approximately
$5,000 of payable to Primax Taiwan assumed from Primax USA.
NOTE 6--STOCKHOLDERS' EQUITY (DEFICIT):
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.............................. 1,000,000 1,000,000 $3,000 $0.24
B.............................. 163,903 159,722 575 0.30
C.............................. 1,090,957 1,090,957 3,927 0.30
D.............................. 919,863 919,863 3,587 0.30
</TABLE>
The aggregate authorized number of preferred shares is 13,333,333.
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.
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 $9.00 per share. If $9.00 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.
F-12
<PAGE>
STORM PRIMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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 $6.60 per share, subject to adjustment for dilution. At December
31, 1995, 9,524,171 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 $6.60 per share and aggregate minimum offering
proceeds of $7,500.
Unaudited
On March 18, 1996, the Company issued 5,619,105 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 $0.06 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, $0.60 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 received an amount equal to
$9.00 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.
Warrants for Series B Convertible Preferred Stock
In May 1992, the Company issued warrants to purchase 4,181 shares of Series
B for $3.60 per share and no expiration provision. Such warrants are
outstanding at December 31, 1995 and March 31, 1996 (unaudited).
Warrants for common stock
In 1994, the Company issued warrants to purchase 4,551 shares of common
stock for $0.30 per share. Such warrants are outstanding at December 31, 1995
and March 31, 1996 (unaudited). The warrants, outstanding at December 31, 1995
and March 31, 1996 (unaudited), 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 684,845
incentive and nonqualified stock options.
F-13
<PAGE>
STORM PRIMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table summarizes activity under the Option Plan:
<TABLE>
<CAPTION>
EXERCISE
PRICE
SHARES OPTIONS PER
AVAILABLE OUTSTANDING SHARE
--------- ----------- --------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992................. 103,449 301,033 $0.30
Additional shares authorized................. 208,333 --
Options granted.............................. (172,238) 172,238 0.30
Options exercised............................ -- (131,081) 0.30
Options canceled............................. 74,207 (74,207) 0.30
-------- --------
BALANCE AT DECEMBER 31, 1993................. 213,751 267,983 0.30
Shares repurchased........................... 27,986 --
Options granted.............................. (157,000) 157,000 0.30
Options exercised............................ -- (28,999) 0.30
Options canceled............................. 89,757 (89,757) 0.30
-------- --------
BALANCE AT DECEMBER 31, 1994................. 174,494 306,227 0.30
Options granted.............................. (48,940) 48,940 0.30
Options exercised............................ -- (79,013) 0.30
Options canceled............................. 117,195 (117,195) 0.30
-------- --------
BALANCE AT DECEMBER 31, 1995................. 242,749 158,959 0.30
Options granted (unaudited).................. (112,666) 112,666 0.30
Options exercised (unaudited)................ -- (10,000) 0.30
Options canceled (unaudited)................. 63 (63) 0.30
-------- --------
BALANCE AT MARCH 31, 1996 (UNAUDITED)........ 130,146 261,562 0.30
======== ========
</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, 95,428 options to purchase shares were vested.
As of March 31, 1996, 46,423 shares (unaudited) of Common Stock, subject to
repurchase by the Company, have been issued upon exercise of options granted
under the Option Plan.
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.
F-14
<PAGE>
STORM PRIMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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.
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:
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>
F-15
<PAGE>
STORM PRIMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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 three months ended March 31,
1995 and 1996 was $74 and $68, respectively (unaudited).
NOTE 9--SUBSEQUENT EVENTS:
SERIES F CONVERTIBLE PREFERRED STOCK--(UNAUDITED)
On June 11, 1996, the Company issued 161,290 shares of Series F Convertible
Preferred Stock at $9.30 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 $0.30 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.
In the event of liquidation, the holders of Series F shares are entitled to
receive $9.30 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 as described in Note 6.
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 at a
minimum price of $6.60 per share and aggregate minimum offering proceeds of
$7,500.
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.
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.
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 line of credit contains certain
covenants including financial ratios, future profitability and minimum
tangible net worth. The lines of credit expire on May 15, 1997.
F-16
<PAGE>
DELAWARE REINCORPORATION AND REVERSE STOCK SPLIT (UNAUDITED)
In March 1996, the Board approved reincorporation in the State of Delaware,
including a one for three reverse stock split of the outstanding shares of the
Company's common stock effected through the exchange ratio of the
reincorportation merger. The reincorportation must be approved by the
stockholders and a certificate of merger must be filed with the State of
Delaware to effect the reincorportation. Such certificate of merger has not
yet been submitted. All share and per share data have been retroactively
adjusted to reflect this reincorporation.
BENEFIT PLANS
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
100,000 shares of Common Stock have been reserved for issuance under the
Purchase Plan.
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. Prior to the effective date of this offering, no
options have been granted under the Director's Plan. A total of 150,000 shares
of Common Stock have been reserved for issuance under the Director's Plan.
F-17
<PAGE>
STORM PRIMAX, INC.
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information gives
effect to the acquisition by Storm Primax, 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 three months ended
March 31, 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-18
<PAGE>
STORM PRIMAX, 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 $(3,563)(a) $ 9,103
Royalty and other........... 549 1,040 (360)(b) 1,229
------- ------ ------- --------
Total revenues............ 5,794 8,461 (3,923) 10,332
Cost of product revenues...... 3,735 5,201 (2,404)(a) 6,532
------- ------ ------- --------
Gross profit.................. 2,059 3,260 (1,519) 3,800
------- ------ ------- --------
Operating expenses:
Research and development.... 1,494 -- -- 1,494
Marketing and selling....... 3,384 2,748 (271)(c) 5,861
General and administrative.. 633 1,182 (188)(d)(e) 1,627
------- ------ ------- --------
Total operating expenses.. 5,511 3,930 (459) 8,982
------- ------ ------- --------
Loss from operations.......... (3,452) (670) (1,060) (5,182)
Interest income (expense),
net.......................... 56 (112) -- (56)
------- ------ ------- --------
Net loss...................... $(3,396) $ (782) $(1,060) $ (5,238)
======= ====== ======= ========
Pro forma:
Net loss per common and
common equivalent share.... $ (0.31) $ (0.48)
======= ========
Weighted average number of
common and common
equivalent shares(3)....... 10,923(g) -- (h) 10,923
======= ======= ========
</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 (h).
(4) Reflects the results of operations of the Company on a pro forma basis
assuming the acquisition had been completed on January 1, 1995.
F-19
<PAGE>
STORM PRIMAX, INC.
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 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..................... $ 2,435 $1,992 $(1,002)(a) $ 3,425
Royalty and other........... 94 177 (65)(b) 206
------- ------ ------- -------
Total revenues............ 2,529 2,169 (1,067) 3,631
Cost of product revenues...... 1,981 1,520 (756)(a) 2,745
------- ------ ------- -------
Gross profit.................. 548 649 (311) 886
------- ------ ------- -------
Operating expenses:
Research and development.... 459 -- -- 459
Marketing and selling....... 1,402 660 (83)(c) 1,979
General and administrative.. 225 283 (46)(d)(e) 462
In-process research and
development................ 5,000 -- (5,000)(f) --
------- ------ ------- -------
Total operating expenses.. 7,086 943 (5,129) 2,900
------- ------ ------- -------
Loss from operations.......... (6,538) (294) 4,818 (2,014)
------- ------ ------- -------
Interest income (expense),
net.......................... 19 (16) -- 3
Net loss...................... $(6,519) $ (310) $ 4,818 $(2,011)
======= ====== ======= =======
Pro forma:
Net loss per common and
common equivalent share.... $ (0.59) $ (0.18)
======= =======
Weighted average number of
common and common
equivalent shares (3)...... 11,055(g) -- (h) 11,055
======= ======= =======
</TABLE>
- --------
(1) Represents historical results of operations of the Company for the three
months ended March 31, 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 (h).
(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-20
<PAGE>
STORM PRIMAX, 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 5,619,105 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 revenues and cost of product revenues
represent the elimination of revenues and costs of product revenues
recognized during the year ended December 31, 1995 and the three months
ended March 31, 1996 from product lines that were discontinued under the
Company's post-acquisition operating plan.
(b) 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 three months ended March 31, 1996 for
customer services provided to Storm on behalf of Primax Taiwan.
(c) The pro forma adjustment to marketing and selling expense includes an
elimination of salaries expense in the amount of $271 and $83 for the year
ended December 31, 1995 and the three months ended March 31, 1996,
respectively, representing a reduction in headcount for duplicate
responsibilities and the discontinuance of certain product lines under the
Company's post-acquisition operating plan.
(d) The pro forma adjustment to general and administrative expense
includes 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 $52 for the year ended
December 31, 1995 and the three months ended March 31, 1996, respectively.
(e) The pro forma adjustment to general and administrative expense
includes an elimination of salaries expense in the amount of $396 and $98
for the year ended December 31, 1995 and the three months ended March 31,
1996, respectively, representing a reduction in headcount for duplicate
responsibilities and the discontinuance of certain product lines under the
Company's post-acquisition operating plan.
(f) 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.
(g) 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.
(h) The Company issued 5,619,105 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 (g) above.)
F-21
<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-22
<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-23
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenues:
Product........................................... $ 6,619 $ 4,787 $ 7,421
Service income.................................... 764 1,038 1,040
------- ------- -------
Total revenues.................................. 7,383 5,825 8,461
------- ------- -------
Cost of product sales............................... 5,031 3,215 5,201
------- ------- -------
Gross profit........................................ 2,352 2,610 3,260
------- ------- -------
Operating expenses:
Marketing and selling............................. 1,145 1,445 2,748
General and administrative........................ 1,058 1,440 1,182
------- ------- -------
Total operating expenses........................ 2,203 2,885 3,930
------- ------- -------
Operating income (loss)............................. 149 (275) (670)
Interest expense, net............................... 66 88 112
------- ------- -------
Net income (loss) before provision for income tax-
es................................................. 83 (363) (782)
Provision for income taxes (Note 5)................. 3 -- --
------- ------- -------
Net income (loss)................................... $ 80 $ (363) $ (782)
======= ======= =======
</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 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-25
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
------- ------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ 80 $ (363) $ (782)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation................................... 25 38 58
Provision for doubtful accounts................ 52 21 42
Increase in inventory reserve.................. 51 33 62
Changes in assets and liabilities:
Accounts receivable........................... (83) 139 (910)
Receivable from Parent........................ (234) 48 100
Inventory..................................... 7 (715) (2,475)
Prepaid expenses and other assets............. (18) 17 (29)
Accounts payable.............................. 100 68 (59)
Payable to Parent............................. (608) 496 3,796
Accrued liabilities........................... (2) (64) 123
Other assets.................................. -- -- (50)
------- ------- ---------
Net cash used in operating activities....... (630) (282) (124)
Cash used in investing activities:
Payment for acquisition of property and equip-
ment........................................... (93) (58) (162)
Increase in restricted cash..................... -- -- (100)
------- ------- ---------
Net cash used in investing activities......... (93) (58) (262)
Cash flows from financing activities:
Proceeds from issuance of common stock.......... -- 950 --
(Repayments) borrowings under lines of credit... (48) 75 1,075
Proceeds (repayments) of note payable to related
party.......................................... 824 (497) (827)
------- ------- ---------
Net cash provided by financing activities... 776 528 248
------- ------- ---------
Net increase (decrease) in cash................... 53 188 (138)
Cash at beginning of year......................... 41 94 282
------- ------- ---------
Cash at end of year............................... $ 94 $ 282 $ 144
======= ======= =========
Supplemental Disclosure of Noncash Financing Ac-
tivities:
Interest paid................................... $ 8 $ 91 $ 195
======= ======= =========
</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.)
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-27
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
The following table summarizes revenues from customers in excess of 10% of
the total revenues:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Radius Inc. ................................... 17% -- --
Inmac Corp. ................................... 15% -- --
Solectek Corporation........................... 12% 14% --
Global Computer Supplies....................... -- 13% 10%
Ingram Micro................................... -- -- 16%
</TABLE>
At December 31, 1993, Radius, 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-28
<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>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Payable at January 1,.......................... $ 1,292 $ 684 $ 1,180
Purchases of inventory......................... 5,434 3,724 7,338
Cash paid to Parent............................ (6,042) (3,228) (3,542)
------- ------- -------
Payable at December 31,........................ $ 684 $ 1,180 $ 4,976
======= ======= =======
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Receivable at January 1,....................... $ 305 $ 539 $ 491
Service income................................. 764 1,038 1,040
Disbursements made on behalf of Parent......... 430 457 561
Cash received from Parent...................... (960) (1,543) (1,701)
------- ------- -------
Receivable at December 31,..................... $ 539 $ 491 $ 391
======= ======= =======
</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>
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.
F-29
<PAGE>
PRIMAX ELECTRONICS (USA), INC.
(A SUBSIDIARY OF PRIMAX ELECTRONICS, LTD.)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
At December 31, 1994, the Company 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
the Company'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, the Company 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.
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-30
<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 was
$129, $127 and $204, 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-31
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholder 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 Stockholder, the
respective number of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co............................................
Hambrecht & Quist .............................................
----
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 570,000 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
3,800,000 shares of Common Stock offered.
The Company, the Selling Stockholder and certain 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) which are substantially similar to the shares
of Common Stock or which are convertible or exchangeable into securities which
are substantially similar to the shares of Common Stock, without the prior
written consent of the representatives.
The representatives 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 Stockholder 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 Company has applied for inclusion of the Common Stock on the Nasdaq
National Market under the symbol "EASY."
The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act.
U-2
<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............................................................... 39
Certain Transactions..................................................... 45
Principal and Selling Stockholders....................................... 47
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 50
Legal Matters............................................................ 52
Experts.................................................................. 52
Additional Information................................................... 52
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
STORM PRIMAX, INC.
COMMON STOCK
(PAR VALUE $.001 PER SHARE)
------------
[LOGO]
------------
GOLDMAN, SACHS & CO.
HAMBRECHT & QUIST
REPRESENTATIVES OF THE UNDERWRITERS
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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............................... 150,000
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.................................................. $750,000
========
</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 May 31, 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 1,090,957 shares of Series
C Preferred Stock to accredited investors for an aggregate purchase price of
$3,927,445.20, or $3.60 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 919,863 shares of
its Series D Preferred Stock to accredited investors for an aggregate purchase
price of $3,587,465.70, or $3.90 per share.
(3) In March 1996, the Company entered into a Stock Purchase Agreement
pursuant to which the Company sold 5,619,105 shares of its Series E Preferred
Stock to accredited investors for an aggregate purchase price of
$3,371,463.00, or $0.60 per share.
(4) In June 1996, the Company entered into a Stock Purchase Agreement
pursuant to which the Company sold 161,290 shares of its Series F Preferred
Stock to an accredited investor for an aggregate purchase price of
$1,499,997.00, or $9.30 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 4,551 shares at an exercise price of $0.30. The
warrants expire in 1996.
(6) In May 1996, in connection with a certain strategic marketing alliance,
the Company issued a warrant to an accredited investor to purchase 37,333
shares at a price of $9.30 per share. The warrant expires in 1999.
(7) From May 31, 1993 to May 31, 1996, the Registrant issued options to
purchase an aggregate of 2,756,744 shares of Common Stock under the Option
Plan at exercise prices ranging from $0.30 to $3.75, of which options to
purchase 1,802,707 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, and Storm Primax, Inc., a Delaware
corporation.
3.1 Sixth Amended and Restated Articles of Incorporation of Storm Primax,
Inc., a California corporation.
3.2* Certificate of Incorporation of Storm Primax, Inc., a Delaware
corporation.
3.3 Bylaws of Storm Primax, Inc., a California corporation.
3.4* Bylaws of Storm Primax, Inc., a Delaware corporation.
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 Primax, Inc.
("Storm") and Primax dated February 24, 1996.
10.14 Asset Transfer Agreement by and between Storm and Primax dated
February 24, 1996.
10.15 International Distribution Agreement by and between Storm and Primax
dated February 29, 1996.
10.16 International Distribution Agreement by and between Storm and Primax
Electronics Europe B.V. dated February 29, 1996.
10.17 Distribution Agreement by and between Storm and Primax dated February
29, 1996.
10.18 Sales Representative Agreement by and between Storm and Primax dated
February 29, 1996.
11.1 Calculation of Loss Per Share.
23.1 Consent of Independent Accountants.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
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>
- --------
* To be filed by amendment.
** As proposed to be filed with the Secretary of State of the State of
Delaware prior to the effectiveness of the offering.
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.
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Mountain View, State of
California, on June 26, 1996.
By /s/ L. William Krause
----------------------------------
L. William Krause
President and Chief Executive
Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints L. William Krause and Rick M. McConnell,
and each of them, their true and lawful attorneys and agents, with full power
of substitution, each with power to act alone, to sign and execute on behalf
of the undersigned any amendment or amendments to this Registration Statement
on Form S-1 and to perform any acts necessary in order to file such
amendments, and each of the undersigned does hereby ratify and confirm all
that said attorneys and agents, or their or his substitutes, shall do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on June 26, 1996 by the following
persons in the capacities indicated.
SIGNATURE TITLE
--------- -----
/s/ L. William Krause Chief Executive Officer, President
- ------------------------------- and Director (Principal Executive
L. William Krause Officer)
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)
/s/ Richard C. Alberding Director
- --------------------------------
Richard C. Alberding
/s/ Mary Jane Elmore Director
- --------------------------------
Mary Jane Elmore
Director
- --------------------------------
Raymond Liang
/s/ Andrew S. Rappaport Director
- --------------------------------
Andrew S. Rappaport
II-5
<PAGE>
Draft of June __, 1996
EXHIBIT 1.1
STORM PRIMAX, INC.
COMMON STOCK
(par value $.001 per share)
UNDERWRITING AGREEMENT
----------------------
_______________, 19__
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 Primax, 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
________ shares and, at the election of the Underwriters, up to ________
additional shares of Common Stock, par value $.001 per share ("Stock"), of the
Company and the stockholder of the Company named in Schedule II hereto (the
"Selling Stockholder") propose, subject to the terms and conditions stated
herein, to sell to the Underwriters an aggregate of ________ shares of Stock.
The aggregate of ________ shares to be sold by the Company and the Selling
Stockholder is herein called the "Firm Shares" and the aggregate of ________
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 majority stockholder, Primax Electronics, Ltd.
("Parent") 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-________) (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,
<PAGE>
Draft of June __, 1996
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 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) The Company has not 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
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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, short-term debt or long-term debt of the Company or any
material adverse change, or any development involving a prospec tive
material adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company, otherwise than as set forth or contemplated in the Prospectus;
(v) The Company has good and marketable title in fee simple to
all real property and good and marketable title to all personal property
owned by it, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company and any
real property and buildings held under lease by the Company 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;
(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 the
Company has no subsidiaries;
(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;
(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 is a party or by which the Company is bound or to which any of the
property or assets of the Company is subject, nor will such action
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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 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;
(x) The Company is not 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 is a party
or of which any property of the Company is the subject which, if determined
adversely to the Company, 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, 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, are independent public accountants as required
by the Act and the rules and regulations of the Commission thereunder.
(xx) The execution and delivery of the Agreement and Plan of
Merger dated as of ____________, 1996 (the "Merger Agreement") between
Storm Primax, Inc., a
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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.
(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; 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;
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(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 (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 1994 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 stockholder to agree to a 180 day lock-up period;
(b) The Selling Stockholder 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;
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(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;
(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;
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(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
(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.
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2. Subject to the terms and conditions herein set forth, the Company and
the Selling Stockholder 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 Stockholder, 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 Stockholder 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 Stockholder 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 ________ 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 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 Stockholder shall be delivered by or on
behalf of the Company and the Selling Stockholder 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
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(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 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;
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(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 (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 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
certified by independent public accountants) and, as
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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 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 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 Stockholder 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 Stockholder, (i) the Stockholder's pro rata share of the fees and
expenses of the Attorneys-in-Fact and the Custodian, and (j) all expenses and
taxes incident to the sale and delivery of the Shares to be sold by the Selling
Stockholder to the Underwriters hereunder. It is understood,
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further, that the Company shall bear, and the Selling Stockholder 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 Stockholder herein are, at and as of such Time of
Delivery, true and correct, the condition that the Company and the Selling
Stockholder 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, 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), (vi),
(x) and (xii) 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, 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 power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus; and the Company has no
subsidiaries;
(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
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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 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) The Company has good and marketable title in fee simple to
all real property owned by it, free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do
not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company; and
any real property and buildings held under lease by the Company 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 (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, 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, upon opinions of counsel to the lessors of such property 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, abstracts, reports,
policies and certificates;
(v) 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 is a party or of which any property of the
Company is the subject which, if determined adversely to the Company, 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, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) 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 agreement or
other agreement or instrument known to such counsel to which the Company is
a party or by which the Company is bound or to which any of the property or
assets of the Company 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
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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
their properties;
(viii) 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;
(ix) The Company is not 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, or lease or agreement
or other instrument to which it is a party or by which it or any of its
properties may be bound;
(x) 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;
(xi) 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
(xii) 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 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
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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;
(xiii) The execution and delivery of the Agreement and Plan of
Merger dated as of _______, 1996 (the "Merger Agreement") between Storm
Primax, 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.
(d) The counsel for the Selling Stockholder, as indicated in Schedule
II hereto, shall have furnished to you their written opinion with respect to
the Selling Stockholder, 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 Stockholder and constitute valid and
binding agreements of the Selling Stockholder in accordance with their
terms;
(ii) This Agreement has been duly executed and delivered by or
on behalf of the Selling Stockholder; and the sale of the Shares to be sold
by the Selling Stockholder hereunder and the compliance by the 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 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 the Selling
Stockholder is a party or by which the Selling Stockholder is bound or to
which any of the property or assets of the Selling Stockholder is subject,
nor will such action result in any violation of the provisions of the
Certificate of Incorporation or Bylaws of the Selling Stockholder
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Draft of June __, 1996
or any order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Selling
Stockholder or the property of the 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 Stockholder hereunder;
(iv) Immediately prior to the First Time of Delivery, the
Selling Stockholder had good and valid title to the Shares to be sold at
the First Time of Delivery by the Selling Stockholder 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 Stockholder 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 Stockholder in respect of matters of fact as to
ownership of, and liens, encumbrances, equities or claims on, the Shares sold by
the Selling Stockholder, 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) The Company shall not 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 or long-term debt of the Company 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, 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;
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Draft of June __, 1996
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating, if any, accorded the Company's debt securities by any
"nationally recognized statistical rating organization", as that term is
defined by the Commission for purposes of Rule 436(g)(2) under the Act, and
(ii) no such organization shall have publicly announced that it has under
surveillance or review, with possible negative implications, its rating of any
of the Company's debt securities;
(h) 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;
(i) The Shares at such Time of Delivery shall have been duly listed
for quotation on the NASDAQ;
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each stockholder of the Company,
substantially to the effect set forth in Subsection 1(b)(iv) hereof in form
and substance satisfactory to you; and
(k) The Company and the Selling Stockholder 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 Stockholder, respectively,
satisfactory to you as to the accuracy of the representations and warranties
of the Company and the Selling Stockholder, respectively, herein at and as of
such Time of Delivery, as to the performance by the Company and the Selling
Stockholder 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.
8. (a) The Company, the Parent and the 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 the
Company and the Selling Stockholder shall not be liable in any such case
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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.
(b) Primax Electronics, Ltd. in its capacity as Selling Stockholder,
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, 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 Selling Stockholder expressly for use therein;
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 such
Selling Stockholder 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.
(c) Each Underwriter will indemnify and hold harmless the Company and
the Selling Stockholder against any losses, claims, damages or liabilities to
which the Company or the Selling Stockholder 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
Stockholder for any legal or other expenses reasonably incurred by the Company
or the Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) 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
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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.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) 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 Stockholder 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 (d) 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 Stockholder 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 Stockholder 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 Stockholder 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 Stockholder 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
Stockholder and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (e) were determined by pro rata
allocation (even
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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 (e). 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 (e) 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 (e), 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
(e) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Stockholder under
this Section 8 shall be in addition to any liability which the Company and the
Selling Stockholder 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 Stockholder 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 Stockholder 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 Stockholder that you have so arranged for the purchase of such
Shares, or the Company and the Selling Stockholder notify you that they have so
arranged for the purchase of such Shares, you or the Company and the Selling
Stockholder 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.
(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 Stockholder 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 Stockholder shall have the right to require
each non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase
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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 Stockholder 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 Stockholder 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 Stockholder, except for the expenses to be borne by the Company and the
Selling Stockholder 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 Stockholder 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 Stockholder, or any officer or
director or controlling person of the Company, or any controlling person of the
Selling Stockholder, 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 Stockholder 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 Stockholder as provided herein, the Company and the
Selling Stockholder pro rata (based on the number of Shares to be sold by the
Company and the Selling Stockholder 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 Stockholder 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 Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of the Selling Stockholder made or given by any or
all of the Attorneys-in-Fact for the Selling Stockholder.
22
<PAGE>
Draft of June __, 1996
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 Stockholder shall be delivered or sent by mail,
telex or facsimile transmission to counsel for the Selling Stockholder 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 Stockholder 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 Stockholder 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 Stockholder 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 Stockholder. 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 Stockholder for examination, upon request, but
without warranty on your part as to the authority of the signers thereof.
23
<PAGE>
Draft of June __, 1996
Any person executing and delivering this Agreement as Attorney-in-Fact for
the Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by the Selling Stockholder pursuant to a validly existing
and binding Power-of-Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
Storm Primax, Inc.
By:_____________________________________
Name:
Title:
Primax Electronics, Ltd.
(as parent of its majority-owned subsidiary,
Storm Primax, Inc.)
By:_____________________________________
Name:
Title:
Primax Electronics, Ltd.
(as Selling Shareholder)
By:_____________________________________
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Hambrecht & Quist LLC
By:______________________________
(Goldman, Sachs & Co.)
24
<PAGE>
Draft of June __, 1996
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.............
============= =============
<PAGE>
Draft of June __, 1996
SCHEDULE II
NUMBER OF
OPTIONAL
SHARES TO BE
TOTAL NUMBER PURCHASED IF
OF SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
- ----------- --------------- --------------
The Company...............
The Selling Stockholder...
------------- -------------
Total...............
============= =============
<PAGE>
Draft of June __, 1996
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 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
<PAGE>
Draft of June __, 1996
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 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
2
<PAGE>
Draft of June __, 1996
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
(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, 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
<PAGE>
EXHIBIT 3.1
SIXTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
STORM PRIMAX, INC.
L. William Krause and Rick McConnell certify that:
1. They are, respectively, the duly elected and acting President and
Assistant Secretary of STORM PRIMAX, INC., a California corporation (the
"Corporation").
2. The Articles of Incorporation of the Corporation shall be amended and
restated to read in full as follows:
"ARTICLE I
NAME
----
The name of the Corporation is Storm Primax, Inc.
ARTICLE II
PURPOSES
--------
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
ARTICLE III
STOCK
-----
The Corporation is authorized to issue two classes of shares to
be designated respectively "Preferred Stock" and "Common Stock." The total
number of shares of Preferred Stock authorized is 40,000,000, $0.001 par
value per share. The total number of shares of Common Stock authorized is
40,000,000, $0.001 par value per share.
1
<PAGE>
A. Preferred Stock. The Preferred Stock shall be comprised of
---------------
3,000,000 shares designated as "Series A Preferred Stock," 491,709
designated as "Series B Preferred Stock," 3,272,873 shares designated as
"Series C Preferred Stock," 2,759,589 shares designated as "Series D
Preferred Stock," 16,857,316 shares designated as "Series E Preferred
Stock" and 483,870 shares designated as "Series F Preferred Stock." The
relative rights, preferences, restrictions and other matters relating to
the Preferred Stock are as follows:
1. Dividends Rights of Preferred.
-----------------------------
(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 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 $0.08 per share payable in preference and priority
to any payment of any cash dividend on Common Stock. The holders of the
then outstanding Series 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 $0.10 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 $0.10 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 $0.10 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 $0.02 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 $0.10 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
2
<PAGE>
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.
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 $1.00 per share for each share of Series A Preferred
Stock, the amount of $1.20 per share for each share of Series B Preferred
Stock, the amount of $1.20 per share for each share of Series C Preferred
Stock, the amount of $1.30 per share for each share of Series D Preferred
Stock, the amount of $3.10 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 $0.20 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.
3
<PAGE>
(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 $3.00 per
share (appropriately adjusted for stock dividends, stock splits, reverse
stock splits and similar events). If $3.00 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 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.
4
<PAGE>
(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 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.
5
<PAGE>
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 $1.00 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 shall be $1.00
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 $1.20 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 $1.20 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 $1.20 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 $1.20 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 $1.30 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 $1.30 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 $0.20 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 $0.20 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 $3.10 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) $3.10 and (ii) the price
per share at which the corporation sells shares its initial public offering
divided by $1.20, subject to adjustment as provided herein.
6
<PAGE>
(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
$2.20 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 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
7
<PAGE>
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 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 $1.00 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 $1.00 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 $1.00 (provided that for the
purposes this section the Conversion Price for Series F Preferred Stock
shall initially be set at $3.10). 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):
8
<PAGE>
(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.
(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
9
<PAGE>
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:
(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 4,444,842;
(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
10
<PAGE>
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. 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,
11
<PAGE>
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 $2.00.
ARTICLE IV
DIRECTORS' LIABILITY AND INDEMNIFICATION OF AGENTS
--------------------------------------------------
The liability of the directors of the Corporation for monetary
damage shall be eliminated to the fullest extent permissible under
California law.
The Corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code)
through bylaw provisions, agreements with agents, vote of shareholders or
disinterested directors, or otherwise, in excess of that otherwise
permitted by Section 317 of the California Corporations Code, subject only
to the limits set forth in Section 204 of the California Corporations Code
with respect to actions for breach of duty to the Corporation or its
shareholders.
Any amendment, repeal or modification of the foregoing provisions
of this Article IV by the shareholders of this Corporation shall not
adversely affect any right or protection of an agent of this Corporation
existing at the time of such amendment, repeal or modification.
3. The foregoing Fifth Amended and Restated Articles of Incorporation have
been duly approved by the Board of Directors of the Corporation.
4. The foregoing Fifth Amended and Restated Articles of Incorporation have
been duly approved by the required vote of the shareholders of this Corporation
in accordance with sections 603 and 903 of the California General Corporation
Law.
The total number of outstanding shares of this corporation entitled to vote
with respect to the foregoing Amended and Restated Articles was 3,785,043 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 and
12
<PAGE>
16,857,316 shares of Series E Preferred Stock. The number of shares voting in
favor of the amendment equaled or exceeded the vote required, such required vote
being a majority of the total number of outstanding shares of Common Stock
voting separately as a class and a two thirds majority of the total number of
outstanding shares of Series A, Series B, Series C, Series D and Series F
Preferred Stock voting together as a separate class.
-----------------------------------
L. William Krause, President
-----------------------------------
Rick McConnell, Assistant Secretary
The undersigned certifies under penalty of perjury that he has read
the foregoing Amended and Restated Articles of Incorporation and knows the
contents thereof, and that the statements therein are true.
Executed at Mountain View, California, on June 4, 1996.
-----------------------------------
L. William Krause, President
-----------------------------------
Rick McConnell, Assistant Secretary
13
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
STORM PRIMAX, INC.
(a California Corporation)
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I. Offices.......................................................... 1
Section 1.1............................................................. 1
ARTICLE II. Meetings of Shareholders........................................ 1
Section 2.1. Place of Meetings......................................... 1
Section 2.2. Annual Meetings........................................... 1
Section 2.3. Special Meetings.......................................... 1
Section 2.4. Notice of Meetings........................................ 2
Section 2.5. Manner of Giving Notice................................... 2
Section 2.6. Quorum.................................................... 3
Section 2.7. Adjourned Meeting; Notice................................. 3
Section 2.8. Waiver of Notice and Consent to Shareholders' Meetings.... 3
Section 2.9. Action Without a Meeting.................................. 4
Section 2.10. Voting and Election of Directors.......................... 4
Section 2.11. Proxies................................................... 5
Section 2.12. Inspectors of Election.................................... 5
ARTICLE III. Directors...................................................... 6
Section 3.1. Number and Qualification of Directors..................... 6
Section 3.2. Powers.................................................... 7
Section 3.3. Election and Term of Office............................... 7
Section 3.4. Place of Directors' Meetings.............................. 7
Section 3.5. Regular Meetings.......................................... 7
Section 3.6. Special Meetings, Notice and Waiver....................... 7
Section 3.7. Telephone Participation................................... 7
Section 3.8. Action Without Meeting.................................... 8
Section 3.9. Quorum.................................................... 8
Section 3.10. Notice of Adjourned Meeting............................... 8
Section 3.11. Organization.............................................. 8
Section 3.12. Resignation and Vacancies................................. 8
Section 3.13. Compensation.............................................. 9
Section 3.14. Committees of Directors................................... 9
Section 3.15. Meetings and Action of Committees......................... 10
Section 3.16. Loans to Directors and Officers........................... 10
i
<PAGE>
ARTICLE IV. Officers....................................................... 10
Section 4.1. Number................................................... 10
Section 4.2. Election and Term of Office.............................. 10
Section 4.3. Subordinate Officers..................................... 10
Section 4.4. Removal, Resignation and Vacancies....................... 11
Section 4.5. Chairman of the Board.................................... 11
Section 4.6. President................................................ 11
Section 4.7. Vice Presidents.......................................... 11
Section 4.8. Secretary................................................ 11
Section 4.9. Chief Financial Officer.................................. 11
Section 4.10. Salaries................................................. 12
ARTICLE V. Indemnification of Directors, Officers,
Employers and Other Agents...................................... 12
Section 5.1. Indemnification of Directors............................. 12
Section 5.2. Indemnification of Officers, Employees and Agents........ 14
Section 5.3. Right to Bring Suit...................................... 14
Section 5.4. Successful Defense....................................... 14
Section 5.5. Nonexclusivity of Rights................................. 15
Section 5.6. Insurance................................................ 15
Section 5.7. Expense as a Witness..................................... 15
Section 5.8. Indemnity Agreements..................................... 15
Section 5.9. Severability............................................. 15
Section 5.10 Effect of Repeal or Modification......................... 15
ARTICLE VI. Contracts, Checks, Drafts, Bank Accounts, etc.................. 16
Section 6.1. Contracts and Other Instruments.......................... 16
Section 6.2. Checks, Drafts, etc...................................... 16
ARTICLE VII. Certificates for Shares and Their Transfer.................... 16
Section 7.1. Certificate for Shares................................... 16
Section 7.2. Transfer on the Books.................................... 16
Section 7.3. Determination of Shareholders of Record.................. 17
Section 7.4. Maintenance of Share Register............................ 17
Section 7.5. Representation of Shares of Other Corporations........... 18
ARTICLE VIII. Corporate Records............................................ 18
Section 8.1. Maintenance of Bylaws.................................... 18
ii
<PAGE>
Section 8.2. Maintenance of Other Corporate Records.................... 18
Section 8.3. Annual Report to Shareholders............................ 18
Section 8.4. Inspection by Directors.................................. 18
ARTICLE IX. Fiscal Year.................................................... 19
Section 9.1........................................................... 19
ARTICLE X. Amendments...................................................... 19
Section 10.1. Amendment by Shareholders............................... 19
Section 10.2. Amendment by Directors.................................. 19
ARTICLE XI. Miscellaneous.................................................. 20
Section 11.1. Subsequent Agreement or Bylaw........................... 20
Section 11.2. Construction and Definitions............................ 20
iii
<PAGE>
BYLAWS
OF
STORM PRIMAX, INC.
(a California Corporation)
--------------------------
ARTICLE I
---------
Offices
-------
Section 1.1. Offices may be established and maintained at such place or
-----------
places, either within or without the State of California, as the Board of
Directors may from time to time designate. The Board of Directors shall fix the
location of the principal executive office of the Corporation at any place
within or without the State of California. If the principal executive office is
located outside the State of California, and the Corporation has one or more
business offices in the State of California, the Board of Directors shall fix
and designate a principal business office in the State of California.
ARTICLE II
----------
Meetings of Shareholders
------------------------
Section 2.1. Place of Meetings. All meetings of shareholders shall be
----------- -----------------
held at such place, either within or without the State of California, as the
Board of Directors may designate. In the absence of any such designation,
meetings of shareholders shall be held at the principal executive office of the
Corporation.
Section 2.2. Annual Meetings. The annual meeting of the shareholders
----------- ---------------
shall be held at such place and on such date and at such time as may be
designated by the Board of Directors, provided that the date so designated shall
be not more than fifteen (15) months after the next preceding annual meeting.
At each annual meeting there shall be elected a Board of Directors to serve
during the ensuing year and until their successors are elected, and such other
business shall be transacted as shall properly come before the meeting.
Section 2.3. Special Meetings. Special meetings of the shareholders for
----------- ----------------
any purpose or purposes whatsoever may be called at any time by the President,
or by the Board of Directors or by one or more shareholders holding in the
aggregate not less than ten percent (10%) of the voting power of the
Corporation. Upon request in writing, specifying the general nature of the
business proposed to be transacted, to the President, or any Vice President, or
the Secretary, sent by registered mail or telegraphic or other facsimile
transmission or delivered to such officer in person, by any person or persons
(other than the Board of Directors) entitled to call a special
1
<PAGE>
meeting of shareholders, it shall be the duty of such officer forthwith to cause
notice to be given to the shareholders entitled to vote that a meeting will be
held at a time requested by the person or persons calling the meeting, but which
shall be not less than thirty-five (35) nor more than sixty (60) days after the
receipt of such request. If such notice shall not be given within twenty (20)
days after the date of receipt of such request, the person or persons entitled
to call the meeting may fix the time of meeting and give the notice thereof in
the manner provided by law or in these Bylaws. Nothing in the paragraph shall
limit, fix, or affect the time or notice requirements for shareholder meetings
called by the Board of Directors.
Section 2.4. Notice of Meetings. Except as provided by Section 2.3 of
----------- ------------------
these Bylaws, written notice of each meeting of shareholders, whether annual or
special, shall be sent or otherwise given not less than ten (10) nor more than
sixty (60) days before the meeting to each shareholder entitled to vote thereat.
Such notice shall specify the place, the date and the hour of the meeting and
(i) in the case of a special meeting, the general nature of the business to be
transacted, or (ii) in the case of the annual meeting, those matters which the
Board of Directors, at the time of giving the notice, intends to present for
action by shareholders. The notice of any meeting at which directors are to be
elected shall include the names of nominees intended at the time of the notice
to be presented by management for election.
The notice shall also state the general nature of any proposed action at
the meeting to approve:
(a) A transaction in which a director has a financial interest, within
the meaning of Section 310 of the California Corporations Code;
(b) An amendment of the Articles of Incorporation under Section 902 of
the Code;
(c) A reorganization under Section 1201 of that Code;
(d) A voluntary dissolution of the corporation under Section 1900 of
that Code; or
(e) A distribution in dissolution that requires approval of the
outstanding shares under Section 2007 of that Code.
Section 2.5. Manner of Giving Notice. A notice of any meeting of
----------- -----------------------
shareholders may be given to any shareholder personally or by sending a copy of
the notice through the mail or other means of written communication, with
charges prepaid, addressed to the shareholder at the address of that shareholder
appearing on the books of the Corporation, or given by the shareholder to the
Corporation for the purpose of notice, or, if no address is so given, addressed
to the place where the principal executive office of the Corporation is located
or by publication at least once in a newspaper of general circulation in the
county in which the principal executive office is located. Notice is deemed to
have been given at the time it was delivered personally, deposited in the mail,
or sent by other means of written communication.
2
<PAGE>
If any notice addressed to a shareholder at the address of such shareholder
appearing on the books of the Corporation is returned to the Corporation marked
to indicate that the carrier is unable to deliver the notice to the shareholder
at such address, all future notices shall be deemed to have been duly given
without further mailing if the same shall be available to the shareholder on
written demand of the shareholder at the principal executive office of the
Corporation for a period of one year from the date of the giving of the notice
to all other shareholders.
Section 2.6. Quorum. The presence in person or by proxy of the holders
----------- ------
of a majority of the shares entitled to vote at the meeting shall constitute a
quorum for the transaction of business at any annual or special meeting of
shareholders. In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by vote of a majority of the shares represented
either in person or by proxy, but no other business may be transacted, except as
provided in the next paragraph.
The shareholders present at a duly called or held meeting at which a quorum
is present may continue to do business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken, other than adjournment, is approved by the holders of at least a majority
of the shares, present in person or represented by proxy, required to constitute
a quorum.
Section 2.7. Adjourned Meeting; Notice. Any shareholders' meeting,
----------- -------------------------
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at that
meeting, either in person or by proxy, but in the absence of a quorum, no other
business may be transacted at that meeting, except as provided in Section 2.6 of
these Bylaws.
When any meeting of shareholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken,
provided that if the adjournment is for more than forty-five (45) days from the
date set for the original meeting, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each shareholder of record entitled to vote at the meeting. At any
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting.
Section 2.8. Waiver of Notice and Consent to Shareholders' Meetings. The
----------- ------------------------------------------------------
transactions of any meeting of shareholders, however called and noticed and
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person or by proxy,
and if, either before or after the meeting, each of the shareholders entitled to
vote, not present in person or by proxy, signs a written waiver of notice, or a
consent to the holding of such meeting, or an approval of the minutes thereof.
The waiver of notice or consent need not specify either the intended business or
the purpose of the meeting, except that if action is taken or proposed to be
taken regarding any of the matters specified in Section 601(f) of the California
Corporations Code or applicable successor statute, the general nature of the
action or proposed action must be stated in the waiver of notice or consent.
All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
3
<PAGE>
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting, but not so included if that objection is
expressly made at the meeting.
Section 2.9. Action Without a Meeting. Any action which may be taken at
----------- ------------------------
any annual or special meeting of shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. In the case of the election of directors, such consent shall be
effective only if signed by the holders of all outstanding shares entitled to
vote for the election of directors; provided, however, that a director may be
elected at any time to fill a vacancy on the Board of Directors, other than to
fill a vacancy created by removal, that has not been filled by the directors by
the written consent of a majority of the outstanding shares entitled to vote for
the election of directors.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, (i) notice of any shareholder approval pursuant to Section
310, 317, 1201 or 2007 of the California Corporations Code without a meeting by
less than unanimous written consent shall be given at least ten (10) days before
the consummation of the action authorized by such approval and (ii) prompt
notice shall be given of the taking of any other corporate action approved by
shareholders without a meeting by less than unanimous written consent, in each
case to those shareholders entitled to vote who have not consented in writing.
Any shareholder giving a written consent, or the shareholder's proxy
holders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxy holders, may revoke the consent by a
writing received by the Corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary, but may not do so thereafter. Such revocation is effective
upon its receipt by the Secretary.
Section 2.10. Voting and Election of Directors. Every shareholder shall
------------ --------------------------------
be entitled to one vote on each matter submitted to a vote of the shareholders
for each full share of the Corporation held, and to cumulate such votes at any
election of directors under the conditions prescribed by law. On any matter
other than election of directors, any shareholder may vote part of the shares in
favor of the proposal and refrain from voting the remaining shares or vote them
against the proposal, but, if the shareholder fails to specify the number of
shares which the shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to all shares
that the shareholder is entitled to vote. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on any matter (other than the election of directors) shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by California General Corporation Law or by the Articles of
Incorporation.
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At a meeting of the shareholders at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of the shareholders'
shares) unless such candidate or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice prior to the
voting of the shareholder's intention to cumulate the shareholder's votes. If
any shareholder has given such notice, then all shareholders entitled to vote
may cumulate votes for candidates in nomination and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which that shareholder's shares are normally entitled, or distribute
the shareholder's votes on the same principle among as many candidates as the
shareholder determines. The candidates receiving the highest number of
affirmative votes entitled to be voted for them, up to the number of directors
to be elected, shall be elected; votes against any candidate and votes withheld
shall have no legal effect.
Section 2.11. Proxies. Every person entitled to vote on any matter at any
------------ -------
meeting of shareholders shall have the right to do so either in person or by one
or more agents authorized by a written proxy signed by the person and filed with
the Secretary of the Corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to that proxy, by a
writing delivered to the Corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at a meeting and voting in person
by, the person executing that proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the Corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy.
Proxies stating on their face that they are irrevocable shall be governed
by Sections 705(e) and 705(f) of the California Corporations Code or any
applicable successor statute.
Section 2.12. Inspectors of Election. Before any annual or special meeting
------------ ----------------------
of shareholders, the Board of Directors may appoint any person or persons other
than nominees for office to act as inspectors of election at the meeting or its
adjournment. If no inspectors of election are so appointed, the chairman of the
meeting may, and on the request of any shareholder or a shareholder's proxy
shall, appoint inspectors of election at the meeting. The number of inspectors
shall be either one (1) or three (3). If inspectors are appointed at a meeting
on the request of one or more shareholders or proxies, the holders of a majority
of shares or their proxies present at the meeting shall determine whether one
(1) or three (3) inspectors are to be appointed. If any person appointed as
inspector fails to appear or fails or refuses to act, the chairman of the
meeting may, and upon the request of any shareholder or a shareholder's proxy
shall, appoint a person to fill that vacancy.
These inspectors shall:
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(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way arising
in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
(f) Determine the result; and
(g) Do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
-----------
Directors
---------
Section 3.1. Number and Qualification of Directors. The number of
----------- -------------------------------------
directors of the Corporation shall be not less than five (5) nor more than seven
(7). The exact number of directors shall be seven (7) until changed within the
limits specified above by a Bylaw amending this Section 3.1, duly adopted by the
Board of Directors or by the shareholders. The indefinite number of directors
may be changed or a definite number of directors may be fixed without provisions
for an indefinite number, by an amendment to this Bylaw duly adopted by the vote
or written consent of holders of a majority of the outstanding shares entitled
to vote; provided, however, that an amendment reducing the number or the minimum
number of directors to a number less than five cannot be adopted if the votes
cast against its adoption at a meeting of the shareholders, or the shares not
consenting in the case of action by written consent, are equal to more than 16-
2/3% of the outstanding shares entitled to vote. Directors need not be
shareholders.
Section 3.2. Powers. Except as otherwise provided by law or by the
----------- ------
Articles of Incorporation, the business and affairs of the Corporation shall be
managed and all corporate powers shall be exercised by or under direction of the
Board of Directors.
Section 3.3. Election and Term of Office. The directors shall be elected
----------- ---------------------------
at each annual meeting of the shareholders to hold office until their respective
successors are elected, or until death, resignation or removal.
Section 3.4. Place of Directors' Meetings. Meetings of the directors may
----------- ----------------------------
be held at any place within or without the State of California which has been
designated in the notice of the
6
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meeting or, if not stated in the notice or if there is no notice, designated by
resolution of the Board of Directors. In the absence of any such designation,
meetings of directors shall be held at the principal executive office of the
Corporation.
Section 3.5. Regular Meetings. Immediately following the adjournment of
----------- ----------------
the shareholders' meeting at which directors are elected, a meeting of directors
shall be held for the purpose of organizing the Board, electing officers and
transacting such other business as may come before the meeting. Thereafter,
regular meetings shall be held at such times and places as the Board, by
resolution, may designate from time to time. Notice of regular meetings need
not be given.
Section 3.6. Special Meetings, Notice and Waiver. Special meetings of
----------- -----------------------------------
the Board of Directors for any purpose or purposes may be called at any time by
the Chairman of the Board of Directors, or by the President, or by any Vice
President, or by the Secretary or by any two (2) directors. Special meetings
shall be held on at least four (4) days notice by mail or forty-eight (48) hours
notice delivered personally or by telephone or telegraph. Oral notice given
personally or by telephone may be transmitted either to the director or to a
person at the director's office who can reasonably be expected to communicate it
promptly to the director. Written notice, if used, shall be addressed to each
director at his or her address shown on the corporate records. The notice need
not specify the purpose of the meeting, nor need it specify the place if the
meeting is to be held at the principal executive office of the Corporation.
Notice of adjournment of a meeting need not be given to absent directors if the
time and place are fixed at the meeting adjourned, provided that if a meeting is
adjourned for more than twenty-four hours, notice of the time and place of the
adjourned meeting shall be given in the manner prescribed in these Bylaws to
directors who were not present at the time of adjournment. The transactions of
any meeting of the Board of Directors, however called and noticed and wherever
held, shall be as valid as though had at a meeting duly held after regular call
and notice, if a quorum be present and if, either before or after the meeting,
each of the directors not present signs a written waiver of notice of or a
consent to holding such meeting or an approval of the minutes thereof and if
none of the directors present have protested, prior to the commencement of the
meeting, the lack of notice. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
Section 3.7. Telephone Participation. Members of the Board of Directors
----------- -----------------------
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another. Participation in a meeting pursuant to this section
constitutes presence in person at such meeting.
Section 3.8. Action Without Meeting. Any action required or permitted to
----------- ----------------------
be taken by the Board of Directors may be taken without a meeting if all members
of the Board of Directors shall individually or collectively consent in writing
to such action. Such written consent or consents shall be filed with the
minutes of the proceedings of the Board of Directors. Such action by written
consent shall have the same force and effect as a unanimous vote of such
directors.
Section 3.9. Quorum. A majority of the authorized number of directors
----------- ------
shall constitute a quorum for the transaction of business, except to adjourn.
Every act or decision done or made
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<PAGE>
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the Board of Directors, except as
otherwise required by law. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of directors, if
any action taken is approved by at least a majority of the required quorum for
that meeting.
Section 3.10. Notice of Adjourned Meeting. A majority of the directors
------------ ---------------------------
present, whether or not constituting a quorum, may adjourn any meeting to
another time and place. Notice of the time and place of holding an adjourned
meeting need not be given, unless the meeting is adjourned for more than twenty-
four hours, in which case notice of the time and place shall be given before the
time of the adjourned meeting, in the manner specified in these Bylaws, to the
directors who were not present at the time of the adjournment.
Section 3.11. Organization. The Chairman of the Board, or, in the absence
------------ ------------
of the Chairman of the Board, the President or, in the absence of both such
officers, any director selected by the directors present, shall preside at
meetings of the Board of Directors. The Secretary of the Corporation, or, in
the Secretary's absence, any person appointed by the presiding officer, shall
act as Secretary of the Board of Directors.
Section 3.12. Resignation and Vacancies. A vacancy or vacancies in the
------------ -------------------------
Board of Directors shall be deemed to exist in the event of the death,
resignation, or removal of any director, or if the Board of Directors by
resolution declares vacant the office of a director who has been declared of
unsound mind by an order of court or convicted of a felony, or if the authorized
number of directors is increased, or if the shareholders fail, at any meeting of
shareholders at which any director or directors is elected, to elect the number
of directors to be voted for at that meeting.
Any director of the Corporation may resign at any time by giving written
notice to the President or the Secretary of the Corporation, or to the Board of
Directors. Such resignation shall take effect at the time of receipt of such
notice or at any later time specified therein, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Any vacancies on the Board of Directors, excluding vacancies created by
removal of directors, may be filled by a majority of the remaining directors or,
if the number of directors then in office is less than a quorum, by the
unanimous written consent of the directors then in office, the affirmative vote
of a majority of the directors then in office at a meeting of the Board, or by a
sole remaining director. Vacancies created by the removal of directors may be
filled only by approval of the shareholders. The shareholders may also elect a
director at any time to fill any other vacancy not filled by the directors.
Section 3.13. Compensation. Directors, as such, may receive such
------------ ------------
compensation, if any, for their services, and such reimbursement of expenses of
attendance, if any, as may be fixed or determined by resolution of the Board of
Directors; provided, however, that nothing herein contained shall be construed
to preclude any director from serving in any other capacity or receiving
compensation for any such service.
8
<PAGE>
Section 3.14. Committees of Directors. The Board of Directors may, by
------------ -----------------------
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the Board. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any committee, to the extent provided
in the resolution of the Board, shall have all the authority of the Board,
except with respect to:
(a) the approval of any action which, under the General Corporation
Law of California, also requires shareholders' approval or approval of the
outstanding shares;
(b) the filling of vacancies on the Board of Directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
Board or on any committee;
(d) the amendment or repeal of these Bylaws or the adoption of new
Bylaws;
(e) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the Corporation, except at a
rate or in a periodic amount or within a price range set forth in the Articles
of Incorporation or determined by the Board of Directors; or
(g) the appointment of any other committees of the Board of Directors
or the members of such committees.
Section 3.15. Meetings and Action of Committees. Meetings and action of
------------ ---------------------------------
committees shall be governed by, and held and taken in accordance with, the
provisions of Sections 3.4 (place of meetings), 3.5 (regular meetings), 3.6
(special meetings, notice and waiver), 3.7 (telephone participation), 3.8
(action without a meeting), 3.9 (quorum), and 3.10 (adjournment), with such
changes in the context of those Bylaws as are necessary to substitute the
committee and its members for the Board of Directors and its members, except
that the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee; special
meetings of committees may also be called by resolution of the Board of
Directors; and notice of special meetings of committees shall also be given to
all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
Section 3.16. Loans to Directors and Officers. The Corporation may make
------------ -------------------------------
any loan of money or property to, or guaranty the obligation of, any director or
officer of the Corporation or any parent, subject to the limitations contained
in Section 315 of the California Corporations Code, or any successor statute. In
addition, if these Bylaws have been approved by the shareholders of the
Corporation and at such time as the Corporation has outstanding shares of record
held by one hundred (100) or more persons, the Board of Directors alone may by
9
<PAGE>
resolution approve (i) any loan of money or property to, or guaranty of the
obligation of, any director or officer of the Corporation or any subsidiary, or
(ii) an employee benefit plan authorizing such a loan or guaranty; provided that
the Board determines such loan, guaranty or plan may reasonably be expected to
benefit the Corporation, and that such approval be by a vote sufficient without
counting the vote of any interested director or directors.
ARTICLE IV
----------
Officers
--------
Section 4.1. Number. The officers of the Corporation shall be a
----------- ------
President, a Secretary, and a Chief Financial Officer and such other officers,
including a Chairman of the Board and one or more Vice Presidents, as may be
elected by the Board of Directors or appointed in accordance with the provisions
of Section 4.3 of these Bylaws. Any two or more of such offices may be held by
the same person.
Section 4.2. Election and Term of Office. Each officer, except such
----------- ---------------------------
officers as may be appointed in accordance with the provisions of Section 4.3 of
these Bylaws, shall be chosen by the Board of Directors and each shall serve at
the pleasure of the Board, subject to the rights, if any, of an officer under
any contract of employment.
Section 4.3. Subordinate Officers. The Board of Directors may appoint
----------- --------------------
such other officers or agents as the business of the Corporation may require,
including one or more Assistant Secretaries and Assistant Treasurers, each of
whom shall hold office for such period, have such authority and perform such
duties as the Board of Directors may from time to time determine. The Board of
Directors may delegate to any officer or committee the power to appoint any such
subordinate officers or agents.
Section 4.4. Removal, Resignation and Vacancies. Subject to the rights,
----------- ----------------------------------
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Directors, or, except in
the case of any officer elected by the Board of Directors, by any committee or
superior officer or officers having the power to appoint such officer. Any
officer may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time of receipt of such notice or at any
later time specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective. Any
resignation is without prejudice to the rights, if any, of the Corporation under
any contract to which the officer is a party.
A vacancy in any office arising from any cause may be filled in the manner
prescribed in these Bylaws for appointment or election to such office.
Section 4.5. Chairman of the Board. The Chairman of the Board, if such
----------- ---------------------
an officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform
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such other powers and duties as may be from time to time assigned by the Board
of Directors or prescribed by the Bylaws.
Section 4.6. President. The President shall be the chief executive
----------- ---------
officer of the Corporation and shall have general supervision over the business
and affairs of the Corporation, subject, however, to the control of the Board of
Directors. The President shall preside at all meetings of the shareholders and,
in the absence of the Chairman of the Board, or if there is none, of the Board
of Directors. The President may sign and execute, in the name of the
Corporation, deeds, mortgages, bonds, notes, contracts and other instruments
authorized by the Board of Directors, and, in general, shall have all powers and
perform all duties as are incident to the office of President, or as are
prescribed by the Board of Directors.
Section 4.7. Vice Presidents. The Vice President or Vice Presidents, if
----------- ---------------
any, shall possess such powers and perform such duties as may from time to time
be assigned to them by the Board of Directors or by the President.
Section 4.8. Secretary. The Secretary shall see that all notices are
----------- ---------
duly given in accordance with the provisions of these Bylaws or as required by
law; shall keep the minutes of all proceedings of meetings of shareholders, the
Board of Directors and committees, if any, of the Board of Directors; shall keep
such records of shareholders as shall be required by law; and shall perform such
other duties as are incident to such office or as are assigned by the Board of
Directors or by the President.
Section 4.9. Chief Financial Officer. The Chief Financial Officer, who
----------- -----------------------
may be designated as the Vice President-Finance or Treasurer, shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and shares.
The Chief Financial Officer shall deposit all moneys and other valuables in
the name and to the credit of the Corporation with such depositaries as may be
designated by the Board of Directors. The Chief Financial Officer shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the President and directors, whenever they request
it, an account of all transactions as Chief Financial Officer and of the
financial condition of the Corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board of Directors or the
President.
Section 4.10. Salaries. The salaries of the officers shall be fixed from
------------ --------
time to time by the Board of Directors, and no officer shall be prevented from
receiving such salary by reason of the fact that such officer is also a director
of the Corporation.
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ARTICLE V
---------
Indemnification of Directors, Officers,
---------------------------------------
Employers and Other Agents
--------------------------
Section 5.1. Indemnification of Directors. Each person who was or is
----------- ----------------------------
a party or is threatened to be made a party to or is involved in any threatened,
pending or completed action, suit or proceeding, formal or informal, whether
brought in the name of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature (hereinafter, a "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 or officer (provided, however, that this
-------- -------
Section 5.1 shall apply to an officer only if such officer is also a director)
of the Corporation or is or was serving at the request of the Corporation as a
director, or officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit or welfare plan, or other enterprise,
whether the basis of such proceeding is an alleged action or inaction in an
official capacity or in any other capacity while serving as such a director, or
officer, employee or agent, shall, subject to the terms of any agreement between
the Corporation and such person, be indemnified and held harmless by the
Corporation to the fullest extent permissible under applicable law and the
Corporation's Articles of Incorporation, against all costs, charges, expenses,
liabilities and losses (including, without limitation, attorneys' fees,
judgments, fines, excise taxes or penalties assessed with respect to any
employee benefit or welfare plan, and amounts paid or to be paid in settlement)
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, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that (a) the Corporation shall
-------- -------
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation;
(b) the Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof), other than a proceeding by or in
the name of the Corporation to procure a judgment in its favor, only if any
settlement of such a proceeding is approved in writing by the Corporation; (c)
no such person shall be indemnified (i) except to the extent that the aggregate
of losses to be indemnified exceeds the amount of such losses for which such
person is paid pursuant to any directors' and officers' liability insurance
policy maintained by the Corporation; (ii) on account of any suit in which
judgment is rendered against such person for an accounting of profits made from
the purchase or sale by such person of securities of the Corporation pursuant to
the provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, or similar
provisions of any federal, state or local statutory law; (iii) if a court of
competent jurisdiction finally determines that any indemnification hereunder is
unlawful; or (iv) as to circumstances in which indemnification is expressly
prohibited by Section 317 of the General Corporation Law of the State of
California (the "Law"); (d) that no such person shall be indemnified with regard
to any action brought by or in the right of the Corporation for breach of duty
to the corporation and its shareholders (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (ii) for acts
or omissions that such person believes to be contrary to the best interests of
the Corporation or its shareholders or that involve the absence of good faith on
the part of such person; (iii) for any transaction from which such person
derived an improper personal benefit; (iv) for acts or omissions that show a
reckless disregard for such person's duty to the Corporation or its
shareholders in circumstances in which such person was aware, or should have
been aware, in the ordinary course of performing such person's duties, of a risk
of serious injury to the Corporation or its shareholders; (v) for acts or
12
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omissions that constitute an unexcused pattern of inattention that amounts to an
abdication of such person's duties to the Corporation or its shareholders; or
(vi) for costs, charges, expenses, liabilities and losses arising under Section
310 or Section 316 of the Law; and (e) no such person shall be indemnified to
the extent such person is entitled to indemnification from another corporation,
partnership, joint venture, trust, employee benefit or welfare plan with which
such person is or was serving as a director, officer, employee or agent at the
request of the Corporation. The right to indemnification conferred in this
Section 5.1 of this Article shall be a contract between the Corporation and each
person entitled to indemnification hereunder who serves in any capacity
specified in this Section 5.1 of this Article at any time while these provisions
as well as the relevant provisions of the Law and the Corporation's Articles of
Incorporation are in effect and any repeal or modification thereof shall not
affect any right or obligation then existing with respect to any state of facts
then or previously existing or any proceeding previously or thereafter brought
or threatened based in whole or in part upon any such state of facts. Such a
contract right may not be modified retroactively without the consent of such
person. The right to indemnification conferred in this Section 5.1 of this
Article shall include the right to be paid by the Corporation expenses incurred
in defending any proceeding in advance of its final disposition; provided,
--------
however, that if the Law requires the payment of such expenses incurred by a
- -------
director or officer in his or her capacity as a director or officer (and not in
any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit or welfare plan) in advance of the final disposition of a proceeding,
such advances shall be made only upon delivery to the Corporation of a written
undertaking, by or on behalf of such director, to repay all amounts to the
Corporation if it shall be ultimately determined that such person is not
entitled to be indemnified.
Section 5.2. Indemnification of Officers, Employees and Agents. A
----------- -------------------------------------------------
person who was or is a party or is threatened to be made a party to or is
involved in any proceeding by reason of the fact that he or she is or was an
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit or welfare
plan, or other enterprise, whether the basis of such proceeding is an alleged
action or inaction in an official capacity or in any other capacity while
serving as such a director, officer, employee or agent, may upon the decision of
the Board of Directors, subject to the terms of any agreement between the
Corporation and such person, be indemnified and held harmless by the Corporation
to the fullest extent permitted under applicable law and the Corporation's
Articles of Incorporation, against all costs, charges, expenses, liabilities and
losses (including, without limitation, attorneys' fees, judgments, fines, excise
taxes or penalties assessed with respect to any employee benefit or welfare
plan, and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith. The immediately preceding
sentence is not intended to be and shall not be considered to confer a contract
right on any such person.
Section 5.3. Right to Bring Suit. If a claim under Section 5.1 of
----------- -------------------
this Article is not paid in full by the Corporation within 30 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 successful in whole or in part, the claimant shall also be
entitled to be paid the expense of prosecuting such claim. Neither the failure
of the Corporation (including its Board of Directors, independent legal counsel,
or its shareholders) to have made a determination
13
<PAGE>
prior to the commencement of such action that indemnification of the claimant is
permissible in the circumstances because he or she has met the applicable
standard of conduct, if any, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
shareholders) that the claimant has not met the applicable standard of conduct,
shall be a defense to such action or create a presumption for the purposes of
such action that the claimant has not met the applicable standard of conduct.
Section 5.4. Successful Defense. Notwithstanding any other provision
----------- ------------------
of this Article, to the extent that a person referred to in Section 5.1 of this
Article has been successful on the merits or otherwise (including, without
limitation, the dismissal of an action without prejudice or the settlement of a
proceeding or action without admission of liability) in defense of any
proceeding referred to in Section 5.1 of this Article or in defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
(including, without limitation, attorneys' fees) actually and reasonably
incurred in connection therewith.
Section 5.5. Nonexclusivity of Rights. The right to indemnification
----------- ------------------------
provided by this Article shall not be exclusive of nor limit any other right
which any person may have or hereafter acquire under any statute, bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be such a director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such person.
Section 5.6. Insurance. The Corporation may maintain insurance, at
----------- ---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust,
employee benefit or welfare plan, or other enterprise against any expense,
liability or loss, asserted against such person or incurred by such person, or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Law, the Articles of Incorporation of the Corporation or this Article.
Section 5.7. Expense as a Witness. To the extent that any director,
----------- --------------------
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any proceeding, he or she shall be indemnified against all costs and expenses
actually and reasonably incurred by him or her on his or her behalf in
connection therewith.
Section 5.8. Indemnity Agreements. The Corporation may enter into
----------- --------------------
agreements with any director, officer, employee or agent of the Corporation, or
any person who serves at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit Go welfare plan, or other enterprise, providing for
indemnification to the fullest extent permissible under the Law and the
Corporation's Articles of Incorporation.
Section 5.9. Severability. Each and every paragraph, sentence, term
----------- ------------
and provision of this Article is separate and distinct so that if any paragraph,
sentence, term or provision hereof
14
<PAGE>
shall be held to be invalid, unlawful or unenforceable for any reason, such
invalidity, unlawfulness or unenforceability shall not affect the validity,
lawfulness or enforceability of any other paragraph, sentence, term or provision
hereof. To the extent required, any paragraph, sentence, term or provision of
this Article may be modified by a court of competent jurisdiction to preserve
its validity and to provide the claimant with, subject to the limitations set
forth in this Article and any agreement between the Corporation and such
claimant, the broadest possible indemnification permitted under applicable law.
Section 5.10 Effect of Repeal or Modification. Any repeal or
------------ --------------------------------
modification of this Article shall not adversely affect any right of
indemnification of a person referred to in Section 5.1 of this Article existing
at the time of such repeal or modification with respect to any action or
omission occurring prior to such repeal or modification.
ARTICLE VI
----------
Contracts, Checks, Drafts, Bank Accounts, etc.
----------------------------------------------
Section 6.1. Contracts and Other Instruments. Except as in these
----------- -------------------------------
Bylaws otherwise provided, the Board of Directors may authorize any officer or
agent to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation. No officer, agent or employee shall
have any power or authority to bind the Corporation by any contract or
engagement or to pledge its assets or credit or to subject it to any liability
for any purpose or in any amount unless that person was acting with authority
duly granted by the Board of Directors as provided in these Bylaws, or unless an
unauthorized act was later ratified by the Corporation.
Section 6.2. Checks, Drafts, etc. The Board of Directors may by
----------- -------------------
resolution authorize from time to time such person or persons as it may
designate to sign and/or countersign checks or drafts drawn on the funds of the
Corporation, and may also by resolution authorize any officer of the Corporation
to designate from time to time any person or persons to sign and/or countersign
checks or drafts drawn on the funds of the Corporation.
ARTICLE VII
-----------
Certificates for Shares and Their Transfer
------------------------------------------
Section 7.1. Certificate for Shares. Certificates for shares of the
----------- ----------------------
Corporation shall be in such form as shall be required by law and as shall be
approved by the Board of Directors. Each certificate for shares shall be signed
by (a) the President or a Vice President and (b) by the Chief Financial Officer
or an Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation. Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who shall have
signed, or whose facsimile signature or signatures shall have been written,
printed or stamped, on any certificate or certificates for shares of the
Corporation shall cease to be such officer, transfer agent or registrar,
15
<PAGE>
before such certificate or certificates shall have been issued, it may be issued
by the Corporation with the same effect as if such person were an officer,
transfer agent or registrar at the date of issue.
Section 7.2. Transfer on the Books. Upon surrender to the Secretary
----------- ---------------------
or transfer agent (if any) of the Corporation of a certificate for shares, duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Secretary or transfer agent (if any) shall issue a
new certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon the books of the Corporation. The Board of
Directors may authorize the issuance of a new certificate for shares alleged to
have been lost, stolen or destroyed and may, in its discretion, require that the
Corporation first be furnished with such security or indemnity or both as it may
deem proper. The Board of Directors may make such additional rules and
regulations, not inconsistent with law or with these Bylaws, as it may deem
expedient, concerning the issuance, transfer and registration of certificates
for shares, and may appoint one or more transfer agents or registrars or both.
Section 7.3. Determination of Shareholders of Record. The Board of
----------- ---------------------------------------
Directors may fix a time in the future as a record date for the determination of
the shareholders entitled to notice of and to vote at any meeting of
shareholders or to take any action by written consent, or entitled to receive
any dividend or distribution or any allotment of rights, or to exercise rights
in respect of any other lawful action, and in such case only shareholders of
record at the close of business on the date so fixed shall be entitled to notice
of and to vote at the meeting or by written consent, or to receive the dividend,
distribution or allotment of rights, or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Corporation
after such record date. Such record date shall be not more than sixty (60) days
prior to the date of the meeting or event for the purposes of which it is fixed,
and, in the case of a record date for the determination of shareholders entitled
to notice of and to vote at any meeting or to take any action by written
consent, such record date shall be not less than ten (10) days prior to the date
of the meeting or date as of which consents are taken.
If no record date is fixed:
The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on the
business day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the business day next preceding the day on
which the meeting is held.
The record date for determining shareholders entitled to give consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors has been taken, shall be the day on which the first written
consent is given.
The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto, or the both day prior to the date of
such other action, whichever is later.
16
<PAGE>
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days from the date set for the original
meeting.
Section 7.4. Maintenance of Share Register. The Corporation shall
----------- -----------------------------
keep at its principal executive office, or at the office of its transfer agent
or registrar, if either be appointed and as determined by resolution of the
Board of Directors, a record of its shareholders, giving the names and addresses
of all shareholders and the number and class of shares held by each shareholder.
A shareholder shall have the right to input and copy the share register as
provided by Section 1600 of the Corporations Code or any applicable successor
statute.
Section 7.5. Representation of Shares of Other Corporations. The
----------- ----------------------------------------------
Chairman of the Board, the President, or any Vice President, or any other person
authorized by resolution of the Board of Directors or by any of the foregoing
designated officers, is authorized to vote on behalf of the Corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the Corporation. The authority granted to these
officers to vote or represent on behalf of the Corporation any and all shares
held by the Corporation in any other corporation or corporations may be
exercised by any of these officers in person or by any person authorized to do
so by proxy duly executed by these officers.
ARTICLE VIII
------------
Corporate Records
-----------------
Section 8.1. Maintenance of Bylaws. The Corporation shall keep at
----------- ---------------------
its principal executive office, or if its principal executive office is not in
the State of California, at its principal business office in the State of
California, the original or a copy of the Bylaws as amended to date. If the
principal executive office of the Corporation is outside the State of California
and the Corporation has no principal business office in the State of California,
the Secretary shall, upon the written request of any shareholder, furnish to
that shareholder a copy of the Bylaws as amended to date.
Section 8.2. Maintenance of Other Corporate Records. The accounting
----------- --------------------------------------
books and records and minutes of proceedings of the shareholders and the Board
of Directors and any committee or committees of the Board of Directors shall be
kept at such place or places designated by the Board of Directors, or, in the
absence of such designation, at the principal executive office of the
Corporation. The minutes shall be kept in written form and the accounting books
and records shall be kept either in written form or in any other form capable of
being converted into written form.
Section 8.3. Annual Report to Shareholders. Until such time as the
----------- -----------------------------
Corporation has one hundred (100) or more holders of record of its shares, the
annual report to shareholders referred to in Section 1501 of the California
General Corporation Law is expressly dispensed
17
<PAGE>
with, but nothing herein shall be interpreted as prohibiting the Board of
Directors from issuing annual or other periodic reports to the shareholders of
the Corporation as they consider appropriate.
Section 8.4. Inspection by Directors. Every director shall have the
----------- -----------------------
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the Corporation and each
of its subsidiary corporations. This inspection may be made in person or by
agent or attorney and includes the right to copy and make extracts of documents.
ARTICLE IX
----------
Fiscal Year
-----------
Section 9.1. The fiscal year of the Corporation shall be fixed and
-----------
may be changed from time to time by resolution of the Board of Directors.
ARTICLE X
---------
Amendments
----------
Section 10.1. Amendment by Shareholders. New Bylaws may be adopted
------------ -------------------------
or these Bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that if the Articles of Incorporation of the Corporation set forth the
number of authorized directors of the Corporation, the authorized number of
directors may be changed only by an amendment of the Articles of Incorporation.
Section 10.2. Amendment by Directors. Subject to the rights of the
------------ ----------------------
shareholders as provided in Section 10.1, these Bylaws, other than a Bylaw or an
amendment of a Bylaw changing the authorized number of directors, may be amended
or repealed by the Board of Directors; provided, however, that the Board of
Directors may adopt a Bylaw or amendment of a Bylaw changing the authorized
number of directors only for the purpose of fixing the exact number of directors
within the limits specified in Section 3.1 of these Bylaws.
ARTICLE XI
----------
Miscellaneous
-------------
Section 11.1. Subsequent Agreement or Bylaw. If (a) any two or more
------------ -----------------------------
shareholders shall enter into any agreement abridging, limiting or restricting
the rights of any one or more of them to sell, assign, transfer, mortgage,
pledge, hypothecate or transfer on the books of the Corporation any or all of
the shares held by them, and if a copy of such agreement shall be filed with
this Corporation, or if (b) shareholders entitled to vote shall adopt any Bylaw
provision abridging, limiting or restricting the aforesaid rights of any
shareholders, then, and in either of
18
<PAGE>
such events, all certificates or shares subject to such abridgements,
limitations or restrictions shall have a reference thereto enforced thereon by
an officer and such certificates shall not thereafter be transferred on the
books of the Corporation except in accordance with the terms and provisions of
such agreement or Bylaws, as the case may be; provided, that no restriction
shall be binding with respect to shares issued prior to adoption of the
restriction unless the holders of such shares voted in favor of or consented in
writing to the restrictions.
Section 11.2. Construction and Definitions. Unless the context requires
------------ ----------------------------
otherwise, the general provisions, rules of construction, and definitions in
Sections 100 through 195 of the California Corporations Code or any applicable
successor statute shall govern the construction of these Bylaws. Without
limiting the generality of this provision, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
a corporation and a natural person.
19
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of Storm Primax, Inc.,
a California corporation.
2. That the foregoing bylaws constitute the bylaws of said corporation as
adopted by the Directors of this corporation by unanimous written consent on
February 1, 1990.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 1st day of
February, 1990.
---------------------------------------
Secretary
20
<PAGE>
EXHIBIT 10.1
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of ___________________, 1996, is made by
and between Storm Primax, Inc., a Delaware corporation (the "Company"), and
_______________________ (the "Indemnitee").
RECITALS
--------
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors, officers or agents of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors, officers and other agents.
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors, officers and agents with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take.
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of directors, officers and other agents.
D. The Company believes that it is unfair for its directors, officers and
agents and the directors, officers and agents of its subsidiaries to assume the
risk of huge judgments and other expenses which may occur in cases in which the
director, officer or agent received no personal profit and in cases where the
director, officer or agent was not culpable.
E. The Company recognizes that the issues in controversy in litigation
against a director, officer or agent of a corporation such as the Company or its
subsidiaries are often related to the knowledge, motives and intent of such
director, officer or agent, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters, and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director,
officer or agent can reasonably recall such matters; and may extend beyond the
normal time for retirement for such director, officer or agent with the result
that he, after retirement or in the event of his death, his spouse, heirs,
executors or administrators, may be faced with limited ability and undue
hardship in maintaining an adequate defense, which may discourage such a
director, officer or agent from serving in that position.
1
<PAGE>
F. Based upon their experience as business managers, the Board of Directors
of the Company (the "Board") has concluded that, to retain and attract talented
and experienced individuals to serve as directors, officers and agents of the
Company and its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Company and its subsidiaries, it
is necessary for the Company to contractually indemnify its directors, officers
and agents and the directors, officers and agents of its subsidiaries, and to
assume for itself maximum liability for expenses and damages in connection with
claims against such directors, officers and agents in connection with their
service to the Company and its subsidiaries, and has further concluded that the
failure to provide such contractual indemnification could result in great harm
to the Company and its subsidiaries and the Company's stockholders.
G. Section 145 of the General Corporation Law of Delaware, under which the
Company is organized ("Section 145"), empowers the Company to indemnify its
directors, officers, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive.
H. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director, officer or agent of the Company and/or one or
more subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company.
I. Indemnitee is willing to serve, or to continue to serve, the Company
and/or one or more subsidiaries of the Company, provided that he is furnished
the indemnity provided for herein.
AGREEMENT
---------
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Definitions.
-----------
(a) Agent. For the purposes of this Agreement, "agent" of the Company
-----
means any person who is or was a director, officer, employee or other agent of
the Company or a subsidiary of the Company; or is or was serving at the request
of, for the convenience of, or to represent the interests of the Company or a
subsidiary of the Company as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the
2
<PAGE>
request of, for the convenience of, or to represent the interests of such
predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses" include all
--------
out-of-pocket costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements), actually and
reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement or Section 145 or otherwise;
provided, however, that "expenses" shall not include any judgments, fines, ERISA
excise taxes or penalties, or amounts paid in settlement of a proceeding.
(c) Proceeding. For the purposes of this Agreement, "proceeding"
----------
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, or investigative.
(d) Subsidiary. For purposes of this Agreement, "subsidiary" means
----------
any corporation of which more than 50% of the outstanding voting securities is
owned directly or indirectly by the Company, by the Company and one or more
other subsidiaries, or by one or more other subsidiaries.
2. Agreement to Serve. The Indemnitee agrees to serve and/or continue to
------------------
serve as agent of the Company, at its will (or under separate agreement, if such
agreement exists), in the capacity Indemnitee currently serves as an agent of
the Company, so long as he is duly appointed or elected and qualified in
accordance with the applicable provisions of the Bylaws of the Company or any
subsidiary of the Company or until such time as he tenders his resignation in
writing; provided, however, that nothing contained in this Agreement is intended
to create any right to continued employment by Indemnitee.
3. Liability Insurance.
-------------------
(a) Maintenance of D&O Insurance. The Company hereby covenants and
----------------------------
agrees that, so long as the Indemnitee shall continue to serve as an agent of
the Company and thereafter so long as the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in reasonable amounts from established and reputable insurers.
(b) Rights and Benefits. In all policies of D&O Insurance, the
-------------------
Indemnitee shall be named as an insured in such a manner as to provide the
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if the Indemnitee is a director; or of the
Company's officers, if the Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if the Indemnitee is not a director
or officer but is a key employee.
3
<PAGE>
(c) Limitation on Required Maintenance of D&O Insurance.
---------------------------------------------------
Notwithstanding the foregoing, the Company shall have no obligation to obtain or
maintain D&O Insurance if the Company determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary of the Company.
4. Mandatory Indemnification. Subject to Section 9 below, the Company
-------------------------
shall indemnify the Indemnitee as follows:
(a) Successful Defense. To the extent the Indemnitee has been
------------------
successful on the merits or otherwise in defense of any proceeding (including,
without limitation, an action by or in the right of the Company) to which the
Indemnitee was a party by reason of the fact that he is or was an Agent of the
Company at any time, against all expenses of any type whatsoever actually and
reasonably incurred by him in connection with the investigation, defense or
appeal of such proceeding.
(b) Third Party Actions. If the Indemnitee is a person who was or is
-------------------
a party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, the Company shall indemnify the Indemnitee against any and
all expenses and liabilities of any type whatsoever (including, but not limited
to, judgments, fines, ERISA excise taxes and penalties, and amounts paid in
settlement) actually and reasonably incurred by him in connection with the
investigation, defense, settlement or appeal of such proceeding, provided the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and its stockholders, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
(c) Derivative Actions. If the Indemnitee is a person who was or is a
------------------
party or is threatened to be made a party to any proceeding by or in the right
of the Company by reason of the fact that he is or was an agent of the Company,
or by reason of anything done or not done by him in any such capacity, the
Company shall indemnify the Indemnitee against all expenses actually and
reasonably incurred by him in connection with the investigation, defense,
settlement, or appeal of such proceeding, provided the Indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and its stockholders; except that no indemnification
under this subsection 4(c) shall be made in respect to any claim, issue or
matter as to which such person shall have been finally adjudged to be liable to
the Company by a court of competent jurisdiction unless and only to the extent
that the court in which such proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view
4
<PAGE>
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such amounts which the court shall deem proper.
(d) Actions where Indemnitee is Deceased. If the Indemnitee is a
------------------------------------
person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, and if prior
to, during the pendency of after completion of such proceeding Indemnitee
becomes deceased, the Company shall indemnify the Indemnitee's heirs, executors
and administrators against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
and penalties, and amounts paid in settlement) actually and reasonably incurred
to the extent Indemnitee would have been entitled to indemnification pursuant to
Sections 4(a), 4(b), or 4(c) above were Indemnitee still alive.
(e) Notwithstanding the foregoing, the Company shall not be obligated
to indemnify the Indemnitee for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes and
penalties, and amounts paid in settlement) for which payment is actually made to
or on behalf of Indemnitee under a valid and collectible insurance policy of D&O
Insurance, or under a valid and enforceable indemnity clause, by-law or
agreement.
5. Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes and penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding, but not entitled, however, to indemnification for all of
the total amount hereof, the Company shall nevertheless indemnify the Indemnitee
for such total amount except as to the portion hereof to which the Indemnitee is
not entitled.
6. Mandatory Advancement of Expenses. Subject to Section 8(a) below, the
---------------------------------
Company shall advance all expenses incurred by the Indemnitee in connection with
the investigation, defense, settlement or appeal of any proceeding to which the
Indemnitee is a party or is threatened to be made a party by reason of the fact
that the Indemnitee is or was an agent of the Company. Indemnitee hereby
undertakes to repay such amounts advanced only if, and to the extent that, it
shall be determined ultimately that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within twenty (20) days
following delivery of a written request therefor by the Indemnitee to the
Company.
7. Notice and Other Indemnification Procedures.
-------------------------------------------
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be
5
<PAGE>
sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 7(a) hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such policies.
(c) In the event the Company shall be obligated to pay the expenses of
any proceeding against the Indemnitee, the Company, if appropriate, shall be
entitled to assume the defense of such proceeding, with counsel approved by the
Indemnitee, upon the delivery to the Indemnitee of written notice of its
election so to do. After delivery of such notice, approval of such counsel by
the Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to the Indemnitee under this Agreement for any fees of
counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense, or (C) the Company shall not, in fact, have employed counsel
to assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
General Corporation Law of Delaware or (iv) the proceeding is brought to
establish or enforce a right to indemnification under this Agreement or any
other statute or law or otherwise as required under Section 145.
(b) Lack of Good Faith. To indemnify the Indemnitee for any expenses
------------------
incurred by the Indemnitee with respect to any proceeding instituted by the
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
6
<PAGE>
(c) Unauthorized Settlements. To indemnify the Indemnitee under this
------------------------
Agreement for any amounts paid in settlement of a proceeding unless the Company
consents to such settlement, which consent shall not be unreasonably withheld.
9. Non-exclusivity. The provisions for indemnification and advancement of
---------------
expenses set forth in this Agreement shall not be deemed exclusive of any other
rights which the Indemnitee may have under any provision of law, the Company's
Certificate of Incorporation or Bylaws, the vote of the Company's stockholders
or disinterested directors, other agreements, or otherwise, both as to action in
his official capacity and to action in another capacity while occupying his
position as an agent of the Company, and the Indemnitee's rights hereunder shall
continue after the Indemnitee has ceased acting as an agent of the Company and
shall inure to the benefit of the heirs, executors and administrators of the
Indemnitee.
10. Enforcement. Any right to indemnification or advances granted by this
-----------
Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee in
any court of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of such claim is
made within ninety (90) days of request therefor. Indemnitee, in such
enforcement action, if successful in whole or in part, shall be entitled to be
paid also the expense of prosecuting his claim. It shall be a defense to any
action for which a claim for indemnification is made under this Agreement (other
than an action brought to enforce a claim for expenses pursuant to Section 6
hereof, provided that the required undertaking has been tendered to the Company)
that Indemnitee is not entitled to indemnification because of the limitations
set forth in Sections 4 and 8 hereof. Neither the failure of the Corporation
(including its Board of Directors or its stockholders) to have made a
determination prior to the commencement of such enforcement action that
indemnification of Indemnitee is proper in the circumstances, nor an actual
determination by the Company (including its Board of Directors or its
stockholders) that such indemnification is improper, shall be a defense to the
action or create a presumption that Indemnitee is not entitled to
indemnification under this Agreement or otherwise.
11. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
12. Survival of Rights.
------------------
(a) All agreements and obligations of the Company contained herein
shall continue during the period Indemnitee is an agent of the Company and shall
continue thereafter so long as Indemnitee shall be subject to any possible claim
or threatened, pending or completed action, suit or proceeding, whether civil,
criminal,
7
<PAGE>
arbitrational, administrative or investigative, by reason of the fact that
Indemnitee was serving in the capacity referred to herein.
(b) The Company shall require any successor to the Company (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company, expressly to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place.
13. Interpretation of Agreement. It is understood that the parties hereto
---------------------------
intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent permitted by law
including those circumstances in which indemnification would otherwise be
discretionary.
14. Severability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable for any reason whatsoever, (i)
the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or amendment of
-----------------------
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
16. Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.
17. Governing Law. This Agreement shall be governed exclusively by and
-------------
construed according to the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and to be performed entirely within
Delaware.
8
<PAGE>
The parties hereto have entered into this Indemnity Agreement effective as
of the date first above written.
THE COMPANY:
STORM PRIMAX, INC.
By
------------------------------
Title
------------------------------
Address: 525 Almanor Ave.
Sunnyvale, CA 94086
Attn: Rick M. McConnell
INDEMNITEE:
----------------------------------
RAYMOND LIANG
Address:
--------------------------
--------------------------
--------------------------
9
<PAGE>
EXHIBIT 10.2
STORM PRIMAX, INC.
AMENDED AND RESTATED
STOCK OPTION PLAN
1. Purpose. The Storm Primax, Inc. Amended and Restated Stock Option Plan
-------
(the "Plan") is established to attract, retain and reward persons providing
services to Storm Primax, Inc. and any successor corporation thereto
(collectively referred to as the "Company"), and any present or future parent
and/or subsidiary corporations of such corporation (all of whom along with the
Company being individually referred to as a "Participating Company" and
collectively referred to as the "Participating Company Group"), and to motivate
such persons to contribute to the growth and profits of the Participating
Company Group in the future. For purposes of the Plan, a parent corporation and
a subsidiary corporation shall be as defined in sections 424(e) and 424(f) of
the Internal Revenue Code of 1986, as amended (the "Code").
2. Administration. The Plan shall be administered by the Board of
--------------
Directors of the Company (the "Board") and/or by a duly appointed committee of
the Board having such powers as shall be specified by the Board. Any subsequent
references herein to the Board shall also mean the committee if such committee
has been appointed and, 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 terminate or amend
the Plan at any time, subject to the terms of the Plan and any applicable
limitations imposed by law. The Board may delegate some or all of its powers
under the Plan to one (1) or more officers and directors to the extent permitted
by the Corporations Code of the State of California. All questions of
interpretation of the Plan or of any options granted under the Plan (an
"Option") shall be determined by the Board, and such determinations shall be
final and binding upon all persons having an interest in the Plan and/or any
Option. Options may be either incentive stock options as defined in section 422
of the Code ("Incentive Stock Options") or nonqualified stock options. 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.
3. Eligibility. Options may be granted only to employees (including
-----------
officers) and directors of the Participating Company Group or to individuals who
are rendering services as consultants, advisors, or other independent
contractors to the Participating Company Group. The Board shall, in its sole
discretion, determine which persons shall be granted Options (an "Optionee"). A
director of the Company may only be granted a nonqualified stock option unless
the director is also an employee of the Company. An individual who is rendering
services as a consultant, advisor, or other independent contractor may only be
granted a nonqualified stock option. Eligible persons may be granted more than
one (1) Option.
1
<PAGE>
4. Shares Subject to Option. Options shall be for the purchase of shares
------------------------
of the authorized but unissued common stock of the Company (the "Stock"),
subject to adjustment as provided in paragraph 9 below. The maximum number of
shares of Stock which may be issued under the Plan shall be Four Million Four
Hundred Forty-Four Thousand Eight Hundred Forty-Two (4,444,842) shares. In the
event that any outstanding Option for any reason expires or is terminated or
canceled and/or shares of Stock subject to repurchase are repurchased by the
Company, the shares allocable to the unexercised portion of such Option, or such
repurchased shares, may again be subject to an Option grant.
5. Time for Granting Options. All Options shall be granted, if at all,
-------------------------
within ten (10) years from November 26, 1991.
6. Terms, Conditions and Form of Options. Subject to the provisions of
-------------------------------------
the Plan, the Board shall determine for each Option (which need not be
identical) the number of shares of Stock for which the Option shall be granted,
the option exercise price of the Option, the timing and terms of exercisability
and vesting of the Option, whether the Option is to be treated as an Incentive
Stock Option or as a nonqualified stock option and all other terms and
conditions of the Option not inconsistent with the Plan. Options granted
pursuant to the Plan shall be evidenced by written agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish, which 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:
(a) Option Exercise Price. The option exercise price for each Option
---------------------
shall be established in the sole discretion of the Board; provided, however,
that (i) the option exercise price per share for an Incentive Stock Option shall
be not less than the fair market value, as determined by the Board, of a share
of Stock on the date of the granting of the Option, (ii) the option exercise
price per share for a nonqualified stock option shall not be less than eighty-
five percent (85%) of the fair market value, as determined by the Board, of a
share of Stock on the date of the granting of the Option and (iii) no Option
granted to an Optionee who at the time the Option is granted owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of a Participating Company within the meaning of section
422(b)(6) of the Code and/or ten percent (10%) of the total combined value of
all classes of stock of a Participating Company (a "Ten Percent Owner Optionee")
shall have an option exercise price per share less than one hundred ten percent
(110%) of the fair market value, as determined by the Board, of a share of Stock
on the date of the granting of the Option. Notwithstanding the foregoing, an
Option (whether an Incentive Stock Option or a nonqualified stock option) may be
granted with an option exercise price lower than the minimum exercise price set
forth above if such Option is granted pursuant to an assumption or substitution
for another option in a manner qualifying with the provisions of section 424(a)
of the Code.
(b) Exercise Period of Options. The Board shall have the power to set
--------------------------
the time or times within which each Option shall be exercisable or the event or
events
2
<PAGE>
upon the occurrence of which all or a portion of each Option shall be
exercisable and the term of each Option; provided, however, that (i) no Option
shall be exercisable after the expiration of ten (10) years after the date such
Option is granted and (ii) no Option granted to a Ten Percent Owner Optionee
shall be exercisable after the expiration of five (5) years after the date such
Option is granted.
(c) Payment of Option Exercise Price. Payment of the option 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 the Company's stock owned by the Optionee having a value,
as determined by the Board (but without regard to any restrictions on
transferability applicable to such stock by reason of federal or state
securities laws or agreements with an underwriter for the Company), not less
than the option exercise price, (iii) by the Optionee's recourse promissory
note, (iv) by the assignment of the proceeds of a sale of some or all of the
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), or (v) by any combination thereof. The Board may at any time or from
time to time, by adoption of or by amendment to the form of Standard Option
Agreement described in paragraph 7 below, or by other means, grant Options which
do not permit all of the foregoing forms of consideration to be used in payment
of the option exercise price and/or which otherwise restrict one (1) or more
forms of consideration. Notwithstanding the foregoing, an Option may not be
exercised by tender to the Company of shares of the Company's stock to the
extent such tender of stock would constitute a violation of the provisions of
any law, regulation and/or agreement restricting the redemption of the Company's
stock. Furthermore, no promissory note shall be permitted if an exercise using
a promissory note would be a violation of any law. Any permitted promissory
note shall be due and payable not more than five (5) years after the Option is
exercised, and interest shall be payable at least annually and be at least equal
to the minimum interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code. The Board shall have the authority to permit
or require the Optionee to secure any promissory note used to exercise an Option
with the shares of Stock acquired on exercise of the Option and/or with other
collateral acceptable to the Company.
(x) Unless otherwise provided by the Board, an Option may not be
exercised by tender to the Company of shares of the Company's stock unless such
shares of the Company's stock either have been owned by the Optionee for more
than six (6) months or were not acquired, directly or indirectly, from the
Company.
(y) Unless otherwise provided by the Board, in the event the
Company at any time becomes subject to the regulations promulgated by the Board
of Governors of the Federal Reserve System or any other governmental entity
affecting the extension of credit in connection with the Company's securities,
any promissory note shall comply with such applicable regulations, and the
Optionee shall pay the unpaid principal and accrued interest, if any, to the
extent necessary to comply with such applicable regulations.
3
<PAGE>
(z) The Company reserves, at any and all times, the right, in the
Company's sole and absolute discretion, to establish, decline to approve and/or
terminate any program and/or procedures for the exercise of Options by means of
an assignment of the proceeds of a sale of some or all of the shares of Stock to
be acquired upon such exercise.
7. Standard Form of Stock Option Agreement. Unless otherwise provided for
---------------------------------------
by the Board at the time an Option is granted or as otherwise provided for by
this paragraph 7, all Options shall comply with and be subject to the terms and
conditions set forth in the stock option agreement attached hereto as Exhibit A
and incorporated herein by reference (the "Standard Option Agreement").
(a) Modifications for Nonqualified Stock Options. In the event the
--------------------------------------------
Option is designated as a nonqualified stock option, the Standard Option
Agreement for such Option shall be the Standard Option Agreement as modified as
set forth below unless otherwise specified by the Board:
(i) The title and paragraph 2 of the Standard Option Agreement
shall reflect the Option's status as a nonqualified stock option.
(ii) Paragraph 4(a) of the Standard Option Agreement shall be
modified to delete therefrom the second and third sentences referring to the
"$100,000 Exercise Limitation" applicable to Incentive Stock Options.
(iii) A new paragraph 7(f) shall be added to the Standard Option
Agreement providing that, in the event an Optionee is a director or consultant
or advisor but not an employee of a Participating Company at the time the Option
is granted, termination of the Optionee's status as a director or consultant or
advisor of the Participating Company shall be deemed to be termination of the
Optionee's employment for purposes of the Standard Option Agreement.
(iv) Paragraph 15 of the Standard Option Agreement providing,
among other things, that the Optionee give the Company notice of sales upon
disqualifying dispositions of Incentive Stock Options shall be deleted and shall
not apply to the Option.
(v) Paragraph 16 of the Standard Option Agreement regarding the
"$100,000 Exercise Limitation" applicable to Incentive Stock Options shall be
deleted and shall not apply to the Option.
(vi) Paragraph 17(e) of the Standard Option Agreement regarding
the stock certificate legend applicable to Incentive Stock Options shall be
deleted and shall not apply to the Option.
(vii) Paragraph 20 of the Standard Option Agreement shall be
modified to delete the provision that amendments to the Standard Option
Agreement may be made without the Optionee's consent if such amendments are
required to enable
4
<PAGE>
an Option designated as an Incentive Stock Option to qualify as an Incentive
Stock Option.
(viii) The remaining paragraphs of such modified Standard Option
Agreement for nonqualified stock options shall be renumbered accordingly.
(b) Standard Term for Options. Unless otherwise provided for by the
-------------------------
Board in the grant of an Option, any Option granted hereunder shall be
exercisable for a term of ten (10) years.
8. Authority to Vary Terms. The Board shall have the authority from time
-----------------------
to time to vary the terms of the Standard Option Agreement described in
paragraph 7 above either in connection with the grant 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 such revised or amended standard form
or forms of stock option agreement shall be in accordance with the terms of the
Plan. Such authority shall include, but not by way of limitation, the authority
to grant Options which are not immediately exercisable.
9. Effect of Change in Stock Subject to Plan. Appropriate adjustments
-----------------------------------------
shall be made in the number and class of shares of Stock subject to the Plan and
to any outstanding Options and in the option exercise price of any outstanding
Options in the event of a stock dividend, stock split, reverse stock split,
combination, reclassification, or like change in the capital structure of the
Company.
10. Transfer of Control. A "Transfer of Control" shall be deemed to have
-------------------
occurred in the event any of the following occurs with respect to the Company:
(a) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the stock of the Company where the
shareholders of the Company before such sale or exchange do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company after such sale or exchange;
(b) a merger or consolidation in which the Company is not the
surviving corporation;
(c) a merger or consolidation in which the Company is the surviving
corporation where the shareholders of the Company before such merger or
consolidation do not retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the Company after such merger or
consolidation;
(d) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange, or transfer to one (1) or
more subsidiary corporations (as defined in paragraph 1 above) of the Company);
or
(e) A liquidation or dissolution of the Company.
5
<PAGE>
In the event of a Transfer of Control, the Board, in its sole discretion,
may arrange with the surviving, continuing, successor, or purchasing corporation
or parent corporation thereof, as the case may be (the "Acquiring Corporation"),
for the Acquiring Corporation to either assume the Company's rights and
obligations under outstanding stock option agreements or substitute options for
the Acquiring Corporation's stock for such outstanding Options. 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.
11. Provision of Information. Each Optionee shall be provided with copies
------------------------
of financial statements of the Company at least annually equivalent to the
financial information generally made available to the Company's common
shareholders. The Company shall not be required to deliver such information to
persons whose duties in connection with the Company assure their access to
equivalent information.
12. Options Non-Transferable. During the lifetime of the Optionee, the
------------------------
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.
13. Transfer of Company's Rights. In the event any Participating Company
----------------------------
assigns, other than by operation of law, to a third person, other than another
Participating Company, any of the Participating Company's rights to repurchase
any shares of Stock acquired on the exercise of an Option, the assignee shall
pay to the assigning Participating Company the value of such right as determined
by the Company in the Company's sole discretion. Such consideration shall be
paid in cash. In the event such repurchase right is exercisable at the time of
such assignment, the value of such right shall be not less than the fair market
value of the shares of Stock which may be repurchased under such right (as
determined by the Company) minus the repurchase price of such shares. The
requirements of this paragraph 13 regarding the minimum consideration to be
received by the assigning Participating Company shall not inure to the benefit
of the Optionee whose shares of Stock are being repurchased. Failure of a
Participating Company to comply with the provisions of this paragraph 13 shall
not constitute a defense or otherwise prevent the exercise of the repurchase
right by the assignee of such right.
14. Termination or Amendment of Plan. The Board, including any duly
--------------------------------
appointed committee of the Board, may terminate or amend the Plan at any time;
provided, however, that without the approval of the Company's shareholders,
there shall be (a) no increase in the total number of shares of Stock covered by
the Plan (except by operation of the provisions of paragraph 9 above), (b) no
change in the class of persons eligible to receive Incentive Stock Options and
(c) no expansion in the class of persons eligible to receive nonqualified stock
options. In any event, no amendment may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such amendment is required to enable an Option designated as an Incentive
Stock Option to qualify as an Incentive Stock Option.
6
<PAGE>
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
STORM PRIMAX, INC.
IMMEDIATELY EXERCISABLE
NONQUALIFIED STOCK OPTION AGREEMENT
Storm Primax, Inc. (the "Company"), granted to the individual named below
an option to purchase certain shares of common stock of the Company, in the
manner and subject to the provisions of this Option Agreement.
1. Definitions.
-----------
(a) "Optionee" shall mean .
------------------------------
(b) "Date of Option Grant" shall mean .
------------------
(c) "Number of Option Shares" shall mean ________ shares of common
stock of the Company as adjusted from time to time pursuant to paragraph 9
below.
(d) "Exercise Price" shall mean $______________ per share as adjusted
from time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the Date of Option Grant.
(f) "Initial Vesting Date" shall be the date occurring one (1) year
after the Date of Option Grant.
1
<PAGE>
(g) Determination of "Vested Ratio":
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the 1/4
Optionee is continuously employed by a
Participating Company from the Date of
Option Grant until the Initial Vesting
Date
Plus
----
For each full month of the Optionee's 1/48
continuous employment by a
Participating Company from the Initial
Vesting Date
</TABLE>
In no event shall the Vested Ratio exceed 1/1.
(h) "Option Term Date" shall mean the date ten (10) years after the
Date of Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean Storm Primax, Inc., a California corporation,
and any successor corporation thereto.
(k) "Participating Company" shall mean (i) the Company and (ii) any
present or future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in sections 424(e) and 424(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time all
corporations collectively which are then a Participating Company.
(m) "Plan" shall mean the Storm Primax, Inc., 1991 Stock Option Plan.
2. Status of the Option. This Option is intended to be a nonqualified
--------------------
stock option and shall not be treated as an incentive stock option as described
in section 422(b) of the Code.
3. Administration. All questions of interpretation concerning this
--------------
Option Agreement shall be determined by the Board of Directors of the Company
(the "Board")
2
<PAGE>
and/or by a duly appointed committee of the Board having such powers as shall be
specified by the Board. Any subsequent references herein to the Board shall also
mean the committee if such committee has been appointed and, 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 terminate or amend the Plan at any time, subject to the terms of the
Plan and any applicable limitations imposed by law. 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.
----------------------
(a) Right to Exercise. The Option shall be immediately exercisable in
-----------------
its entirety on and after the Initial Exercise Date subject to the Optionee's
agreement that any shares purchased upon exercise are subject to the Company's
repurchase rights set forth in paragraph 11 and paragraph 12 below.
(b) Method of Exercise. The Option may be exercised by written notice
------------------
to the Company which must state the election to exercise the Option, the number
of shares 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 or by certified or registered mail, return receipt requested, 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 paragraph 6 below, accompanied by (i) full payment of the exercise
price for the number of shares being purchased and (ii) an executed copy, if
required herein, of the then current form of escrow agreement referenced below.
(c) Form of Payment of Option Price. Such payment shall be made (i)
-------------------------------
in cash, by check, or cash equivalent, (ii) by tender to the Company of shares
of the Company's common stock owned by the Optionee having a value not less than
the option price, which either have been owned by the Optionee for more than six
(6) months or were not acquired, directly or indirectly, from the Company, (iii)
by Optionee's promissory note for the option price (only during the period of
October 1, 1992 through September 30, 1993), (iv) by Immediate Sales Proceeds,
as defined below, or (v) by any combination of the foregoing. Notwithstanding
the foregoing, the Option may not be exercised by tender to the Company of
shares of the Company's common stock to the extent such tender of stock would
constitute a violation of the provisions of any law, regulation and/or agreement
restricting the redemption of the Company's common stock. Unless otherwise
specified by the Board, the promissory note permitted in clause (iii) above
shall not exceed the amount permitted by law to be paid by a promissory note and
shall be a full recourse note in a form satisfactory to the Company with
principal payable not more than four (4) years from the date of the option
exercise. Interest on the
3
<PAGE>
principal balance of the promissory note shall be payable in annual installments
at the minimum interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code. Such recourse promissory note shall be secured
by the shares of stock acquired pursuant to the then current form of security
agreement as approved by the Company. In the event the Company at any time
becomes subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations. Except as the Company in its sole discretion shall
determine, the Optionee shall pay the unpaid principal balance of the promissory
note and any accrued interest thereon upon termination of the Optionee's
employment with the Company for any reason, with or without cause. "Immediate
Sales Proceeds" shall mean the assignment in form acceptable to the Company of
the proceeds of a sale of some or all of the shares acquired upon the exercise
of the Option pursuant to a program and/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 any such program and/or procedure.
(d) 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 hereby
authorizes payroll withholding and otherwise agrees to make adequate provision
for foreign, federal and state tax withholding obligations of the Company, 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 on exercise of
the Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired on exercise of the Option.
(e) Certificate Registration. The certificate or certificates for the
------------------------
shares as to which the Option shall be exercised shall be registered in the name
of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares. The
----------------------------------------------------------
grant of the Option and the issuance of the shares upon exercise of the Option
shall be subject to compliance with all applicable requirements of federal or
state law with respect to such securities. The Option may not be exercised if
the issuance of shares upon such exercise would constitute a violation of any
applicable federal or state securities laws or other law or regulations. In
addition, no Option may be exercised unless (i) a registration statement under
the Securities Act of 1933, as amended (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. As a condition to the exercise of the Option, the Company may
4
<PAGE>
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.
(g) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised during
---------------------------------
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the 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 Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) upon a Transfer of Control
as described in paragraph 8 below.
7. Termination of Employment.
-------------------------
(a) Termination of the Option. If the Optionee ceases to be an
-------------------------
employee of the Participating Company Group for any reason, except death or
disability within the meaning of section 422(c) of the Code, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee ceased to be an employee, may be exercised by the Optionee within three
(3) months after the date on which the Optionee's employment terminated, but in
any event no later than the Option Term Date. If the Optionee's employment with
the Company is terminated because of the death or disability of the Optionee
within the meaning of section 422(c) of the Code, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee
ceased to be an employee, may be exercised by the Optionee (or the Optionee's
legal representative) at any time prior to the expiration of twelve (12) months
from the date on which the Optionee's employment terminated, but in any event no
later than the Option Term Date. Notwithstanding the provisions of this
paragraph 7(a), the Option may not be exercised after the Optionee's termination
of employment if the shares to be acquired on exercise of the Option would be
Unvested Shares as that term is defined in paragraph 11 below. Except as
provided in this paragraph 7(a), the Option shall terminate and may not be
exercised after the Optionee ceases to be an employee of the Participating
Company Group.
(b) Termination of Employment Defined. For purposes of this paragraph
---------------------------------
7, the Optionee's employment shall be deemed to have terminated either upon an
actual termination of employment or upon the Optionee's employer ceasing to be a
Participating Company.
(c) Extension if Exercise Prevented by Law. Notwithstanding the
--------------------------------------
foregoing, if the exercise of the Option within the applicable time periods set
forth above is prevented by the provisions of paragraph 4(f) above, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Term Date.
5
<PAGE>
(d) Extension if Optionee Subject to Section 16(b). Notwithstanding
----------------------------------------------
the foregoing, if the exercise of the Option within the applicable time periods
set forth above would subject the Optionee to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which the Optionee would no longer be subject to such
suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's
termination of employment, or (iii) the Option Term Date.
(e) Leave of Absence. For purposes hereof, the Optionee's employment
----------------
with the Participating Company Group shall not be deemed to terminate if the
Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave in excess of ninety (90) days, the Optionee's employment shall be deemed
to terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
(f) Application to Directors, Consultants and Advisors. For purposes
--------------------------------------------------
of this Option Agreement, in the event the Optionee is a director or consultant
or advisor but not an employee of a Participating Company at the time the Option
is granted, termination of the Optionee's status as a director or consultant or
advisor of the Participating Company shall be deemed to be termination of the
Optionee's employment.
8. Ownership Change and Transfer of Control. An "Ownership Change" shall
----------------------------------------
be deemed to have occurred in the event any of the following occurs with respect
to the Company:
(a) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange, or transfer to one (1) or
more subsidiary corporations as defined in paragraph 1(k) above of the Company);
or
(d) a liquidation or dissolution of the Company.
A "Transfer of Control" shall mean an Ownership Change in which the
shareholders of the Company before such Ownership Change do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company after such transaction or in which the Company is not the
surviving corporation.
6
<PAGE>
In the event of a Transfer of Control, the Board, in its sole discretion,
may arrange with the surviving, continuing, successor, or purchasing corporation
or parent corporation thereof, as the case may be (the "Acquiring Corporation"),
for the Acquiring Corporation to assume the Company's rights and obligations
under this Option Agreement or substitute an option for the Acquiring
Corporation's stock for the Option. 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.
9. Effect of Change in Stock Subject to the Option. Appropriate
-----------------------------------------------
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, combination, reclassification, or like change in the
capital structure of the Company. In the event 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) shares of another corporation (the "New Shares"), the Company
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 shares and the
exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no
-----------------------------------
rights as a shareholder with respect to any shares covered by the Option until
the date of the issuance of a certificate or certificates for the shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
11. Unvested Share Repurchase Option.
--------------------------------
(a) Unvested Share Repurchase Option. In the event the Optionee's
--------------------------------
employment with the Participating Company Group is terminated for any reason,
with or without cause, or if the Optionee or the Optionee's legal representative
attempts to sell, exchange, transfer, pledge, or otherwise dispose of (other
than pursuant to an Ownership Change) any shares acquired upon exercise of the
Option which exceed the Optionee's Vested Shares as defined in paragraph 11(b)
below (the "Unvested Shares"), the Company shall have the right to repurchase
the Unvested Shares under the terms and subject to the conditions set forth in
this paragraph 11 (the "Unvested Share Repurchase Option").
(b) Vested Shares and Unvested Shares Defined. The total Number of
-----------------------------------------
Option Shares multiplied by the Vested Ratio as set forth in paragraph 1 above
are Vested Shares. For purposes of this paragraph 11, the Unvested Shares are
the number of shares acquired upon exercise of the Option in excess of the
Vested Shares.
7
<PAGE>
(c) Exercise of Unvested Share Repurchase Option. The Company may
--------------------------------------------
exercise the Unvested Share Repurchase Option by written notice to the Optionee
within sixty (60) days after (i) such termination of employment (or exercise of
the Option, if later) or (ii) the Company has received notice of the attempted
disposition. If the Company fails to give notice within such sixty (60) day
period, the Unvested Share Repurchase Option shall terminate unless the Company
and the Optionee have extended the time for the exercise of the Unvested Share
Repurchase Option. The Unvested Share Repurchase Option must be exercised, if at
all, for all of the Unvested Shares, except as the Company and the Optionee
otherwise agree.
(d) Payment for Shares and Return of Shares. Payment by the Company
---------------------------------------
to the Optionee shall be made in cash within thirty (30) days after the date of
the mailing of the written notice of exercise of the Unvested Share Repurchase
Option. For purposes of the foregoing, cancellation of any indebtedness of the
Optionee to any Participating Company shall be treated as payment to the
Optionee in cash to the extent of the unpaid principal and any accrued interest
canceled. The purchase price per share being repurchased by the Company shall be
an amount equal to the Optionee's original cost per share, as adjusted pursuant
to paragraph 9 above. The shares being repurchased shall be delivered to the
Company by the Optionee at the same time as the delivery of the purchase price
to the Optionee.
(e) Assignment of Unvested Share Repurchase Option. The Company shall
----------------------------------------------
have the right to assign the Unvested Share Repurchase Option at any time,
whether or not such option is then exercisable, to one (1) or more persons as
may be selected by the Company.
(f) Ownership Change. In the event of an Ownership Change, the
----------------
Unvested Share Repurchase Option shall continue in full force and effect;
provided, however, that "employment with the Participating Company Group" for
purposes of this paragraph 11 shall include all service with any corporation
which was a Participating Company at the time the services were rendered,
whether or not the corporation was included within such term both before and
after the event constituting the Ownership Change.
12. Right of First Refusal.
----------------------
(a) Right of First Refusal. In the event the Optionee proposes to
----------------------
sell, pledge, or otherwise transfer any Vested Shares (the "Transfer Shares") to
any person or entity, including, without limitation, any shareholder of the
Participating Company Group, the Company shall have the right to repurchase the
Transfer Shares under the terms and subject to the conditions set forth in this
paragraph 12 (the "Right of First Refusal").
(b) Notice of Proposed Transfer. Prior to any proposed transfer of
---------------------------
the Transfer Shares, the Optionee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price and containing such information
8
<PAGE>
necessary to show the bona fide nature of the proposed transfer. In the event of
a bona fide gift or involuntary transfer, the proposed transfer price shall be
deemed to be the fair market value of the Transfer Shares as determined by the
Company in good faith. In the event the Optionee proposes to transfer any Vested
Shares to more than one (1) Proposed Transferee, the Optionee shall provide a
separate Transfer Notice for the proposed transfer to each Proposed Transferee.
The Transfer Notice shall be signed by both the Optionee and the Proposed
Transferee and must constitute a binding commitment of the Optionee and the
Proposed Transferee for the transfer of the Transfer Shares to the Proposed
Transferee subject only to the Right of First Refusal.
(c) Bona Fide Transfer. In the event that the Company shall determine
------------------
that the information provided by the Optionee in the Transfer Notice is
insufficient to establish the bona fide nature of a proposed voluntary transfer,
the Company shall give the Optionee written notice of the Optionee's failure to
comply with the procedure described in this paragraph 12 and the Optionee shall
have no right to transfer the Transfer Shares without first complying with the
procedure described in this paragraph 12. The Optionee shall not be permitted to
transfer the Transfer Shares if the proposed transfer is not bona fide.
(d) Exercise of the Right of First Refusal. In the event the proposed
--------------------------------------
transfer is deemed to be bona fide, the Company shall have the right to purchase
all, but not less than all, of the Transfer Shares at the purchase price and on
the terms set forth in the Transfer Notice by delivery to the Optionee of a
notice of exercise of the Right of First Refusal within thirty (30) days after
the date the Transfer Notice is delivered to the Company. The Company's exercise
or failure to exercise the Right of First Refusal with respect to any proposed
transfer described in a Transfer Notice shall not affect the Company's ability
to exercise the Right of First Refusal with respect to any proposed transfer
described in any other Transfer Notice, whether or not such other Transfer
Notice is issued by the Optionee or issued by a person other than the Optionee
with respect to a proposed transfer to the same Proposed Transferee. If the
Company exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice; provided, however, that in the event the
Transfer Notice provides for the payment for the Transfer Shares other than in
cash, the Company shall have the option of paying for the Transfer Shares by the
discounted cash equivalent of the consideration described in the Transfer Notice
as reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
(e) Failure to Exercise the Right of First Refusal. If the Company
----------------------------------------------
fails to exercise the Right of First Refusal in full within the period specified
in paragraph 12(d) above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than one hundred twenty
(120) days following delivery to the Company of the Transfer Notice. The Company
shall have the right to demand further assurances from the Optionee and the
Proposed Transferee (in a
9
<PAGE>
form satisfactory to the Company) that the transfer of the Transfer Shares was
actually carried out on the terms and conditions described in the Transfer
Notice. No Transfer Shares shall be transferred on the books of the Company
until the Company has received such assurances, if so demanded, and has approved
the proposed transfer as bona fide. Any proposed transfer on terms and
conditions different from those described in the Transfer Notice, as well as any
subsequent proposed transfer by the Optionee, shall again be subject to the
Right of First Refusal and shall require compliance by the Optionee with the
procedure described in this paragraph 12.
(f) Transferees of the Transfer Shares. All transferees of the
----------------------------------
Transfer Shares or any interest therein, other than the Company, shall be
required as a condition of such transfer to agree in writing (in a form
satisfactory to the Company) that such transferee shall receive and hold such
Transfer Shares or interests subject to the provisions of this paragraph 12
providing for the Right of First Refusal with respect to any subsequent
transfer. Any sale or transfer of any shares acquired upon exercise of the
Option shall be void unless the provisions of this paragraph 12 are met.
(g) Transfers Not Subject to the Right of First Refusal. The Right of
---------------------------------------------------
First Refusal shall not apply to any transfer or exchange of the shares acquired
pursuant to the exercise of the Option if such transfer is in connection with an
Ownership Change. If the consideration received pursuant to such transfer or
exchange consists of stock of a Participating Company, such consideration shall
remain subject to the Right of First Refusal unless the provisions of paragraph
12(i) below result in a termination of the Right of First Refusal.
(h) Assignment of the Right of First Refusal. The Company shall have
----------------------------------------
the right to assign the Right of First Refusal at any time, whether or not the
Optionee has attempted a transfer, to one (1) or more persons as may be selected
by the Company.
(i) Early Termination of the Right of First Refusal. The other
-----------------------------------------------
provisions of this paragraph 12 notwithstanding, the Right of First Refusal
shall terminate, and be of no further force and effect upon (i) the occurrence
of a Transfer of Control, unless the surviving, continuing, successor, or
purchasing corporation, as the case may be, assumes the Company's rights and
obligations under the Plan, or (ii) the existence of a public market for the
class of shares subject to the Right of First Refusal. A "public market" shall
be deemed to exist if (x) such stock is listed on a national securities exchange
(as that term is used in the Exchange Act) or (y) such stock is traded on the
over-the-counter market and prices therefor are published daily on business days
in a recognized financial journal.
13. Escrow.
------
(a) Establishment of Escrow. To insure shares subject to the Unvested
-----------------------
Share Repurchase Option will be available for repurchase, the Company may
require the Optionee to deposit the certificate or certificates evidencing the
shares which the Optionee purchases upon exercise of the Option with an escrow
agent designated by the
10
<PAGE>
Company under the terms and conditions of an escrow agreement approved by the
Company. If the Company does not require such deposit as a condition of exercise
of the Option, the Company reserves the right at any time to require the
Optionee to so deposit the certificate or certificates in escrow. The Company
shall bear the expenses of the escrow.
(b) Delivery of Shares to Optionee. As soon as practicable after the
------------------------------
expiration of the Unvested Share Repurchase Option, but not more frequently than
once each year, the escrow agent shall deliver to the Optionee the shares no
longer subject to such restrictions.
(c) Notices and Payments. In the event the shares held in escrow are
--------------------
subject to the Company's exercise of the Unvested Share Repurchase Option, the
notices required to be given to the Optionee shall be given to the escrow agent
and any payment required to be given to the Optionee shall be given to the
escrow agent. Within thirty (30) days after payment by the Company, the escrow
agent shall deliver the shares which the Company has purchased to the Company
and shall deliver the payment received from the Company to the Optionee.
14. Stock Dividends Subject to Option Agreement. If, from time to time,
-------------------------------------------
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, then in such event any and
all new substituted or additional securities to which the Optionee is entitled
by reason of the Optionee's ownership of the shares acquired upon exercise of
the Option shall be immediately subject to the Unvested Share Repurchase Option
and the Right of First Refusal with the same force and effect as the shares
subject to the Unvested Share Repurchase Option and the Right of First Refusal
immediately before such event.
15. Legends. The Company may at any time place legends referencing the
-------
Unvested Share Repurchase Option set forth in paragraph 11 above, the Right of
First Refusal set forth in paragraph 12 above and any applicable federal or
state 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 effectuate the provisions of this
paragraph. Unless otherwise specified by the Company, legends placed on such
certificates may include, but shall not be limited to, the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO
THE COMPANY,
11
<PAGE>
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
UNVESTED SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET
FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH
HOLDER'S PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THIS CORPORATION."
(d) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN
AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
16. Initial Public Offering. The Optionee hereby agrees that in the event
-----------------------
of an initial public offering of stock made by the Company under the Securities
Act, the Optionee shall not offer, sell, contract to sell, pledge, hypothecate,
grant any option to purchase or make any short sale of, or otherwise dispose of
any shares of stock of the Company or any rights to acquire stock of the Company
for such period of time as may be established by the underwriter for such
initial public offering; provided, however, that such period of time shall not
exceed one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such initial public offering. The
foregoing limitation shall not apply to shares registered in the initial public
offering under the Securities Act.
17. Binding Effect. 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.
18. Termination or Amendment. The Board, including any duly appointed
------------------------
committee of the Board, may terminate or amend the Plan and/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.
19. 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 Company other than those as set forth or provided for
herein. To the extent
12
<PAGE>
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
20. 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, including the Unvested Share Repurchase
Option set forth in paragraph 11 and the Right of First Refusal set forth in
paragraph 12, 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.
The undersigned acknowledges receipt of a copy of the Plan.
Date: ____________________________
13
<PAGE>
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST
THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
STORM PRIMAX, INC.
IMMEDIATELY EXERCISABLE
INCENTIVE STOCK OPTION AGREEMENT
Storm Primax, Inc. (the "Company"), granted to the individual named below
an option to purchase certain shares of common stock of the Company, in the
manner and subject to the provisions of this Option Agreement.
1. Definitions:
-----------
(a) "Optionee" shall mean _______________________________________________.
(b) "Date of Option Grant" shall mean ___________________________________.
(c) "Number of Option Shares" shall mean ___________________ shares of
common stock of the Company as adjusted from time to time pursuant to paragraph
9 below.
(d) "Exercise Price" shall mean $____________ per share as adjusted from
time to time pursuant to paragraph 9 below.
(e) "Initial Exercise Date" shall be the Date of Option Grant.
(f) "Initial Vesting Date" shall be the date occurring one (1) year after
the Date of Option Grant.
1
<PAGE>
(g) Determination of "Vested Ratio":
<TABLE>
<CAPTION>
Vested Ratio
------------
<S> <C>
Prior to Initial Vesting Date 0
On Initial Vesting Date, provided the 1/4
Optionee is continuously employed by a
Participating Company from the Date of
Grant until the Initial Vesting Date
Plus 1/48
- ----
For each full month of the Optionee's
continuous employment by a
Participating Company from the Initial
Vesting Date
In no event shall the Vested Ratio
exceed 1/1.
</TABLE>
(h) "Option Term Date" shall mean the date ten (10) years after the Date of
Option Grant.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Company" shall mean Storm Primax, Inc., a California corporation, and
any successor corporation thereto.
(k) "Participating Company" shall mean (i) the Company and (ii) any present
or future parent and/or subsidiary corporation of the Company while such
corporation is a parent or subsidiary of the Company. For purposes of this
Option Agreement, a parent corporation and a subsidiary corporation shall be as
defined in sections 424(e) and 424(f) of the Code.
(l) "Participating Company Group" shall mean at any point in time all
corporations collectively which are then a Participating Company.
(m) "Plan" shall mean the Storm Primax, Inc. Amended and Restated Stock
Option Plan.
2. Status of the Option. This Option is intended to be an incentive stock
--------------------
option as described in section 422 of the Code, but the Company does not
represent or warrant that this Option qualifies as such. The Optionee should
consult with the Optionee's own tax advisors regarding the tax effects of this
Option and the requirements necessary to obtain favorable income tax treatment
under section 422 of the Code, including, but not limited to, holding period
requirements.
2
<PAGE>
3. Administration. All questions of interpretation concerning this Option
--------------
Agreement shall be determined by the Board of Directors of the Company (the
"Board") and/or by a duly appointed committee of the Board having such powers as
shall be specified by the Board. Any subsequent references herein to the Board
shall also mean the committee if such committee has been appointed and, 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 terminate or amend the Plan at any time, subject to the
terms of the Plan and any applicable limitations imposed by law. 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.
----------------------
(a) Right to Exercise. The Option shall be immediately exercisable in its
-----------------
entirety on and after the Initial Exercise Date subject to the Optionee's
agreement that any shares purchased upon exercise are subject to the Company's
repurchase rights set forth in paragraph 11 and paragraph 12 below.
Notwithstanding the foregoing, except as provided in paragraph 16 below, the
aggregate fair market value of the stock with respect to which the Optionee may
exercise the Option for the first time during any calendar year, together with
any other incentive stock options which are exercisable for the first time
during any such year, as determined in accordance with section 422(d) of the
Code, shall not exceed One Hundred Thousand Dollars ($100,000). Such limitation
on exercise described in section 422(d) of the Code shall be referred to in this
Option Agreement as the "$100,000 Exercise Limitation."
(b) Method of Exercise. The Option may be exercised by written notice to
------------------
the Company which must state the election to exercise the Option, the number of
shares 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 or by certified or registered mail, return receipt requested, 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 paragraph 6 below, accompanied by (i) full payment of the exercise
price for the number of shares being purchased and (ii) an executed copy, if
required herein, of the then current form of escrow agreement referenced below.
(c) Form of Payment of Option Price. Such payment shall be made (i) in
-------------------------------
cash, by check, or cash equivalent, (ii) by tender to the Company of shares of
the Company's common stock owned by the Optionee having a value not less than
the option price, which either have been owned by the Optionee for more than six
(6) months or were not acquired, directly or indirectly, from the Company, (iii)
by Optionee's promissory note for the option price (only during the period of
October 1, 1992 through
3
<PAGE>
September 30, 1993), (iv) by Immediate Sales Proceeds, as defined below, or (v)
by any combination of the foregoing. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of the Company's common
stock to the extent such tender of stock would constitute a violation of the
provisions of any law, regulation and/or agreement restricting the redemption of
the Company's common stock. Unless otherwise specified by the Board, the
promissory note permitted in clause (iii) above shall not exceed the amount
permitted by law to be paid by a promissory note and shall be a full recourse
note in a form satisfactory to the Company with principal payable not more than
four (4) years from the date of the option exercise. Interest on the principal
balance of the promissory note shall be payable in annual installments at the
minimum interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code. Such recourse promissory note shall be secured
by the shares of stock acquired pursuant to the then current form of security
agreement as approved by the Company. In the event the Company at any time
becomes subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations. Except as the Company in its sole discretion shall
determine, the Optionee shall pay the unpaid principal balance of the promissory
note and any accrued interest thereon upon termination of the Optionee's
employment with the Company for any reason, with or without cause. "Immediate
Sales Proceeds" shall mean the assignment in form acceptable to the Company of
the proceeds of a sale of some or all of the shares acquired upon the exercise
of the Option pursuant to a program and/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 any such program and/or procedure.
(d) 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 hereby
authorizes payroll withholding and otherwise agrees to make adequate provision
for foreign, federal and state tax withholding obligations of the Company, 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 on exercise of
the Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired on exercise of the Option.
(e) Certificate Registration. The certificate or certificates for the
------------------------
shares as to which the Option shall be exercised shall be registered in the name
of the Optionee, or, if applicable, the heirs of the Optionee.
(f) Restrictions on Grant of the Option and Issuance of Shares. The grant
----------------------------------------------------------
of the Option and the issuance of the shares upon exercise of the Option shall
be subject to compliance with all applicable requirements of federal or state
law with
4
<PAGE>
respect to such securities. The Option may not be exercised if the issuance of
shares upon such exercise would constitute a violation of any applicable federal
or state securities laws or other law or regulations. IT IS UNLAWFUL TO
CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN, OR TO
RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN
THE COMMISSIONER'S RULES. Section 260.141.11 of the Rules of the Commissioner
of Corporations of the State of California is set forth in paragraph 16 herein.
In addition, no Option may be exercised unless (i) a registration statement
under the Securities Act of 1933, as amended (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 EXERCISABLE 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. 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.
(g) Fractional Shares. The Company shall not be required to issue
-----------------
fractional shares upon the exercise of the Option.
5. Non-Transferability of the Option. The Option may be exercised during
---------------------------------
the lifetime of the Optionee only by the Optionee and may not be assigned or
transferred in any manner except by will or by the 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 Term Date as defined
above, (b) the last date for exercising the Option following termination of
employment as described in paragraph 7 below, or (c) upon a Transfer of Control
as described in paragraph 8 below.
7. Termination of Employment.
-------------------------
(a) Termination of the Option. If the Optionee ceases to be an employee of
-------------------------
the Participating Company Group for any reason, except death or disability
within the meaning of section 422(c) of the Code, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee
ceased to be an employee, may be exercised by the Optionee within three (3)
months after the date on which the Optionee's employment terminated, but in any
event no later than the Option Term Date. If the Optionee's employment with the
Company is terminated because of the death or disability of the Optionee within
the meaning of section 422(c) of the Code, the Option, to the extent unexercised
and exercisable by the Optionee on the date on which the Optionee ceased to be
an employee, may be exercised by the Optionee (or the
5
<PAGE>
Optionee's legal representative) at any time prior to the expiration of twelve
(12) months from the date on which the Optionee's employment terminated, but in
any event no later than the Option Term Date. The Optionee's employment shall
be deemed to have terminated on account of death if the Optionee dies within
three (3) months after the Optionee's termination of employment.
Notwithstanding the provisions of this paragraph 7(a), the Option may not be
exercised after the Optionee's termination of employment if the shares to be
acquired on exercise of the Option would be Unvested Shares as that term is
defined in paragraph 11 below. Except as provided in this paragraph 7(a), the
Option shall terminate and may not be exercised after the Optionee ceases to be
an employee of the Participating Company Group.
(b) Termination of Employment Defined. For purposes of this paragraph 7,
---------------------------------
the Optionee's employment shall be deemed to have terminated either upon an
actual termination of employment or upon the Optionee's employer ceasing to be a
Participating Company.
(c) Extension if Exercise Prevented by Law. Notwithstanding the foregoing,
--------------------------------------
if the exercise of the Option within the applicable time periods set forth above
is prevented by the provisions of paragraph 4(f) above, the Option shall remain
exercisable until three (3) months after the date the Optionee is notified by
the Company that the Option is exercisable, but in any event no later than the
Option Term Date.
(d) Extension if Optionee Subject to Section 16(b). Notwithstanding the
----------------------------------------------
foregoing, if the exercise of the Option within the applicable time periods set
forth above would subject the Optionee to suit under Section 16(b) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which the Optionee would no longer be subject to such
suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's
termination of employment, or (iii) the Option Term Date.
(e) Leave of Absence. For purposes hereof, the Optionee's employment with
----------------
the Participating Company Group shall not be deemed to terminate if the Optionee
takes any military leave, sick leave, or other bona fide leave of absence
approved by the Company of ninety (90) days or less. In the event of a leave in
excess of ninety (90) days, the Optionee's employment shall be deemed to
terminate on the ninety-first (91st) day of the leave unless the Optionee's
right to reemployment with the Participating Company Group remains guaranteed by
statute or contract. Notwithstanding the foregoing, however, a leave of absence
shall be treated as employment for purposes of determining the Optionee's Vested
Ratio if and only if the leave of absence is designated by the Company as (or
required by law to be) a leave for which vesting credit is given.
8. Ownership Change and Transfer of Control. An "Ownership Change" shall
----------------------------------------
be deemed to have occurred in the event any of the following occurs with respect
to the Company:
6
<PAGE>
(a) the direct or indirect sale or exchange by the shareholders of the
Company of all or substantially all of the stock of the Company;
(b) a merger or consolidation in which the Company is a party;
(c) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange, or transfer to one (1) or
more subsidiary corporations as defined in paragraph 1(k) above of the Company;
or
(d) a liquidation or dissolution of the Company.
A "Transfer of Control" shall mean an Ownership Change in which the
shareholders of the Company before such Ownership Change do not retain, directly
or indirectly, at least a majority of the beneficial interest in the voting
stock of the Company after such transaction or in which the Company is not the
surviving corporation.
In the event of a Transfer of Control, the Board, in its sole discretion,
may arrange with the surviving, continuing, successor, or purchasing corporation
or parent corporation thereof, as the case may be (the "Acquiring Corporation"),
for the Acquiring Corporation to either assume the Company's rights and
obligations under this Option Agreement or substitute an option for the
Acquiring Corporation's stock for the Option. 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.
9. Effect of Change in Stock Subject to the Option. Appropriate
-----------------------------------------------
adjustments shall be made in the number, exercise price and class of shares of
stock subject to the Option in the event of a stock dividend, stock split,
reverse stock split, combination, reclassification, or like change in the
capital structure of the Company. In the event 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) shares of another corporation (the "New Shares"), the Company
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 shares and the
exercise price shall be adjusted in a fair and equitable manner.
10. Rights as a Shareholder or Employee. The Optionee shall have no
-----------------------------------
rights as a shareholder with respect to any shares covered by the Option until
the date of the issuance of a certificate or certificates for the shares for
which the Option has been exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such certificate or certificates are issued, except as provided in paragraph 9
above. Nothing in the Option shall confer upon the Optionee any right to
continue in the employ of a Participating Company or interfere in any way with
any right of the Participating Company Group to terminate the Optionee's
employment at any time.
7
<PAGE>
11. Unvested Share Repurchase Option.
--------------------------------
(a) Unvested Share Repurchase Option. In the event the Optionee's
--------------------------------
employment with the Participating Company Group is terminated for any reason,
with or without cause, or if the Optionee or the Optionee's legal representative
attempts to sell, exchange, transfer, pledge, or otherwise dispose of (other
than pursuant to an Ownership Change) any shares acquired upon exercise of the
Option which exceed the Optionee's Vested Shares as defined in paragraph 11(b)
below (the "Unvested Shares"), the Company shall have the right to repurchase
the Unvested Shares under the terms and subject to the conditions set forth in
this paragraph 11 (the "Unvested Share Repurchase Option").
(b) Vested Shares and Unvested Shares Defined. The total Number of Option
-----------------------------------------
Shares multiplied by the Vested Ratio as set forth in paragraph 1 above are
Vested Shares. For purposes of this paragraph 11, the Unvested Shares are the
number of shares acquired upon exercise of the Option in excess of the Vested
Shares.
(c) Exercise of Unvested Share Repurchase Option. The Company may exercise
--------------------------------------------
the Unvested Share Repurchase Option by written notice to the Optionee within
sixty (60) days after (i) such termination of employment (or exercise of the
Option, if later) or (ii) the Company has received notice of the attempted
disposition. If the Company fails to give notice within such sixty (60) day
period, the Unvested Share Repurchase Option shall terminate unless the Company
and the Optionee have extended the time for the exercise of the Unvested Share
Repurchase Option. The Unvested Share Repurchase Option must be exercised, if
at all, for all of the Unvested Shares, except as the Company and the Optionee
otherwise agree.
(d) Payment for Shares and Return of Shares. Payment by the Company to the
---------------------------------------
Optionee shall be made in cash within thirty (30) days after the date of the
mailing of the written notice of exercise of the Unvested Share Repurchase
Option. For purposes of the foregoing, cancellation of any indebtedness of the
Optionee to any Participating Company shall be treated as payment to the
Optionee in cash to the extent of the unpaid principal and any accrued interest
canceled. The purchase price per share being repurchased by the Company shall
be an amount equal to the Optionee's original cost per share, as adjusted
pursuant to paragraph 9 above. The shares being repurchased shall be delivered
to the Company by the Optionee at the same time as the delivery of the purchase
price to the Optionee.
(e) Assignment of Unvested Share Repurchase Option. The Company shall have
----------------------------------------------
the right to assign the Unvested Share Repurchase Option at any time, whether or
not such option is then exercisable, to one (1) or more persons as may be
selected by the Company.
(f) Ownership Change. In the event of an Ownership Change, the Unvested
----------------
Share Repurchase Option shall continue in full force and effect; provided,
however, that "employment with the Participating Company Group" for purposes of
this paragraph 11 shall include all service with any corporation which was a
Participating
8
<PAGE>
Company at the time the services were rendered, whether or not the corporation
was included within such term both before and after the event constituting the
Ownership Change.
12. Right of First Refusal.
----------------------
(a) Right of First Refusal. In the event the Optionee proposes to sell,
----------------------
pledge, or otherwise transfer any Vested Shares (the "Transfer Shares") to any
person or entity, including, without limitation, any shareholder of the
Participating Company Group, the Company shall have the right to repurchase the
Transfer Shares under the terms and subject to the conditions set forth in this
paragraph 12 (the "Right of First Refusal").
(b) Notice of Proposed Transfer. Prior to any proposed transfer of the
---------------------------
Transfer Shares, the Optionee shall give a written notice (the "Transfer
Notice") to the Company describing fully the proposed transfer, including the
number of Transfer Shares, the name and address of the proposed transferee (the
"Proposed Transferee") and, if the transfer is voluntary, the proposed transfer
price and containing such information necessary to show the bona fide nature of
the proposed transfer. In the event of a bona fide gift or involuntary
transfer, the proposed transfer price shall be deemed to be the fair market
value of the Transfer Shares as determined by the Company in good faith. In the
event the Optionee proposes to transfer any Vested Shares to more than one (1)
Proposed Transferee, the Optionee shall provide a separate Transfer Notice for
the proposed transfer to each Proposed Transferee. The Transfer Notice shall be
signed by both the Optionee and the Proposed Transferee and must constitute a
binding commitment of the Optionee and the Proposed Transferee for the transfer
of the Transfer Shares to the Proposed Transferee subject only to the Right of
First Refusal.
(c) Bona Fide Transfer. In the event that the Company shall determine that
------------------
the information provided by the Optionee in the Transfer Notice is insufficient
to establish the bona fide nature of a proposed voluntary transfer, the Company
shall give the Optionee written notice of the Optionee's failure to comply with
the procedure described in this paragraph 12 and the Optionee shall have no
right to transfer the Transfer Shares without first complying with the procedure
described in this paragraph 12. The Optionee shall not be permitted to transfer
the Transfer Shares if the proposed transfer is not bona fide.
(d) Exercise of the Right of First Refusal. In the event the proposed
--------------------------------------
transfer is deemed to be bona fide, the Company shall have the right to purchase
all, but not less than all, of the Transfer Shares at the purchase price and on
the terms set forth in the Transfer Notice by delivery to the Optionee of a
notice of exercise of the Right of First Refusal within thirty (30) days after
the date the Transfer Notice is delivered to the Company. The Company's
exercise or failure to exercise the Right of First Refusal with respect to any
proposed transfer described in a Transfer Notice shall not affect the Company's
ability to exercise the Right of First Refusal with respect to any proposed
transfer described in any other Transfer Notice, whether or not such other
Transfer Notice is issued by the Optionee or issued by a person other than the
Optionee with respect to a proposed transfer to the same Proposed Transferee.
If the Company
9
<PAGE>
exercises the Right of First Refusal, the Company and the Optionee shall
thereupon consummate the sale of the Transfer Shares to the Company on the terms
set forth in the Transfer Notice; provided, however, that in the event the
Transfer Notice provides for the payment for the Transfer Shares other than in
cash, the Company shall have the option of paying for the Transfer Shares by the
discounted cash equivalent of the consideration described in the Transfer Notice
as reasonably determined by the Company. For purposes of the foregoing,
cancellation of any indebtedness of the Optionee to any Participating Company
shall be treated as payment to the Optionee in cash to the extent of the unpaid
principal and any accrued interest canceled.
(e) Failure to Exercise the Right of First Refusal. If the Company fails
----------------------------------------------
to exercise the Right of First Refusal in full within the period specified in
paragraph 12(d) above, the Optionee may conclude a transfer to the Proposed
Transferee of the Transfer Shares on the terms and conditions described in the
Transfer Notice, provided such transfer occurs not later than one hundred twenty
(120) days following delivery to the Company of the Transfer Notice. The
Company shall have the right to demand further assurances from the Optionee and
the Proposed Transferee (in a form satisfactory to the Company) that the
transfer of the Transfer Shares was actually carried out on the terms and
conditions described in the Transfer Notice. No Transfer Shares shall be
transferred on the books of the Company until the Company has received such
assurances, if so demanded, and has approved the proposed transfer as bona fide.
Any proposed transfer on terms and conditions different from those described in
the Transfer Notice, as well as any subsequent proposed transfer by the
Optionee, shall again be subject to the Right of First Refusal and shall require
compliance by the Optionee with the procedure described in this paragraph 12.
(f) Transferees of the Transfer Shares. All transferees of the Transfer
----------------------------------
Shares or any interest therein, other than the Company, shall be required as a
condition of such transfer to agree in writing (in a form satisfactory to the
Company) that such transferee shall receive and hold such Transfer Shares or
interests subject to the provisions of this paragraph 12 providing for the Right
of First Refusal with respect to any subsequent transfer. Any sale or transfer
of any shares acquired upon exercise of the Option shall be void unless the
provisions of this paragraph 12 are met.
(g) Transfers Not Subject to the Right of First Refusal. The Right of
---------------------------------------------------
First Refusal shall not apply to any transfer or exchange of the shares acquired
pursuant to the exercise of the Option if such transfer is in connection with an
Ownership Change. If the consideration received pursuant to such transfer or
exchange consists of stock of a Participating Company, such consideration shall
remain subject to the Right of First Refusal unless the provisions of paragraph
12(i) below result in a termination of the Right of First Refusal.
(h) Assignment of the Right of First Refusal. The Company shall have the
----------------------------------------
right to assign the Right of First Refusal at any time, whether or not the
Optionee has attempted a transfer, to one (1) or more persons as may be selected
by the Company.
10
<PAGE>
(i) Early Termination of the Right of First Refusal. The other provisions
-----------------------------------------------
of this paragraph 12 notwithstanding, the Right of First Refusal shall
terminate, and be of no further force and effect upon (i) the occurrence of a
Transfer of Control, unless the surviving, continuing, successor, or purchasing
corporation, as the case may be, assumes the Company's rights and obligations
under the Plan, or (ii) the existence of a public market for the class of shares
subject to the Right of First Refusal. A "public market" shall be deemed to
exist if (x) such stock is listed on a national securities exchange (as that
term is used in the Exchange Act) or (y) such stock is traded on the over-the-
counter market and prices therefor are published daily on business days in a
recognized financial journal.
13. Escrow.
------
(a) Establishment of Escrow. To insure shares subject to the Unvested
-----------------------
Share Repurchase Option will be available for repurchase, the Company may
require the Optionee to deposit the certificate or certificates evidencing the
shares which the Optionee purchases upon exercise of the Option with an escrow
agent designated by the Company under the terms and conditions of an escrow
agreement approved by the Company. If the Company does not require such deposit
as a condition of exercise of the Option, the Company reserves the right at any
time to require the Optionee to so deposit the certificate or certificates in
escrow. The Company shall bear the expenses of the escrow.
(b) Delivery of Shares to Optionee. As soon as practicable after the
------------------------------
expiration of the Unvested Share Repurchase Option, but not more frequently than
once each year, the escrow agent shall deliver to the Optionee the shares no
longer subject to such restrictions.
(c) Notices and Payments. In the event the shares held in escrow are
--------------------
subject to the Company's exercise of the Unvested Share Repurchase Option,
notices required to be given to the Optionee shall be given to the escrow agent
and any payment required to be given to the Optionee shall be given to the
escrow agent. Within thirty (30) days after payment by the Company, the escrow
agent shall deliver the shares which the Company has purchased to the Company
and shall deliver the payment received from the Company to the Optionee.
14. Stock Dividends Subject to Option Agreement. If, from time to time,
-------------------------------------------
there is any stock dividend, stock split, or other change in the character or
amount of any of the outstanding stock of the corporation the stock of which is
subject to the provisions of this Option Agreement, then in such event any and
all new substituted or additional securities to which the Optionee is entitled
by reason of the Optionee's ownership of the shares acquired upon exercise of
the Option shall be immediately subject to the Right of First Refusal with the
same force and effect as the shares subject to the Right of First Refusal
immediately before such event.
15. Notice of Sales Upon Disqualifying Disposition. The Optionee shall
----------------------------------------------
dispose of the shares acquired pursuant to the Option only in accordance with
the
11
<PAGE>
provisions of this Option Agreement. In addition, the Optionee shall promptly
notify the Chief Financial Officer of the Company if the Optionee disposes of
any of the shares acquired pursuant to the Option within one (1) year from the
date the Optionee exercises all or part of the Option or within two (2) years of
the date of grant of the Option. Until such time as the Optionee disposes of
such shares in a manner consistent with the provisions of this Option Agreement,
the Optionee shall hold all shares acquired pursuant to the Option in the
Optionee's name (and not in the name of any nominee) for the one-year period
immediately after exercise of the Option and the two-year period immediately
after grant of the Option. At any time during the one-year or two-year periods
set forth above, the Company may place a legend or legends on any certificate or
certificates representing shares acquired pursuant to the Option requesting the
transfer agent for the Company's stock to notify the Company of any such
transfers. The obligation of the Optionee to notify the Company of any such
transfer shall continue notwithstanding that a legend has been placed on the
certificate or certificates pursuant to the preceding sentence.
16. Rules of the Commissioner of Corporations. The Optionee is hereby
-----------------------------------------
delivered a copy of Section 260.141.11 of the Rules of the Commissioner of
Corporations of the State of California, adopted pursuant to the California
Corporate Securities Act of 1968. References to the "Code" in the following
text are references to the California Corporations Code.
260.141.11. Restriction on Transfer.
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a
copy of this section to be delivered to each issuee or transferee of such
security at the time the certificate evidencing the security is delivered to the
issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102 of the Code
or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants, or spouse, or any custodian
or trustee for the account of the transferor or the transferor's ancestors,
descendants, or spouse; or to a transferee by a trustee or custodian for the
account of the transferee or the transferee's ancestors, descendants, or spouse;
(5) to holders of securities of the same class of the same issuer;
12
<PAGE>
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting as
such or as a finder) to a resident of a foreign state, territory or country who
is neither domiciled in this state to the knowledge of the broker-dealer, nor
actually present in this state if the sale of such securities is not in
violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113, or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or
by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of
the Code, provided that no order under Section 25140 or subdivision (a) of
Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or by
the administrator of the unclaimed property law of another state if, in either
such case, such person (i) discloses to potential purchasers at the sale that
transfer of the securities is restricted under this rule, (ii) delivers to each
purchaser a copy of this rule, and (iii) advises the Commissioner of the name of
each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section 25110 of
the Code but exempt from that qualification requirement by subdivision (f) of
Section 25102;
13
<PAGE>
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend prominently stamped or printed
thereon in capital letters of not less than 10-point size reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
17. Exception To $100,000 Exercise Limitation. Notwithstanding any other
-----------------------------------------
provision of this Option Agreement, if compliance with the $100,000 Exercise
Limitation as set forth in paragraph 4(a) above will result in the
exercisability of any Vested Shares (as defined in paragraph 11(b) above) being
delayed more than thirty (30) days beyond the vesting date for such shares, the
Option shall be deemed to be (2) options. The first option shall be for the
maximum number of shares subject to the Option that can comply with the $100,000
Exercise Limitation without causing the Option to be unexercisable as to Vested
Shares. The second option, which shall not be treated as an incentive stock
option as described in section 422(b) of the Code, shall be for the balance of
the shares subject to the Option and shall be exercisable on the same terms and
at the same time as set forth in this Option Agreement; provided, however, that
(a) the second sentence of paragraph 4(a) above shall not apply to the second
option and (b) such shares shall become Vested Shares on the same date or dates
as set forth in this Option Agreement without regard to this paragraph. Unless
the Optionee specifically elects to the contrary in the Optionee's written
notice of exercise, the first option shall be deemed to be exercised first to
the maximum possible extent and then the second option shall be deemed to be
exercised.
18. Legends. The Company may at any time place legends referencing the
-------
Unvested Share Repurchase Option set forth in paragraph 11 above, the Right of
First Refusal set forth in paragraph 12 above and any applicable federal or
state 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 effectuate the provisions of this
paragraph. Unless otherwise specified by the Company, legends placed on such
certificates may include, but shall not be limited to, the following:
(a) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH
RULE 144 OR RULE 701 UNDER THE ACT, OR
14
<PAGE>
THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT."
(b) Any legend required to be placed thereon by the Commissioner of
Corporations of the State of California.
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN UNVESTED
SHARE REPURCHASE OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN
AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
(d) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF
FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH IN AN
AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR SUCH HOLDER'S
PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
THIS CORPORATION."
(e) "THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE
CORPORATION TO THE REGISTERED HOLDER UPON EXERCISE OF AN INCENTIVE STOCK OPTION
AS DEFINED IN SECTION 422 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 ____________. THE REGISTERED HOLDER SHALL HOLD ALL SHARES
PURCHASED UNDER THE OPTION IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME
OF ANY NOMINEE) PRIOR TO THIS DATE."
19. Initial Public Offering. The Optionee hereby agrees that in the event
-----------------------
of an initial public offering of stock made by the Company under the Securities
Act, the Optionee shall not offer, sell, contract to sell, pledge, hypothecate,
grant any option to purchase or make any short sale of, or otherwise dispose of
any shares of stock of the Company or any rights to acquire stock of the Company
for such period of time as may be established by the underwriter for such
initial public offering; provided, however, that such period of time shall not
exceed one hundred eighty (180) days from the effective date of the registration
statement to be filed in connection with such initial public offering. The
foregoing limitation shall not apply to shares registered in the initial public
offering under the Securities Act.
15
<PAGE>
20. Binding Effect. 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.
21. Termination or Amendment. The Board, including any duly appointed
------------------------
committee of the Board, may terminate or amend the Plan and/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 amendment is required to enable the Option to qualify as an
Incentive Stock Option.
22. 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 Company 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.
23. 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, including the Unvested Share Repurchase
Option set forth in paragraph 11 and the Right of First Refusal set forth in
paragraph 12, 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.
The undersigned acknowledges receipt of a copy of the Plan and a copy
of Section 260.141.11 of the Rules of the Commissioner of Corporations of the
State of California regarding restriction on transfer.
Date: _____________________________________
___________________________________
<PAGE>
EXHIBIT 10.6
STORM TECHNOLOGY, INC.
AGREEMENT CONCERNING PURCHASE OF
SERIES A PREFERRED STOCK
THIS AGREEMENT is made as of November 27, 1991, by and among STORM
TECHNOLOGY, INC., a California corporation (the "Company") and each of the
persons named in the Schedule of Purchasers attached hereto as Exhibit A (herein
---------
individually a "Purchaser" and collectively "Purchasers"). The parties hereby
agree as follows:
1. Authorization and Sale of the Shares.
------------------------------------
1.1 Authorization; Filing of Restated Articles of Incorporation. The
-----------------------------------------------------------
Company has authorized the issuance and sale pursuant to the terms and
conditions hereof of up to 3,000,000 shares of its Series A Preferred Stock, par
value $.01 per share (the "Series A Shares"), having the rights, restrictions,
privileges and preferences as set forth in the form of the Restated Articles of
Incorporation of the Company (the "Restated Articles") attached hereto as
Exhibit B. The Company shall adopt and file with the Secretary of State of
- ---------
California on or before the Closing (as defined below) the Restated Articles.
1.2 Sale and Issuance of the Series A Shares. Subject to the terms and
----------------------------------------
conditions hereof, the Company will issue and sell to the Purchasers and the
Purchasers will purchase the number of shares of the Series A Shares specified
opposite the Purchasers' names on the Schedule of Purchasers, at a price of
$1.00 per share.
2. Closing Dates; Delivery.
-----------------------
2.1 Closing Date.
------------
(a) Purchase and Sale. The closing of the purchase and sale of an
-----------------
aggregate of 3,000,000 of the Series A Shares shall be held at the offices of
Ware & Freidenrich, A Professional Corporation at 400 Hamilton Avenue, Palo
Alto, California 94301 at 11:00 a.m. on November 27, 1991, or at such other time
and place as the Company and the Purchasers may agree in writing.
(b) Closing. The closing referred to in subsection (a) above is
-------
hereinafter referred to as the "Closing" and the date of the Closing is
hereinafter referred to as the "Closing Date".
2.2 Delivery. Subject to the terms of this Agreement, at the Closing the
--------
Company will deliver to the Purchasers the certificates representing the Series
A Shares to be purchased by the Purchasers from the Company, against payment of
the purchase price therefor by delivery of a check or checks, payable to the
order of the Company, or by wire transfer.
1
<PAGE>
3. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Purchasers that except as set forth on a Schedule
of Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to
---------
be representations and warranties as if made hereunder:
3.1 Organization and Standing; Articles and By-Laws. The Company is a
-----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its businesses as now conducted and as proposed to be conducted. The
Company is qualified or licensed to do business as a foreign corporation in all
jurisdictions where such qualification or licensing is required, except where
the failure to so qualify would not have a material adverse effect upon the
Company. Copies of the Company's Articles of Incorporation, Bylaws, minutes and
consents of shareholders and of the Board of Directors are available for
inspection at the Company's offices and have been previously provided to special
counsel for the Purchasers.
3.2 Corporate Power. The Company has now, or will have at the Closing
---------------
Date, all requisite corporate power necessary for the authorization, execution
and delivery of this Agreement, and the Rights Agreement in the form attached
hereto as Exhibit D and the Stock Repurchase Agreements with Messrs. Krause and
---------
Ligtenberg in the forms attached hereto as Exhibits G-1 and G-2, respectively
------------ ---
(the "Collateral Agreements") to sell and issue the Series A Shares and to issue
the Common Stock upon conversion of the Series A Preferred Stock. This Agreement
and the Collateral Agreements are valid and binding obligations of the Company
enforceable in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, moratorium, and other laws of general application
affecting the enforcement of creditors' rights.
3.3 Subsidiaries. The Company does not control, directly or indirectly,
------------
any other corporation, association or business entity.
3.4 Capitalization. The authorized capital stock of the Company is
--------------
20,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock, of
which 3,000,000 have been designated Series A Preferred Stock. There are issued
and outstanding 3,363,237 shares of the Company's Common Stock. The holders of
record of the presently issued and outstanding Common Stock and options to
purchase Common Stock immediately prior to the Closing are as set forth on
Exhibit E. All such issued and outstanding shares have been duly authorized and
- ---------
validly issued, are fully paid and nonassessable, and were issued in compliance
with all applicable state and federal laws concerning the issuance of
securities. The holders of any and all rights, options, warrants or conversion
rights to purchase or acquire from the Company any of its capital stock, along
with the number of shares of capital stock issuable upon exercise of such
rights, are set forth in Exhibit E hereto. Except for such rights, there are no
---------
outstanding rights, options, warrants, conversion rights or agreements for the
purchase or acquisition from the Company of any shares of its capital stock. The
Company is not a party or subject to any agreement or understanding between any
persons or entities, which affects or relates to the voting or giving of written
consents with respect to any securities or by any director of the Company.
2
<PAGE>
3.5 Authorization.
-------------
(a) Corporate Action. All corporate action on the part of the Company,
----------------
its officers, directors and shareholders necessary for the sale and issuance of
the Series A Shares and the Collateral Agreements, the issuance of the Common
Stock issuable upon conversion of the Series A Preferred Stock and the
performance of the Company's obligations hereunder and under each of the
Collateral Agreements has been taken or will be taken prior to the Closing. The
Company has duly reserved an aggregate of 3,000,000 shares of Common Stock for
issuance upon conversion of the Series A Shares.
(b) Valid Issuance. The Series A Shares when issued in compliance with
--------------
the provisions of this Agreement, and the shares of Common Stock issued upon
conversion of the Series A Preferred Stock when issued in accordance with the
provisions of the Restated Articles, will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances; provided, however,
that all such shares may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein, and as may be required by
future changes in such laws. The rights, preferences, privileges and
restrictions of the Series A Preferred Stock are as set forth in the Restated
Articles.
(c) No Preemptive Rights. Other than as provided in the Rights Agreement,
--------------------
no person has any right of first refusal or any preemptive rights in connection
with the issuance of the Series A Shares, the issuance of the Common Stock upon
conversion of the Series A Preferred Stock or any future issuances of securities
by the Company.
3.6 Patents, Trademarks, etc. The Company owns and possesses or is
------------------------
licensed under all patents, patent applications, licenses, trademarks, trade
names, brand names, inventions and copyrights employed in the operation of its
business as now conducted and as proposed to be conducted, with no infringement
of or conflict with the rights of others respecting any of the same. The
operation of the Company's business as now conducted or as proposed to be
conducted does not infringe any patent or other proprietary rights of others
respecting any of the same. Except for the agreements listed on Exhibit F
---------
attached hereto, there are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to patents, patent
applications, licenses, trademarks, trade names, brand names, inventions,
proprietary rights and copyrights of any other person or entity. The Company is
not obligated to make any payments by way of royalties, fees or otherwise to any
owner, licensor of, or other claimant to any patent, trademark, trade name,
copyright or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business, or otherwise. The Company has not
received any communications alleging that it has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity, nor is the Company aware of any basis for the
foregoing. Except for those agreements listed on Exhibit F attached hereto,
---------
there are no agreements, understandings, instruments, contracts, judgments,
orders, writs of decrees to which the Company is a party or by which it is bound
which involve indemnification by the Company with respect to infringements of
proprietary rights.
3
<PAGE>
3.7 Compliance with Other Instruments, None Burdensome, etc. The Company
-------------------------------------------------------
is not in violation of any term of its Restated Articles or Bylaws, nor is the
Company in violation of or in default in any material respect under the terms of
any mortgage, indenture, contract, agreement, instrument, judgment or decree,
the violation of which would have a material adverse effect on the Company as a
whole, and to the best of the knowledge of the Company, is not in violation of
any order, statute, rule or regulation applicable to the Company, the violation
of which would have a material adverse effect on the Company. The execution,
delivery and performance of and compliance with this Agreement or the Collateral
Agreements, and the issuance and sale of the Series A Shares will not (a) result
in any such violation, or (b) be in conflict with or constitute a default under
any such term, or (c) result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. To the best knowledge of the Company, there is no
such term which adversely affects, or in the future may materially adversely
affect, the business, prospects, condition, affairs or operations of the Company
or any of its properties or assets.
3.8 Proprietary Agreements; Employees. Each employee of the Company has
---------------------------------
executed an agreement regarding confidentiality and proprietary information, the
form of which has been provided to special counsel to the Purchasers. The
Company is not aware that any of its employees is in violation thereof and will
use its best efforts to prevent any such violation. The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company's business as conducted or
as proposed to be conducted or that would prevent any such employee from
assigning inventions to the Company. Neither the execution nor delivery of this
Agreement or the Collateral Agreements, nor the carrying on of the Company's
business as proposed, will, in the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees is
now obligated. The Company does not believe that it is or will be necessary for
the Company to utilize any inventions of any of its employees made prior to
their employment by the Company.
3.9 Litigation, etc. There is no action, proceeding or investigation
---------------
pending against the Company or its officers, directors or shareholders, or to
the best of the Company's knowledge, against employees or consultants of the
Company (or, to the best of the Company's knowledge, any basis therefor or
threat thereof): (1) which might result, either individually or in the
aggregate, in (a) any material adverse change in the business, prospects,
conditions, affairs or operations of the Company or in any of its properties or
assets, or (b) any material impairment of the right or ability of the Company to
carry on its business as now conducted or as proposed to be conducted, or (c)
any material liability on the part of the Company; or (2) which questions the
validity of this Agreement, the Collateral Agreements or any action taken or to
be taken in connection herewith, including in each case, without limitation,
actions pending or threatened involving the prior employment of any of the
Company's employees, the use in connection with the Company's business of any
information or techniques allegedly proprietary to any of its former employees,
or their obligations under any agreements with prior employers. The Company is
not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any
4
<PAGE>
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company currently intends to initiate.
3.10 Governmental Consent, etc. No consent, approval or authorization of
-------------------------
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with: (a) the valid execution and
delivery of this Agreement or the Collateral Agreements; or (b) the offer, sale
or issuance of the Series A Shares, or the issuance of the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock or (c) the
obtaining of the consents, permits and waivers specified in subsection 5.1(b)
hereof, except the filing of the Restated Articles and, if required, filings or
qualifications under the California securities law (the "Law"), or other
applicable blue sky laws, which filings or qualifications, if required, will
have been timely filed or obtained after the sale of the Series A Shares.
3.11 Offering. In reliance on the representations and warranties of the
--------
Purchasers in Section 4 hereof, the offer, sale and issuance of the Series A
Shares in conformity with the terms of this Agreement will not result in a
violation of the requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act") or the qualification or registration requirements
of the Law or other applicable blue sky laws.
3.12 Taxes. The Company has filed all tax returns that are required to
-----
have been filed with appropriate federal, state, county and local governmental
agencies or instrumentalities, except where the failure to do so would not have
a material adverse effect upon the Company, taken as a whole. The Company has
not elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"),
to be treated as a Subchapter S corporation or a collapsible corporation
pursuant to Section 341(f) or Section 1362(a) of the Code, nor has it made any
other elections pursuant to the Code (other than elections which relate solely
to methods of accounting, depreciation or amortization) which would have a
material effect on the Company, its financial condition, its business as
presently conducted or proposed to be conducted or any of its properties or
material assets. The Company has paid or established reserves for all income,
franchise and other taxes, assessments, governmental charges, penalties,
interest and fines due and payable by them on or before the Closing. There is no
pending dispute with any taxing authority relating to any of such returns and
the Company has no knowledge of any proposed liability for any tax to be imposed
upon the properties or assets of the Company for which there is not an adequate
reserve reflected in the Financial Statements (as defined below).
3.13 Title. The Company owns its property and assets, including the
-----
properties and assets reflected in the Financial Statements, free and clear of
all liens, mortgages, loans or encumbrances except liens for current taxes, and
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets leased by the Company, the
Company is in compliance with such leases and, to the best of the Company's
knowledge, holds valid leasehold interests free and clear of any liens, claims
or encumbrances.
3.14 Material Contracts and Commitments. All of the contracts, mortgages,
----------------------------------
indentures, agreements, instruments and transactions to which the Company is a
party or by which
5
<PAGE>
it is bound (including purchase orders to the Company or placed by the Company)
which involve obligations of, or payments to, the Company in excess of Twenty-
Five Thousand Dollars ($25,000) and all agreements between the Company and its
officers, directors, consultants and employees are either (i) attached as
exhibits to this Agreement, or (ii) set forth on the list attached hereto as
Exhibit F (the "Contracts"), copies of which have been delivered to special
- ---------
counsel to the Purchasers. All of the Contracts are valid, binding and in full
force and effect in all material respects and enforceable by the Company in
accordance with their respective terms in all material respects, subject to the
effect of applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of creditors'
rights and rules or laws concerning equitable remedies. The Company is not in
material default under any of such Contracts. To the best of the Company's
knowledge, no other party to any of the Contracts is in material default
thereunder. The Company has not engaged in the past three (3) months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company of a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
3.15 Financial Statements. The Company has delivered to each Purchaser
--------------------
(i) its audited balance sheet as of December 31, 1990 and its audited
consolidated income statement and cash flow statement for the period ended
December 31, 1990, and (ii) its unaudited balance sheet as of October 31, 1991
(the "Balance Sheet"), and its unaudited consolidated income statement and cash
flow statement for the ten (10) month period ended October 31, 1991 (the above
financial statements are hereinafter collectively referred to as the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the relevant period. The
Financial Statements accurately set out and describe the financial condition and
operating results of the Company as of the date, and during the period,
indicated therein. Except as set forth in the Financial Statements, the Company
has no liabilities of any nature (matured or unmatured, fixed or contingent),
other than (i) liabilities incurred in the ordinary course of business
subsequent to October 31, 1991, and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company. The Company maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
3.16 Absence of Changes. Since October 31, 1991: (a) the Company has
------------------
not entered into any transaction which was not in the ordinary course of
business, (b) there has been no material adverse change in the condition
(financial or otherwise) of the business, property, assets or liabilities of the
Company other than changes in the ordinary course of its business, none of
which, individually or in the aggregate, has been materially adverse, (c) there
has been no damage to, destruction of or loss of physical property (whether or
not covered by insurance) materially adversely affecting the assets, prospects,
financial condition, operating results, business
6
<PAGE>
or operations of the Company, (d) the Company has not declared or paid any
dividend or made any distribution on its stock, or redeemed, purchased or
otherwise acquired any of its stock, (e) the Company has not materially changed
any compensation arrangement or agreement with any of its key employees or
executive officers, or materially changed the rate of pay of its employees as a
group, (f) the Company has not received notice that there has been a
cancellation of an order for the Company's products or a loss of a customer of
the Company, the cancellation or loss of which would materially adversely affect
the business of the Company, (g) the Company has not changed or amended any
material contract by which the Company or any of its assets are bound or
subject, except as contemplated by this Agreement, (h) there has been no
resignation or termination of employment of any key officer or employee of the
Company and the Company does not know of any impending resignation or
termination of employment of any such officer or employee that if consummated
would have a material adverse effect on the business of the Company, (i) there
has been no labor dispute involving the Company or its employees and none is
pending or, to the best of the Company's knowledge, threatened, (j) there has
been no change, except in the ordinary course of business, in the material
contingent obligations of the Company (nor in any contingent obligation of the
Company regarding any director, shareholder or key employee or officer of the
Company) by way of guaranty, endorsement, indemnity, warranty or otherwise, (k)
there have been no loans made by the Company to any of its employees, officers
or directors other than travel advances and other advances made in the ordinary
course of business, (l) there has been no waiver by the Company of a valuable
right or of a material debt owing to it, (m) there has not been any satisfaction
or discharge of any lien, claims or encumbrance or any payment of any obligation
by the Company, except in the ordinary course of business and which is not
material to the assets, properties, financial condition, operating results or
business of the Company, and (n) to the best of the knowledge of the Company,
there has been no other event or condition of any character pertaining to and
materially adversely affecting the assets or business of the Company.
3.17 Outstanding Indebtedness. Except as disclosed in the Balance Sheet,
------------------------
the Company has no indebtedness for borrowed money which it has directly or
indirectly created, incurred, assumed or guaranteed, or with respect to which it
has otherwise become liable, directly or indirectly. The Company has no material
liability or obligation in excess of $10,000, absolute or contingent, which is
not shown or provided for in the latest Balance Sheet, except obligations under
purchase orders, sales contracts, real property leases, equipment leases or
similar obligations incurred in the ordinary course of business.
3.18 Registration Rights. Other than as granted pursuant to the Rights
-------------------
Agreement, the Company has not granted or agreed to grant any rights to register
as that term is defined in the Rights Agreement, including piggyback
registration rights, to any person or entity.
3.19 Certain Transactions. The Company is not indebted, directly or
--------------------
indirectly, to any of its officers, directors or shareholders or to their
spouses or children, in any amount whatsoever; and none of said officers,
directors or, to the best of the Company's knowledge, shareholders, or any
member of their immediate families, are indebted to the Company or have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship
(except as a holder of securities of a corporation whose securities are publicly
traded and which is subject to the reporting
7
<PAGE>
requirements of the Securities Exchange Act of 1934, to the extent of owning not
more than two percent (2%) of the issued and outstanding securities of such
corporation). No such officer, director or shareholder, or any member of their
immediate families, is, directly or indirectly, interested in any material
contract with the Company. The Company is not guarantor or indemnitor of any
indebtedness of any other person, firm or corporation.
3.20 Corporate Documents; Minute Books. Except for amendments
---------------------------------
necessary to satisfy representations and warranties or conditions contained
herein (the form of which amendments has been approved by the Purchasers), the
Articles of Incorporation and Bylaws of the Company are in the form previously
provided to special counsel to the Purchasers. The minute books of the Company
previously provided to special counsel to the Purchasers contain a complete
summary of all meetings of directors and shareholders since the time of
incorporation of the Company.
3.21 Employee Benefit Plans. The Company does not have any "employee
----------------------
benefit plan" as defined in the Employee Retirement Income Security Act of 1974,
as amended.
3.22 Real Property Holding Corporation. The Company is not a "real
---------------------------------
property holding corporation" within the meaning of Section 897(c)(2) of the
United States Internal Revenue Code of 1986, as amended.
3.23 Disclosure. No representation or warranty by the Company in
----------
this Agreement, or in any document or certificate furnished or to be furnished
to the Purchasers pursuant hereto or in connection with the transactions
contemplated hereby, when taken together, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements made herein and therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that with regard to the operating projections which have been delivered to the
Purchasers, the Company represents only that such projections were prepared in
good faith and that the Company reasonably believes there is a reasonable basis
for such projections. The Company has fully provided each Purchaser with all the
information which such Purchaser has requested for deciding whether to purchase
the Series A Preferred Stock.
3.24 Environmental and Safety Laws. To the best of its knowledge,
-----------------------------
the Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.
3.25 Manufacturing and Marketing Rights. Except pursuant to the
----------------------------------
agreements listed on Exhibit F hereto, the Company has not granted rights to
---------
manufacture, produce, assemble, license, market, or sell its products to any
other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market, or sell
its products.
8
<PAGE>
3.26 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, and insurance against other
hazards, risks and liabilities to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated.
3.27 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties are bound by or subject to) any
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the knowledge of the Company, has sought to represent any of
the employees, representatives or agents of the Company. There is no strike or
other labor dispute involving the Company pending, or to the knowledge of the
Company threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. Subject to general principles related to
wrongful termination of employees, the employment of each officer and employee
of the Company is terminable at the will of the Company.
3.28 Section 83(b) Elections. To the best of the Company's
-----------------------
knowledge, all elections and notices required by Section 83(b) of the Internal
Revenue Code and any analogous provisions of applicable state tax laws have been
timely filed by all individuals who have purchased shares of the Company's
Common Stock.
4. Representations and Warranties of Purchasers and Restrictions on
----------------------------------------------------------------
Transfer Imposed by the Securities Act.
- --------------------------------------
4.1 Representations and Warranties by the Purchasers. Each
------------------------------------------------
Purchaser represents and warrants to the Company as follows:
(a) Investment Intent. This Agreement is made with the
-----------------
Purchaser in reliance upon such Purchaser's representation to the Company,
evidenced by Purchaser's execution of this Agreement, that Purchaser is
acquiring the Series A Shares and the Common Stock issuable upon conversion of
Series A Preferred Stock (collectively the "Securities") for investment for such
Purchaser's own account, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act and the Law. Purchaser has the full right, power and
authority to enter into and perform this Agreement and the Rights Agreement, and
this Agreement and the Rights Agreement constitute valid and binding obligations
upon it.
(b) Shares Not Registered. Purchaser understands and
---------------------
acknowledges that the offering of the Series A Shares pursuant to this Agreement
will not be registered under the Securities Act or qualified under the Law on
the grounds that the offering and sale of securities contemplated by this
Agreement are exempt from registration under the Securities Act and exempt from
qualification pursuant to Section 25102(f) of the Law, and that the Company's
9
<PAGE>
reliance upon such exemptions is predicated upon such Purchaser's
representations set forth in this Agreement. The Purchaser acknowledges and
understands that the Securities must be held indefinitely unless the Securities
are subsequently registered under the Securities Act and qualified under the Law
or an exemption from such registration and such qualification is available.
(c) No Transfer. Purchaser covenants that in no event will
-----------
such Purchaser dispose of any of the Securities (other than in conjunction with
an effective registration statement for the Securities under the Act or in
compliance with Rule 144 promulgated under the Act) unless and until (i) such
Purchaser shall have notified the Company of the proposed disposition and shall
have furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (ii) if reasonably requested by the Company, such
Purchaser shall have furnished the Company with an opinion of counsel reasonably
satisfactory in form and substance to the Company to the effect that (x) such
disposition will not require registration under the Securities Act and (y)
appropriate action necessary for compliance with the Securities Act, the Law and
any other applicable state, local or foreign law has been taken. It is agreed
that the Company will not require opinions of counsel for transactions made
pursuant to Rule 144.
(d) Permitted Transfers. Notwithstanding the provisions of
-------------------
subsection (c) above, no registration statement or opinion of counsel shall be
necessary for a transfer by a Purchaser which is a partnership to a partner of
such partnership or a former partner of such partnership who leaves such
partnership after the date hereof, or to the estate of any such partner or
former partner or the transfer by gift, will or intestate succession of any
partner to his spouse or lineal descendants or ancestors, if the transferee
agrees in writing to be bound by the terms of this Agreement to the same extent
as if he were an original Purchaser hereunder.
(e) Knowledge and Experience. Purchaser (i) has such
------------------------
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of such Purchaser's prospective investment in
the Securities; (ii) has the ability to bear the economic risks of such
Purchaser's prospective investment; (iii) has been furnished with and has had
access to such information as such Purchaser has considered necessary to make a
determination as to the purchase of the Securities together with such additional
information as is necessary to verify the accuracy of the information supplied;
(iv) has had all questions which have been asked by such Purchaser
satisfactorily answered by the Company; and (v) has not been offered the
Securities by any form of advertisement, article, notice or other communication
published in any newspaper, magazine, or similar media or broadcast over
television or radio, or any seminar or meeting whose attendees have been invited
by any such media.
(f) Not Organized to Purchase. Purchaser has not been
-------------------------
organized for the purpose of purchasing the Securities.
(g) Holding Requirements. Purchaser understands that if the
--------------------
Company does not (i) register its Common Stock with the Securities and Exchange
Commission ("SEC") pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) become subject to Section 15(d) of
the Exchange Act, (iii) supply information pursuant to Rule 15c2-11 thereunder,
or (iv) have a registration statement covering the Securities (or a
10
<PAGE>
filing pursuant to the exemption from registration under Regulation A of the
Securities Act covering the Securities) under the Securities Act in effect when
it desires to sell the Securities, such Purchaser may be required to hold the
Securities for an indeterminate period. Purchaser also understands that any sale
of the Securities that might be made by such Purchaser in reliance upon Rule 144
under the Securities Act may be made only in limited amounts in accordance with
the terms and conditions of that rule.
4.2 Legends. Each certificate representing the Securities may be
-------
endorsed with the following legends:
(a) Federal Legend. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
--------------
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER
THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144, OR (iii)
PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
DISTRIBUTION.
(b) Other Legends. Any other legends required by the Law or other
-------------
applicable state blue sky laws.
The Company need not register a transfer of legended Securities, and may also
instruct its transfer agent not to register the transfer of the Securities,
unless the conditions specified in each of the foregoing legends are satisfied.
4.3 Removal of Legend and Transfer Restrictions. Any legend
-------------------------------------------
endorsed on a certificate pursuant to subsection 4.2(a) and the stop transfer
instructions with respect to such legended Securities shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
Securities if such Securities are registered under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder satisfies the requirements of Rule 144(k) and, where
reasonably deemed necessary by the Company, provides the Company with an opinion
of counsel for such holder of the Securities, reasonably satisfactory to the
Company, to the effect that (i) such holder, meets the requirements of Rule
144(k) or (ii) a public sale, transfer or assignment of such Securities may be
made without registration.
4.4 Rule 144. Purchaser is aware of the adoption of Rule 144 by
--------
the SEC promulgated under the Securities Act, which permits limited public
resales of securities acquired in a nonpublic offering, subject to the
satisfaction of certain conditions. The Purchaser understands that under Rule
144, the conditions include, among other things: the availability of certain
current public information about the issuer and the resale occurring not less
than two years after the party has purchased and paid for the securities to be
sold.
11
<PAGE>
5. Conditions to Closing.
---------------------
5.1 Conditions to Purchasers' Obligations. The obligation of the
-------------------------------------
Purchasers to purchase the Series A Shares at the Closing is subject to the
fulfillment to its satisfaction, on or prior to the Closing Date, of the
following conditions, any of which may be waived in accordance with the
provisions of subsection 7.1 hereof:
(a) Representations and Warranties Correct; Performance of
--------------------------------------- --------------
Obligations. The representations and warranties made by the Company in Section 3
- -----------
hereof shall be true and correct when made, and shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date. The Company's business and assets shall
not have been adversely affected in any material way prior to the Closing Date.
The Company shall have performed in all material respects all obligations and
conditions herein required to be performed or observed by it on or prior to the
Closing Date.
(b) Consents and Waivers. The Company shall have obtained in a
--------------------
timely fashion any and all consents, permits and waivers necessary or
appropriate for consummation of the transactions contemplated by this Agreement.
(c) Amendment of Bylaws; Election of Director. On or prior to the
-----------------------------------------
Closing Date the Company shall have amended its Bylaws to provide for a variable
Board of Directors with a range of five (5) to seven (7) with the exact number
of authorized directors set at five (5). Effective upon the Closing, Mary Jane
Elmore and John R. Johnston shall have been appointed to the Company's Board of
Directors.
(d) Filing of the Restated Articles. The Restated Articles shall
-------------------------------
have been filed with the Secretary of State of the State of California.
(e) Rights Agreement. The Company, the Purchasers, and L. William
----------------
Krause and Adriaan Ligtenberg shall have executed the Rights Agreement in the
form attached as Exhibit D hereto.
---------
(f) Repurchase Agreements. L. William Krause and Adriaan
---------------------
Ligtenberg shall have entered into Stock Repurchase Agreements in the forms
attached hereto as Exhibits G-1 and G-2, respectively.
--------------------
(g) Compliance Certificate. The Company shall have delivered a
----------------------
Certificate, executed by the President of the Company, dated the Closing Date,
certifying to the fulfillment of the conditions specified in subsections (a),
(b), (c), (d), (e) and (f) of this section 5.1.
(h) Opinion of Counsel. The Purchasers shall have received an
------------------
opinion from Ware & Freidenrich, A Professional Corporation, the Company's
counsel, in substantially the form attached hereto as Exhibit H.
---------
5.2 Conditions to Obligations of the Company. The Company's
----------------------------------------
obligation to sell and issue the Series A Shares and Warrants at the Closing is
subject to the fulfillment to the
12
<PAGE>
satisfaction of the Company on or prior to the Closing Date of the following
conditions, any of which may be waived by the Company:
(a) Representations and Warranties Correct. The
--------------------------------------
representations and warranties made by the Purchasers in Section 4 hereof shall
be true and correct when made, and shall be true and correct on the Closing Date
with the same force and effect as if they had been made on and as of said date.
(b) Conditions Fulfilled. The conditions set forth in
--------------------
subsections (b), (d), (e) and (f) of Section 5.1 shall have been fulfilled.
6. Affirmative Covenants of the Company. The Company hereby covenants
------------------------------------
and agrees as follows:
6.1 Financial Information. Until the first to occur of (i) the
---------------------
date on which the Company is required to file a report with the SEC pursuant to
Section 13(a) of the Exchange Act, by reason of the Company having registered
any of its securities pursuant to Section 12(g) of the Exchange Act or (ii)
quotations for the Common Stock of the Company are reported by the automated
quotations system operated by the National Association of Securities Dealers,
Inc. or by an equivalent quotations system or (iii) shares of the Common Stock
of the Company are listed on a national securities exchange registered under
Section 6 of the Exchange Act, the Company will furnish to each Purchaser:
(i) so long as such Purchaser or its affiliates own any of the
Shares or Common Stock issued upon conversion of the Shares (as adjusted for
stock dividends, stock splits, recapitalizations and the like), as soon as
practicable after the end of each fiscal year, and in any event within 90 days
thereafter, consolidated balance sheets of the Company and its subsidiaries, if
any, as at the end of such fiscal year, and consolidated statements of
operations and consolidated statements of changes in financial position (or
equivalent cash flow statements if required by the Financial Accounting
Standards Board) of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles, all in
reasonable detail and certified by independent public accountants of recognized
national standing selected by the Company, and
(ii) as soon as practicable after the end of each month and each
quarter (except the last month and last quarter of the fiscal year), and in any
event within 30 and 45 days, respectively, thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such month
or quarter; and consolidated statements of income (or equivalent cash flow
statements if required by the Financial Standards Board), for such month or
quarter and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles (except for required footnotes), all in
reasonable detail and signed, subject to changes resulting from year-end audit
adjustments, by the principal financial officer or chief executive officer of
the Company, and
(iii) as soon as practicable after its adoption or approval by the
Company's Board of Directors, but not later than the commencement of such fiscal
year, an
13
<PAGE>
annual plan for each fiscal year which shall include monthly capital and
operating expense budgets, cash flow statements, projected balance sheets and
profit and loss projections for each such month and for the end of the year,
itemized in such detail as the Board of Directors may reasonably determine.
6.2 Conflicts of Interests. The Company shall use its best efforts
----------------------
to ensure that the Company's employees, during the term of their employment with
the Company, do not engage in activities which would result in a conflict of
interest with the Company. The Company's obligations hereunder include, but are
not limited to, requiring that the Company's employees devote their primary
productive time, ability and attention to the business of the Company (provided,
however, the Company's employees may engage in other professional activity if
such activity does not materially interfere with their obligations to the
Company), requiring that the Company's employees enter into agreements regarding
proprietary information and confidentiality and preventing the Company's
employees from engaging or participating in any business that is in competition
with the business of the Company.
6.3 Key-Man Insurance. The Company shall obtain within thirty (30)
-----------------
days of the Closing and maintain in force, until cancelled or modified with the
written consent of Purchasers holding more than fifty percent (50%) of the
Shares or their transferees, insurance policies on the lives of L. William
Krause and Adriaan Ligtenberg, in the amount of $1,000,000 and $1,000,000,
respectively, naming the Company as holder and beneficiary.
6.4 Proprietary Agreements. The Company will use its best efforts
----------------------
to prevent any employee from violating the confidentiality and proprietary
information agreement entered into between the Company and each of its
employees.
6.5 Future Stock Issuances. The Company agrees that after the
----------------------
Closing it will not issue more than 1,117,200 shares of Common Stock (or grant
any options, warrants or other rights to purchase the same) to employees,
officers, directors and consultants without unanimous vote of the Company's
Board of Directors. Moreover, except with respect to the employees other than
Messrs. Krause and Ligtenberg (the "Current Employees") of the Company as of the
date of Closing, the Company will not issue any shares of Common Stock (or grant
any options, warrants or other rights to purchase the same) to any employee,
officer, director or consultant except pursuant to agreements which provide for
vesting over a period of at least forty-eighty (48) months (with the initial
vesting date to occur after twelve (12) months) and a right of first refusal in
favor of the Company in the event of any proposed transfer unless such issuance
or grant is approved by unanimous vote of the Company's Board of Directors. The
vesting for Current Employees shall commence as of the date of employment by the
Company and shall continue ratably over a forty-eight (48) month period (without
any initial vesting date).
6.6 Inspection. The Company shall permit each Purchaser, at such
----------
Purchaser's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Purchaser; provided, however, that the Company shall not be obligated
pursuant to this Section 6.6 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
14
<PAGE>
7. Miscellaneous.
-------------
7.1 Waivers and Amendments. With the written consent of the record
----------------------
holders of at least two-thirds of the Series A Shares, the rights of the holders
of the Series A Shares under this Agreement may be waived or amended (either
generally or in a particular instance); provided, however, that no such waiver
or amendment shall reduce the aforesaid proportion of Series A Shares, the
holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the record holders of all of the Series A
Shares. Upon the effectuation of each such waiver or amendment, the Company
shall promptly give written notice thereof to the record holders of the Series A
Shares who have not previously consented thereto in writing. Except to the
extent provided in this subsection 7.1, this Agreement or any provision hereof
may be amended, waived, discharged or terminated only by a statement in writing
signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought.
7.2 Governing Law. This Agreement shall be governed in all
-------------
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
7.3 Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive the Closing of the transactions
contemplated hereby, notwithstanding any investigation made by the Purchasers.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder as of the date of such
certificate or instrument.
7.4 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
7.5 Entire Agreement. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof and
they supersede, merge and render void every other prior written and/or oral
understanding or agreement among or between the parties hereto.
7.6 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be delivered personally,
mailed by first class mail, postage prepaid, or delivered by courier or
overnight delivery, addressed (a) if to a Purchaser, at such Purchaser's address
set forth in the Schedule of Purchasers, or at such other address as such
Purchaser shall have furnished to the Company in writing or (b) if to the
Company, at its address set forth at the beginning of this Agreement, or at such
other address as the Company shall have furnished to the Purchasers in writing.
Notices that are mailed shall be deemed received five (5) days after deposit in
the United States mail.
7.7 Severability. In case any provision of this Agreement shall be
------------
found by a court of law to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby.
15
<PAGE>
7.8 Finder's Fees and Other Fees.
----------------------------
(a) The Company (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and, (ii) hereby agrees to indemnify and to hold Purchasers harmless
from and against any liability for commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the
Company, or any of its employees or representatives, is responsible.
(b) Each Purchaser (i) represents and warrants that it has retained
no finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Company harmless
from and against any liability for any commission or compensation in the nature
of a finder's fee to any broker or other person or firm (and the costs and
expenses of defending against such liability or asserted liability) for which
Purchaser, or any of its employees or representatives, are responsible.
7.9 Expenses. The Company and the Purchasers shall each bear their
--------
own expenses and legal fees in connection with the consummation of this
transaction; provided, however, that the Company will pay the reasonable fees,
up to $7,500, of special counsel for the Purchasers, together with disbursements
and expenses incurred by special counsel in connection with all transactions
leading up to and including the Closing.
7.10 Titles and Subtitles. The titles of the sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
16
<PAGE>
7.12 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to the Company or to any holder of any
securities issued or to be issued hereunder shall impair any such right, power
or remedy of the Company or such holder, nor shall it be construed to be a
waiver of any breach or default under this Agreement, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any delay or omission to exercise any right, power or remedy or any waiver
of any single breach or default be deemed a waiver of any other right, power or
remedy or breach or default theretofore or thereafter occurring. All remedies,
either under this Agreement, or by law otherwise afforded to the Company or any
holder, shall be cumulative and not alternative.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
STORM TECHNOLOGY, INC.
By:
--------------------------------
L. William Krause
17
<PAGE>
SIGNATURE PAGE TO SERIES A PREFERRED
STOCK PURCHASE AGREEMENT DATED AS OF NOVEMBER 27, 1991
PURCHASERS:
INSTITUTIONAL VENTURE INSTITUTIONAL VENTURE
PARTNERS V MANAGEMENT V
By: Its General Partner
Institutional Venture
Management V
By: By:
-------------------------- ---------------------------
Title: Title:
----------------------- ------------------------
TECHNOLOGY VENTURE
INVESTORS-IV, as nominee for
Technology Venture Investors-4, L.P.,
TVI Partners-4, L.P., and
TVI Affiliates-4, L.P.
By: TVI Management-4, L.P.,
its General Partner
By:
-------------------------- ------------------------------
John R. Johnston, L. William Krause
General Partner
18
<PAGE>
EXHIBIT 10.7
STORM TECHNOLOGY, INC.
AGREEMENT CONCERNING PURCHASE OF
SERIES B PREFERRED STOCK
THIS AGREEMENT is made as of January 30, 1992, by and among STORM
TECHNOLOGY, INC., a California corporation (the "Company") and each of the
persons named in the Schedule of Purchasers attached hereto as Exhibit A (herein
---------
individually a "Purchaser" and collectively "Purchasers"). The parties hereby
agree as follows:
1. Authorization and Sale of the Shares.
------------------------------------
1.1 Authorization; Filing of Restated Articles of Incorporation. The
-----------------------------------------------------------
Company has authorized the issuance and sale pursuant to the terms and
conditions hereof of up to 479,167 shares of its Series B Preferred Stock, par
value $.001 per share (the "Series B Shares"), having the rights, restrictions,
privileges and preferences as set forth in the form of the Restated Articles of
Incorporation of the Company (the "Restated Articles") attached hereto as
Exhibit B. The Company shall adopt and file with the Secretary of State of
- ---------
California on or before the Closing (as defined below) the Restated Articles.
1.2 Sale and Issuance of the Series B Shares. Subject to the terms
----------------------------------------
and conditions hereof, the Company will issue and sell to the Purchasers and the
Purchasers will purchase the number of shares of the Series B Shares specified
opposite the Purchaser's names on the Schedule of Purchasers, at a price of
$1.20 per share.
2. Closing Dates; Delivery.
-----------------------
2.1 Closing Date.
------------
(a) Purchase and Sale. The closing of the purchase and sale of
-----------------
an aggregate of 479,167 of the Series B Shares shall be held at the offices of
Ware & Freidenrich, A Professional Corporation at 400 Hamilton Avenue, Palo
Alto, California 94301 at 11:00 a.m. on January 30, 1992, or at such other time
and place as the Company and the Purchasers may agree in writing.
(b) Closing. The closing referred to in subsection (a) above is
-------
hereinafter referred to as the "Closing" and the date of the Closing is
hereinafter referred to as the "Closing Date".
2.2 Delivery. Subject to the terms of this Agreement, at the
--------
Closing the Company will deliver to the Purchasers the certificates representing
the Series B Shares to be purchased by the Purchasers from the Company, against
payment of the purchase price therefor by delivery of a check or checks, payable
to the order of the Company, or by wire transfer.
1
<PAGE>
3. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Purchasers that except as set forth on a Schedule
of Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to
---------
be representations and warranties as if made hereunder:
3.1 Organization and Standing; Articles and By-Laws. The Company is
-----------------------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its businesses as now conducted and as proposed to be
conducted. The Company is qualified or licensed to do business as a foreign
corporation in all jurisdictions where such qualification or licensing is
required, except where the failure to so qualify would not have a material
adverse effect upon the Company. Copies of the Company's Amended and Restated
Articles of Incorporation, Bylaws, minutes and consents of shareholders and of
the Board of Directors are available for inspection at the Company's offices.
3.2 Corporate Power. The Company has now, or will have at the
---------------
Closing Date, all requisite corporate power necessary for the authorization,
execution and delivery of this Agreement, and the Amended and Restated Rights
Agreement in the form attached hereto as Exhibit D (the "Collateral Agreement")
---------
to sell and issue the Series B Shares and to issue the Common Stock upon
conversion of the Series B Preferred Stock. This Agreement and the Collateral
Agreement are valid and binding obligations of the Company enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, moratorium, and other laws of general application affecting the
enforcement of creditors' rights.
3.3 Subsidiaries. The Company does not control, directly or
------------
indirectly, any other corporation, association or business entity.
3.4 Capitalization. The authorized capital stock of the Company is
--------------
20,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock, of
which 3,000,000 have been designated Series A Preferred Stock and 471,167 have
been designated Series B Preferred Stock. There are issued and outstanding
3,072,300 shares of the Company's Common Stock, 3,000,000 shares of Series A
Preferred Stock and no shares of Series B Preferred Stock. The holders of record
of the presently issued and outstanding Common Stock and options to purchase
Common Stock immediately prior to the Closing are as set forth on Exhibit E. All
---------
such issued and outstanding shares have been duly authorized and validly issued,
are fully paid and nonassessable, and were issued in compliance with all
applicable state and federal laws concerning the issuance of securities. The
holders of any and all rights, options, warrants or conversion rights to
purchase or acquire from the Company any of its capital stock, along with the
number of shares of capital stock issuable upon exercise of such rights, are set
forth in Exhibit E hereto. Except for such rights, there are no outstanding
---------
rights, options, warrants, conversion rights or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. The Company is
not a party or subject to any agreement or understanding between any persons or
entities, which affects or relates to the voting or giving of written consents
with respect to any securities or by any director of the Company.
2
<PAGE>
3.5 Authorization.
-------------
(a) Corporate Action. All corporate action on the part of the
----------------
Company, its officers, directors and shareholders necessary for the sale and
issuance of the Series B Shares and the Collateral Agreement, the issuance of
the Common Stock issuable upon conversion of the Series B Preferred Stock and
the performance of the Company's obligations hereunder and under the Collateral
Agreement has been taken or will be taken prior to the Closing. The Company has
duly reserved an aggregate of 312,500 shares of Common Stock for issuance upon
conversion of the Series B Shares.
(b) Valid Issuance. The Series B Shares when issued in compliance
--------------
with the provisions of this Agreement, and the shares of Common Stock issued
upon conversion of the Series B Preferred Stock when issued in accordance with
the provisions of the Restated Articles, will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances; provided, however,
that all such shares may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein, and as may be required by
future changes in such laws. The rights, preferences, privileges and
restrictions of the Series B Preferred Stock are as set forth in the Restated
Articles.
(c) No Preemptive Rights. Other than as provided in the Rights
--------------------
Agreement, no person has any right of first refusal or any preemptive rights in
connection with the issuance of the Series B Shares, the issuance of the Common
Stock upon conversion of the Series B Preferred Stock or any future issuances of
securities by the Company.
3.6 Patents, Trademarks, etc. The Company owns and possesses or is
------------------------
licensed under all patents, patent applications, licenses, trademarks, trade
names, brand names, inventions and copyrights employed in the operation of its
business as now conducted and as proposed to be conducted, with no infringement
of or conflict with the rights of others respecting any of the same. The
operation of the Company's business as now conducted or as proposed to be
conducted does not infringe any patent or other proprietary rights of others
respecting any of the same. Except for the agreements listed on Exhibit F
---------
attached hereto, there are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to patents, patent
applications, licenses, trademarks, trade names, brand names, inventions,
proprietary rights and copyrights of any other person or entity. The Company is
not obligated to make any payments by way of royalties, fees or otherwise to any
owner, licensor of, or other claimant to any patent, trademark, trade name,
copyright or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business, or otherwise. The Company has not
received any communications alleging that it has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity, nor is the Company aware of any basis for the
foregoing. Except for those agreements listed on Exhibit F attached hereto,
---------
there are no agreements, understandings, instruments, contracts, judgments,
orders, writs of decrees to which the Company is a party or by which it is bound
which involve indemnification by the Company with respect to infringements of
proprietary rights.
3
<PAGE>
3.7 Compliance with Other Instruments, None Burdensome, etc. The Company
-------------------------------------------------------
is not in violation of any term of its Restated Articles or Bylaws, nor is the
Company in violation of or in default in any material respect under the terms of
any mortgage, indenture, contract, agreement, instrument, judgment or decree,
the violation of which would have a material adverse effect on the Company as a
whole, and to the best of the knowledge of the Company, is not in violation of
any order, statute, rule or regulation applicable to the Company, the violation
of which would have a material adverse effect on the Company. The execution,
delivery and performance of and compliance with this Agreement or the Collateral
Agreement, and the issuance and sale of the Series B Shares will not (a) result
in any such violation, or (b) be in conflict with or constitute a default under
any such term, or (c) result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. To the best knowledge of the Company, there is no
such term which adversely affects, or in the future may materially adversely
affect, the business, prospects, condition, affairs or operations of the Company
or any of its properties or assets.
3.8 Proprietary Agreements; Employees. Each employee of the Company has
---------------------------------
executed an agreement regarding confidentiality and proprietary information, the
form of which has been provided to special counsel to the Purchasers. The
Company is not aware that any of its employees is in violation thereof and will
use its best efforts to prevent any such violation. The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company's business as conducted or
as proposed to be conducted or that would prevent any such employee from
assigning inventions to the Company. Neither the execution nor delivery of this
Agreement or the Collateral Agreement, nor the carrying on of the Company's
business as proposed, will, in the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees is
now obligated. The Company does not believe that it is or will be necessary for
the Company to utilize any inventions of any of its employees made prior to
their employment by the Company.
3.9 Litigation, etc. There is no action, proceeding or investigation
---------------
pending against the Company or its officers, directors or shareholders, or to
the best of the Company's knowledge, against employees or consultants of the
Company (or, to the best of the Company's knowledge, any basis therefor or
threat thereof): (1) which might result, either individually or in the
aggregate, in (a) any material adverse change in the business, prospects,
conditions, affairs or operations of the Company or in any of its properties or
assets, or (b) any material impairment of the right or ability of the Company to
carry on its business as now conducted or as proposed to be conducted, or (c)
any material liability on the part of the Company; or (2) which questions the
validity of this Agreement, the Collateral Agreement or any action taken or to
be taken in connection herewith, including in each case, without limitation,
actions pending or threatened involving the prior employment of any of the
Company's employees, the use in connection with the Company's business of any
information or techniques allegedly proprietary to any of its former employees,
or their obligations under any agreements with prior employers. The Company is
not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any
4
<PAGE>
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company currently intends to initiate.
3.10 Governmental Consent, etc. No consent, approval or
-------------------------
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with: (a) the
valid execution and delivery of this Agreement or the Collateral Agreement; or
(b) the offer, sale or issuance of the Series B Shares, or the issuance of the
shares of Common Stock issuable upon conversion of the Series B Preferred Stock
or (c) the obtaining of the consents, permits and waivers specified in
subsection 5.1(b) hereof, except the filing of the Restated Articles and, if
required, filings or qualifications under the California securities law (the
"Law"), or other applicable blue sky laws, which filings or qualifications, if
required, will have been timely filed or obtained after the sale of the Series B
Shares.
3.11 Offering. In reliance on the representations and warranties of
--------
the Purchasers in Section 4 hereof, the offer, sale and issuance of the Series A
Shares in conformity with the terms of this Agreement will not result in a
violation of the requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act") or the qualification or registration requirements
of the Law or other applicable blue sky laws.
3.12 Taxes. The Company has filed all tax returns that are required
-----
to have been filed with appropriate federal, state, county and local
governmental agencies or instrumentalities, except where the failure to do so
would not have a material adverse effect upon the Company, taken as a whole. The
Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended ("Code"), to be treated as a Subchapter S corporation or a collapsible
corporation pursuant to Section 341(f) or Section 1362(a) of the Code, nor has
it made any other elections pursuant to the Code (other than elections which
relate solely to methods of accounting, depreciation or amortization) which
would have a material effect on the Company, its financial condition, its
business as presently conducted or proposed to be conducted or any of its
properties or material assets. The Company has paid or established reserves for
all income, franchise and other taxes, assessments, governmental charges,
penalties, interest and fines due and payable by them on or before the Closing.
There is no pending dispute with any taxing authority relating to any of such
returns and the Company has no knowledge of any proposed liability for any tax
to be imposed upon the properties or assets of the Company for which there is
not an adequate reserve reflected in the Financial Statements (as defined
below).
3.13 Title. The Company owns its property and assets, including the
-----
properties and assets reflected in the Financial Statements, free and clear of
all liens, mortgages, loans or encumbrances except liens for current taxes, and
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets leased by the Company, the
Company is in compliance with such leases and, to the best of the Company's
knowledge, holds valid leasehold interests free and clear of any liens, claims
or encumbrances.
3.14 Material Contracts and Commitments. All of the contracts,
----------------------------------
mortgages, indentures, agreements, instruments and transactions to which the
Company is a party or by which
5
<PAGE>
it is bound (including purchase orders to the Company or placed by the Company)
which involve obligations of, or payments to, the Company in excess of Twenty-
Five Thousand Dollars ($25,000) and all agreements between the Company and its
officers, directors, consultants and employees are either (i) attached as
exhibits to this Agreement, or (ii) set forth on the list attached hereto as
Exhibit F (the "Contracts"), copies of which have been delivered to special
- ---------
counsel to the Purchasers. All of the Contracts are valid, binding and in full
force and effect in all material respects and enforceable by the Company in
accordance with their respective terms in all material respects, subject to the
effect of applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application relating to or affecting enforcement of creditors'
rights and rules or laws concerning equitable remedies. The Company is not in
material default under any of such Contracts. To the best of the Company's
knowledge, no other party to any of the Contracts is in material default
thereunder. The Company has not engaged in the past three (3) months in any
discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
3.15 Financial Statements. The Company has delivered to the
--------------------
Purchasers (i) its audited balance sheet as of December 31, 1990 and its audited
consolidated income statement and cash flow statement for the period ended
December 31, 1990, and (ii) its unaudited balance sheet as of December 31, 1991
(the "Balance Sheet"), and its unaudited consolidated income statement and cash
flow statement for the twelve (12) month period ended December 31, 1991 (the
above financial statements are hereinafter collectively referred to as the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
relevant period. The Financial Statements accurately set out and describe the
financial condition and operating results of the Company as of the date, and
during the period, indicated therein. Except as set forth in the Financial
Statements, the Company has no liabilities of any nature (matured or unmatured,
fixed or contingent), other than (i) liabilities incurred in the ordinary course
of business subsequent to December 31, 1991, and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in the
Financial Statements, which, individually or in the aggregate, are not material
to the financial condition or operating results of the Company. The Company
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
3.16 Absence of Changes. Since December 31, 1991: (a) the Company
------------------
has not entered into any transaction which was not in the ordinary course of
business, (b) there has been no material adverse change in the condition
(financial or otherwise) of the business, property, assets or liabilities of the
Company other than changes in the ordinary course of its business, none of
which, individually or in the aggregate, has been materially adverse, (c) there
has been no damage to, destruction of or loss of physical property (whether or
not covered by insurance)
6
<PAGE>
materially adversely affecting the assets, prospects, financial condition,
operating results, business or operations of the Company, (d) the Company has
not declared or paid any dividend or made any distribution on its stock, or
redeemed, purchased or otherwise acquired any of its stock, (e) the Company has
not materially changed any compensation arrangement or agreement with any of its
key employees or executive officers, or materially changed the rate of pay of
its employees as a group, (f) the Company has not received notice that there has
been a cancellation of an order for the Company's products or a loss of a
customer of the Company, the cancellation or loss of which would materially
adversely affect the business of the Company, (g) the Company has not changed or
amended any material contract by which the Company or any of its assets are
bound or subject, except as contemplated by this Agreement, (h) there has been
no resignation or termination of employment of any key officer or employee of
the Company and the Company does not know of any impending resignation or
termination of employment of any such officer or employee that if consummated
would have a material adverse effect on the business of the Company, (i) there
has been no labor dispute involving the Company or its employees and none is
pending or, to the best of the Company's knowledge, threatened, (j) there has
been no change, except in the ordinary course of business, in the material
contingent obligations of the Company (nor in any contingent obligation of the
Company regarding any director, shareholder or key employee or officer of the
Company) by way of guaranty, endorsement, indemnity, warranty or otherwise, (k)
there have been no loans made by the Company to any of its employees, officers
or directors other than travel advances and other advances made in the ordinary
course of business, (l) there has been no waiver by the Company of a valuable
right or of a material debt owing to it, (m) there has not been any satisfaction
or discharge of any lien, claim or encumbrance or any payment of any obligation
by the Company, except in the ordinary course of business and which is not
material to the assets, properties, financial condition, operating results or
business of the Company, and (n) to the best of the knowledge of the Company,
there has been no other event or condition of any character pertaining to and
materially adversely affecting the assets or business of the Company.
3.17 Outstanding Indebtedness. Except as disclosed in the Balance
------------------------
Sheet, the Company has no indebtedness for borrowed money which it has directly
or indirectly created, incurred, assumed or guaranteed, or with respect to which
it has otherwise become liable, directly or indirectly. The Company has no
material liability or obligation in excess of $10,000, absolute or contingent,
which is not shown or provided for in the latest Balance Sheet, except
obligations under purchase orders, sales contracts, real property leases,
equipment leases or similar obligations incurred in the ordinary course of
business.
3.18 Registration Rights. Other than as granted pursuant to the
-------------------
Rights Agreement, the Company has not granted or agreed to grant any rights to
register as that term is defined in the Rights Agreement, including piggyback
registration rights, to any person or entity.
3.19 Certain Transactions. The Company is not indebted, directly or
--------------------
indirectly, to any of its officers, directors or shareholders or to their
spouses or children, in any amount whatsoever; and none of said officers,
directors or, to the best of the Company's knowledge, shareholders, or any
member of their immediate families, are indebted to the Company or have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship
(except as a holder of securities
7
<PAGE>
of a corporation whose securities are publicly traded and which is subject to
the reporting requirements of the Securities Exchange Act of 1934, to the extent
of owning not more than two percent (2%) of the issued and outstanding
securities of such corporation). No such officer, director or shareholder, or
any member of their immediate families, is, directly or indirectly, interested
in any material contract with the Company. The Company is not guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
3.20 Corporate Documents; Minute Books. Except for amendments
---------------------------------
necessary to satisfy representations and warranties or conditions contained
herein (the form of which amendments has been approved by the Purchasers), the
Amended and Restated Articles of Incorporation and Bylaws of the Company are in
the form previously provided to special counsel to the Purchasers. The minute
books of the Company contain a complete summary of all meetings of directors and
shareholders since the time of incorporation of the Company.
3.21 Employee Benefit Plans. The Company does not have any "employee
----------------------
benefit plan" as defined in the Employee Retirement Income Security Act of 1974,
as amended.
3.22 Real Property Holding Corporation. The Company is not a "real
---------------------------------
property holding corporation" within the meaning of Section 897(c)(2) of the
United States Internal Revenue Code of 1986, as amended.
3.23 Disclosure. No representation or warranty by the Company in
----------
this Agreement, or in any document or certificate furnished or to be furnished
to the Purchaser pursuant hereto or in connection with the transactions
contemplated hereby, when taken together, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements made herein and therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that with regard to the operating projections which have been delivered to the
Purchaser, the Company represents only that such projections were prepared in
good faith and that the Company reasonably believes there is a reasonable basis
for such projections. The Company has fully provided each Purchaser with all
the information which such Purchaser has requested for deciding whether to
purchase the Series B Preferred Stock.
3.24 Environmental and Safety Laws. To the best of its knowledge,
-----------------------------
the Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.
3.25 Manufacturing and Marketing Rights. Except pursuant to the
----------------------------------
agreements listed on Exhibit F hereto, the Company has not granted rights to
---------
manufacture, produce, assemble, license, market, or sell its products to any
other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market, or sell
its products.
8
<PAGE>
3.26 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, and insurance against other
hazards, risks and liabilities to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated.
3.27 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties are bound by or subject to) any
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the knowledge of the Company, has sought to represent any of
the employees, representatives or agents of the Company. There is no strike or
other labor dispute involving the Company pending, or to the knowledge of the
Company threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. Subject to general principles related to
wrongful termination of employees, the employment of each officer and employee
of the Company is terminable at the will of the Company.
3.28 Section 83(b) Elections. To the best of the Company's
-----------------------
knowledge, all elections and notices required by Section 83(b) of the Internal
Revenue Code and any analogous provisions of applicable state tax laws have been
timely filed by all individuals who have purchased shares of the Company's
Common Stock.
4. Representations and Warranties of Purchaser and Restrictions on
---------------------------------------------------------------
Transfer Imposed by the Securities Act.
- --------------------------------------
4.1 Representations and Warranties by the Purchaser. The Purchaser
-----------------------------------------------
represents and warrants to the Company as follows:
(a) Investment Intent. This Agreement is made with the
-----------------
Purchaser in reliance upon such Purchaser's representation to the Company,
evidenced by Purchaser's execution of this Agreement, that Purchaser is
acquiring the Series B Shares and the Common Stock issuable upon conversion of
Series B Preferred Stock (collectively the "Securities") for investment for such
Purchaser's own account, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act and the Law. Purchaser has the full right, power and
authority to enter into and perform this Agreement and the Rights Agreement, and
this Agreement and the Rights Agreement constitute valid and binding obligations
upon it.
(b) Shares Not Registered. Purchaser understands and
---------------------
acknowledges that the offering of the Series B Shares pursuant to this Agreement
will not be registered under the Securities Act or qualified under the Law on
the grounds that the offering and sale of securities contemplated by this
Agreement are exempt from registration under the Securities Act and exempt from
qualification pursuant to Section 25102(f) of the Law, and that the Company's
9
<PAGE>
reliance upon such exemptions is predicated upon such Purchaser's
representations set forth in this Agreement. The Purchaser acknowledges and
understands that the Securities must be held indefinitely unless the Securities
are subsequently registered under the Securities Act and qualified under the Law
or an exemption from such registration and such qualification is available.
(c) No Transfer. Purchaser covenants that in no event will such
-----------
Purchaser dispose of any of the Securities (other than in conjunction with an
effective registration statement for the Securities under the Act or in
compliance with Rule 144 promulgated under the Act) unless and until (i) such
Purchaser shall have notified the Company of the proposed disposition and shall
have furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (ii) if reasonably requested by the Company, such
Purchaser shall have furnished the Company with an opinion of counsel reasonably
satisfactory in form and substance to the Company to the effect that (x) such
disposition will not require registration under the Securities Act and (y)
appropriate action necessary for compliance with the Securities Act, the Law and
any other applicable state, local or foreign law has been taken. It is agreed
that the Company will not require opinions of counsel for transactions made
pursuant to Rule 144.
(d) Permitted Transfers. Notwithstanding the provisions of subsection
-------------------
(c) above, no registration statement or opinion of counsel shall be necessary
for a transfer by a Purchaser which is a partnership to a partner of such
partnership or a former partner of such partnership who leaves such partnership
after the date hereof, or to the estate of any such partner or former partner or
the transfer by gift, will or intestate succession of any partner to his spouse
or lineal descendants or ancestors, if the transferee agrees in writing to be
bound by the terms of this Agreement to the same extent as if he were an
original Purchaser hereunder.
(e) Knowledge and Experience. Purchaser (i) has such knowledge and
------------------------
experience in financial and business matters as to be capable of evaluating the
merits and risks of such Purchaser's prospective investment in the Securities;
(ii) has the ability to bear the economic risks of such Purchaser's prospective
investment; (iii) has been furnished with and has had access to such information
as such Purchaser has considered necessary to make a determination as to the
purchase of the Securities together with such additional information as is
necessary to verify the accuracy of the information supplied; (iv) has had all
questions which have been asked by such Purchaser satisfactorily answered by the
Company; and (v) has not been offered the Securities by any form of
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any such media.
(f) Not Organized to Purchase. Purchaser has not been organized for
-------------------------
the purpose of purchasing the Securities.
(g) Holding Requirements. Purchaser understands that if the Company
--------------------
does not (i) register its Common Stock with the Securities and Exchange
Commission ("SEC") pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) become subject to Section 15(d) of
the Exchange Act, (iii) supply information pursuant to Rule 15c2-11 thereunder,
or (iv) have a registration statement covering the Securities (or a
10
<PAGE>
filing pursuant to the exemption from registration under Regulation A of the
Securities Act covering the Securities) under the Securities Act in effect when
it desires to sell the Securities, such Purchaser may be required to hold the
Securities for an indeterminate period. Purchaser also understands that any sale
of the Securities that might be made by such Purchaser in reliance upon Rule 144
under the Securities Act may be made only in limited amounts in accordance with
the terms and conditions of that rule.
4.2 Legends. Each certificate representing the Securities may be
-------
endorsed with the following legends:
(a) Federal Legend. THE SECURITIES REPRESENTED BY THIS
--------------
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144, OR
(iii) PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
DISTRIBUTION.
(b) Other Legends. Any other legends required by the Law or
-------------
other applicable state blue sky laws.
The Company need not register a transfer of legended Securities, and may also
instruct its transfer agent not to register the transfer of the Securities,
unless the conditions specified in each of the foregoing legends are satisfied.
4.3 Removal of Legend and Transfer Restrictions. Any legend
-------------------------------------------
endorsed on a certificate pursuant to subsection 4.2(a) and the stop transfer
instructions with respect to such legended Securities shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
Securities if such Securities are registered under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder satisfies the requirements of Rule 144(k) and, where
reasonably deemed necessary by the Company, provides the Company with an opinion
of counsel for such holder of the Securities, reasonably satisfactory to the
Company, to the effect that (i) such holder, meets the requirements of Rule
144(k) or (ii) a public sale, transfer or assignment of such Securities may be
made without registration.
4.4 Rule 144. Purchaser is aware of the adoption of Rule 144 by the
--------
SEC promulgated under the Securities Act, which permits limited public resales
of securities acquired in a nonpublic offering, subject to the satisfaction of
certain conditions. The Purchaser understands that under Rule 144, the
conditions include, among other things: the availability of certain current
public information about the issuer and the resale occurring not less than two
years after the party has purchased and paid for the securities to be sold.
11
<PAGE>
5. Conditions to Closing.
---------------------
5.1 Conditions to Purchasers' Obligations. The obligation of the
-------------------------------------
Purchasers to purchase the Series B Shares at the Closing is subject to the
fulfillment to its satisfaction, on or prior to the Closing Date, of the
following conditions, any of which may be waived in accordance with the
provisions of subsection 7.1 hereof:
(a) Representations and Warranties Correct; Performance of
------------------------------------------------------
Obligations. The representations and warranties made by the Company in Section
- -----------
3 hereof shall be true and correct when made, and shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of said date. The Company's business and assets
shall not have been adversely affected in any material way prior to the Closing
Date. The Company shall have performed in all material respects all obligations
and conditions herein required to be performed or observed by it on or prior to
the Closing Date.
(b) Consents and Waivers. The Company shall have obtained in
--------------------
a timely fashion any and all consents, permits and waivers necessary or
appropriate for consummation of the transactions contemplated by this Agreement.
(c) Filing of the Restated Articles. The Restated Articles
-------------------------------
shall have been filed with the Secretary of State of the State of California.
(d) Rights Agreement. The Company, the Series A Preferred
----------------
Stockholders, the Purchasers, and L. William Krause and Adriaan Ligtenberg shall
have executed an Amended and Restated Rights Agreement in the form attached as
Exhibit C hereto.
- ---------
(e) Compliance Certificate. The Company shall have delivered a
----------------------
Certificate, executed by the President of the Company, dated the Closing Date,
certifying to the fulfillment of the conditions specified in subsections (a),
(b), (c), and (d) of this section 5.1.
(f) Opinion of Counsel. The Purchasers shall have received an
------------------
opinion from Ware & Freidenrich, A Professional Corporation, the Company's
counsel, in substantially the form attached hereto as Exhibit G.
---------
5.2 Conditions to Obligations of the Company. The Company's
----------------------------------------
obligation to sell and issue the Series B Shares at the Closing is subject to
the fulfillment to the satisfaction of the Company on or prior to the Closing
Date of the following conditions, any of which may be waived by the Company:
(a) Representations and Warranties Correct. The representations
--------------------------------------
and warranties made by the Purchasers in Section 4 hereof shall be true and
correct when made, and shall be true and correct on the Closing Date with the
same force and effect as if they had been made on and as of said date.
(b) Conditions Fulfilled. The conditions set forth in
--------------------
subsections (b), (c), and (d) of Section 5.1 shall have been fulfilled.
12
<PAGE>
6. Affirmative Covenants of the Company. The Company hereby covenants
------------------------------------
and agrees as follows:
6.1 Financial Information. Until the first to occur of (i) the date
---------------------
on which the Company is required to file a report with the SEC pursuant to
Section 13(a) of the Exchange Act, by reason of the Company having registered
any of its securities pursuant to Section 12(g) of the Exchange Act or
(ii) quotations for the Common Stock of the Company are reported by the
automated quotations system operated by the National Association of Securities
Dealers, Inc. or by an equivalent quotations system or (iii) shares of the
Common Stock of the Company are listed on a national securities exchange
registered under Section 6 of the Exchange Act, the Company will furnish to each
Purchaser:
(i) so long as such Purchaser or its affiliates own any of the
Shares or Common Stock issued upon conversion of the Shares (as adjusted for
stock dividends, stock splits, recapitalizations and the like), as soon as
practicable after the end of each fiscal year, and in any event within 90 days
thereafter, consolidated balance sheets of the Company and its subsidiaries, if
any, as at the end of such fiscal year, and consolidated statements of
operations and consolidated statements of changes in financial position (or
equivalent cash flow statements if required by the Financial Accounting
Standards Board) of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles, all in
reasonable detail and certified by independent public accountants of recognized
national standing selected by the Company, and
(ii) as soon as practicable after the end of each month and each
quarter (except the last month and last quarter of the fiscal year), and in any
event within 30 and 45 days, respectively, thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such month
or quarter; and consolidated statements of income (or equivalent cash flow
statements if required by the Financial Standards Board), for such month or
quarter and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles (except for required footnotes), all in
reasonable detail and signed, subject to changes resulting from year-end audit
adjustments, by the principal financial officer or chief executive officer of
the Company, and
(iii) as soon as practicable after its adoption or approval by
the Company's Board of Directors, but not later than the commencement of such
fiscal year, an annual plan for each fiscal year which shall include monthly
capital and operating expense budgets, cash flow statements, projected balance
sheets and profit and loss projections for each such month and for the end of
the year, itemized in such detail as the Board of Directors may reasonably
determine.
6.2 Conflicts of Interests. The Company shall use its best efforts
----------------------
to ensure that the Company's employees, during the term of their employment with
the Company, do not engage in activities which would result in a conflict of
interest with the Company. The Company's obligations hereunder include, but are
not limited to, requiring that the Company's employees devote their primary
productive time, ability and attention to the business of the Company (provided,
however, the Company's employees may engage in other professional activity if
such
13
<PAGE>
activity does not materially interfere with their obligations to the Company),
requiring that the Company's employees enter into agreements regarding
proprietary information and confidentiality and preventing the Company's
employees from engaging or participating in any business that is in competition
with the business of the Company.
6.3 Key-Man Insurance. The Company shall obtain within thirty (30)
-----------------
days of the Closing and maintain in force, until canceled or modified with the
written consent of Purchasers holding more than fifty percent (50%) of the
Shares or their transferees, insurance policies on the lives of L. William
Krause and Adriaan Ligtenberg, in the amount of $1,000,000 and $1,000,000,
respectively, naming the Company as holder and beneficiary.
6.4 Proprietary Agreements. The Company will use its best efforts
----------------------
to prevent any employee from violating the confidentiality and proprietary
information agreement entered into between the Company and each of its
employees.
6.5 Future Stock Issuances. The Company agrees that after the
----------------------
Closing it will not issue more than 1,117,200 shares of Common Stock (or grant
any options, warrants or other rights to purchase the same) to employees,
officers, directors and consultants without unanimous vote of the Company's
Board of Directors. Moreover, except with respect to the employees other than
Messrs. Krause and Ligtenberg (the "Current Employees") of the Company as of the
date of Closing, the Company will not issue any shares of Common Stock (or grant
any options, warrants or other rights to purchase the same) to any employee,
officer, director or consultant except pursuant to agreements which provide for
vesting over a period of at least forty-eighty (48) months (with the initial
vesting date to occur after twelve (12) months) and a right of first refusal in
favor of the Company in the event of any proposed transfer unless such issuance
or grant is approved by unanimous vote of the Company's Board of Directors. The
vesting for Current Employees shall commence as of the date of employment by the
Company and shall continue ratably over a forty-eight (48) month period (without
any initial vesting date).
6.6 Inspection. The Company shall permit each Purchaser, at such
----------
Purchaser's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Purchaser; provided, however, that the Company shall not be obligated
pursuant to this Section 6.6 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
7. Miscellaneous.
-------------
7.1 Waivers and Amendments. With the written consent of the record
----------------------
holders of at least two-thirds of the Series B Shares, the rights of the holders
of the Series B Shares under this Agreement may be waived or amended (either
generally or in a particular instance); provided, however, that no such waiver
or amendment shall reduce the aforesaid proportion of Series B Shares, the
holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the record holders of all of the Series B
Shares. Upon the effectuation of each such waiver or amendment, the Company
shall promptly give written notice thereof to the record holders of the Series B
Shares who have not previously consented thereto in writing.
14
<PAGE>
Except to the extent provided in this subsection 7.1, this Agreement or any
provision hereof may be amended, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of the
amendment, waiver, discharge or termination is sought.
7.2 Governing Law. This Agreement shall be governed in all
-------------
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
7.3 Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive the Closing of the transactions
contemplated hereby, notwithstanding any investigation made by the Purchasers.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder as of the date of such
certificate or instrument.
7.4 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
7.5 Entire Agreement. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof and
they supersede, merge and render void every other prior written and/or oral
understanding or agreement among or between the parties hereto.
7.6 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be delivered personally,
mailed by first class mail, postage prepaid, or delivered by courier or
overnight delivery, addressed (a) if to a Purchaser, at such Purchaser's address
set forth in the Schedule of Purchasers, or at such other address as such
Purchaser shall have furnished to the Company in writing or (b) if to the
Company, at its address set forth at the beginning of this Agreement, or at such
other address as the Company shall have furnished to the Purchasers in writing.
Notices that are mailed shall be deemed received five (5) days after deposit in
the United States mail.
7.7 Severability. In case any provision of this Agreement shall be
------------
found by a court of law to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby.
7.8 Finder's Fees and Other Fees.
----------------------------
(a) The Company (i) represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated by
this Agreement and, (ii) hereby agrees to indemnify and to hold Purchasers
harmless from and against any liability for commission or compensation in the
nature of a finder's fee to any broker or other person or firm (and the costs
and expenses of defending against such liability or asserted liability) for
which the Company, or any of its employees or representatives, is responsible.
15
<PAGE>
(b) Each Purchaser (i) represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated by
this Agreement and (ii) hereby agrees to indemnify and to hold the Company
harmless from and against any liability for any commission or compensation in
the nature of a finder's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which Purchaser, or any of its employees or representatives, are
responsible.
7.9 Expenses. The Company and the Purchasers shall each bear their
--------
own expenses and legal fees in connection with the consummation of this
transaction.
7.10 Titles and Subtitles. The titles of the sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
16
<PAGE>
7.12 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to the Company or to any holder of any
securities issued or to be issued hereunder shall impair any such right, power
or remedy of the Company or such holder, nor shall it be construed to be a
waiver of any breach or default under this Agreement, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any delay or omission to exercise any right, power or remedy or any waiver
of any single breach or default be deemed a waiver of any other right, power or
remedy or breach or default theretofore or thereafter occurring. All remedies,
either under this Agreement, or by law otherwise afforded to the Company or any
holder, shall be cumulative and not alternative.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
STORM TECHNOLOGY, INC.
By:
------------------------------
L. William Krause
17
<PAGE>
SIGNATURE PAGE TO SERIES B PREFERRED
STOCK PURCHASE AGREEMENT DATED AS OF JANUARY 30, 1992
PURCHASER:
By:
--------------------------
Title:
-----------------------
18
<PAGE>
EXHIBIT 10.8
STORM TECHNOLOGY, INC.
AGREEMENT CONCERNING PURCHASE OF
SERIES C PREFERRED STOCK
THIS AGREEMENT is made as of May 19, 1994, by and among STORM
TECHNOLOGY, INC., a California corporation (the "Company") and each of the
persons named in the Schedule of Purchasers attached hereto as Exhibit A (herein
---------
individually a "Purchaser" and collectively "Purchasers"). The parties hereby
agree as follows:
1. Authorization and Sale of the Shares.
------------------------------------
1.1 Authorization; Filing of Restated Articles of Incorporation. The
-----------------------------------------------------------
Company has authorized the issuance and sale pursuant to the terms and
conditions hereof of up to 3,272,873 shares of its Series C Preferred Stock, par
value $.01 per share (the "Series C Shares"), having the rights, restrictions,
privileges and preferences as set forth in the form of the Third Amended and
Restated Articles of Incorporation of the Company (the "Restated Articles")
attached hereto as Exhibit B. The Company shall adopt and file with the
---------
Secretary of State of California on or before the Closing (as defined below) the
Restated Articles.
1.2 Sale and Issuance of the Series C Shares. Subject to the terms and
----------------------------------------
conditions hereof, the Company will issue and sell to the Purchasers and the
Purchasers will purchase the number of shares of the Series C Shares specified
opposite the Purchaser's names on the Schedule of Purchasers, at a price of
$1.20 per share.
2. Closing Dates; Delivery.
-----------------------
2.1 Closing Date.
------------
(a) Purchase and Sale. The closing of the purchase and sale of an
-----------------
aggregate of 3,272,873 of the Series C Shares shall be held at the offices of
Gray Cary Ware & Freidenrich, A Professional Corporation at 400 Hamilton Avenue,
Palo Alto, California 94301 at 11:00 a.m. on May 19, 1994, or at such other time
and place as the Company and the Purchasers may agree in writing.
(b) Closing. The closing referred to in subsection (a) above is
-------
hereinafter referred to as the "Closing" and the date of the Closing is
hereinafter referred to as the "Closing Date".
2.2 Delivery. Subject to the terms of this Agreement, at the Closing the
--------
Company will deliver to the Purchasers the certificates representing the Series
C Shares to be purchased by the Purchasers from the Company, against payment of
the purchase price therefor by delivery of a check or checks, payable to the
order of the Company, or by wire transfer.
1
<PAGE>
3. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Purchasers that except as set forth on a Schedule
of Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to
---------
be representations and warranties as if made hereunder:
3.1 Organization and Standing; Articles and By-Laws. The Company is a
-----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its businesses as now conducted and as proposed to be conducted.
The Company is qualified or licensed to do business as a foreign corporation in
all jurisdictions where such qualification or licensing is required, except
where the failure to so qualify would not have a material adverse effect upon
the Company. Copies of the Company's Amended and Restated Articles of
Incorporation, Bylaws, minutes and consents of shareholders and of the Board of
Directors are available for inspection at the Company's offices and have been
previously provided to special counsel for the Purchasers.
3.2 Corporate Power. The Company has now, or will have at the Closing
---------------
Date, all requisite corporate power necessary for the authorization, execution
and delivery of this Agreement, and the Second Amended and Restated Rights
Agreement in the form attached hereto as Exhibit D (the "Rights Agreement") to
---------
sell and issue the Series C Shares and to issue the Common Stock upon conversion
of the Series C Shares. This Agreement and the Rights Agreement are valid and
binding obligations of the Company enforceable in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency, moratorium, and
other laws of general application affecting the enforcement of creditors'
rights.
3.3 Subsidiaries. The Company does not control, directly or indirectly,
------------
any other corporation, association or business entity.
3.4 Capitalization. The authorized capital stock of the Company is
--------------
20,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock, of
which 3,000,000 shares have been designated Series A Preferred Stock, 491,709
shares have been designated Series B Preferred Stock and 3,272,873 shares have
been designated Series C Preferred Stock. There are issued and outstanding
3,549,613 shares of the Company's Common Stock, 3,000,000 shares of Series A
Preferred Stock, 479,167 Shares of Series B Preferred Stock and no shares of
Series C Preferred Stock. The holders of record of the presently issued and
outstanding Common Stock and options to purchase Common Stock immediately prior
to the Closing are as set forth on Exhibit E. All such issued and outstanding
---------
shares have been duly authorized and validly issued, are fully paid and
nonassessable, and were issued in compliance with all applicable state and
federal laws concerning the issuance of securities. The holders of any and all
rights, options, warrants or conversion rights to purchase or acquire from the
Company any of its capital stock, along with the number of shares of capital
stock issuable upon exercise of such rights, are set forth in Exhibit E hereto.
---------
Except for such rights, there are no outstanding rights, options, warrants,
conversion rights or agreements for the purchase or acquisition from the Company
of any shares of its capital stock. The Company is not a party or subject to any
agreement or understanding between any persons or entities, which affects
or relates to the voting or giving of written consents with respect to any
securities or by any director of the Company.
2
<PAGE>
3.5 Authorization.
-------------
(a) Corporate Action. All corporate action on the part of the Company, its
----------------
officers, directors and shareholders necessary for the sale and issuance of the
Series C Shares, the issuance of the Common Stock issuable upon conversion of
the Series C Shares and the performance of the Company's obligations hereunder
and under the Rights Agreement has been taken or will be taken prior to the
Closing. The Company has duly reserved an aggregate of 3,272,873 shares of
Common Stock for issuance upon conversion of the Series C Shares.
(b) Valid Issuance. The Series C Shares when issued in compliance with the
--------------
provisions of this Agreement, and the shares of Common Stock issued upon
conversion of the Series C Preferred Stock when issued in accordance with the
provisions of the Restated Articles, will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances; provided, however,
that all such shares may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein, and as may be required by
future changes in such laws. The rights, preferences, privileges and
restrictions of the Series C Preferred Stock are as set forth in the Restated
Articles.
(c) No Preemptive Rights. Other than as provided in the Rights Agreement,
--------------------
no person has any right of first refusal or any preemptive rights in connection
with the issuance of the Series C Shares, the issuance of the Common Stock upon
conversion of the Series C Preferred Stock or any future issuances of securities
by the Company.
3.6 Patents, Trademarks, etc. The Company owns and possesses or is
------------------------
licensed under all patents, patent applications, licenses, trademarks, trade
names, brand names, inventions and copyrights employed in the operation of its
business as now conducted and as proposed to be conducted, with no infringement
of or conflict with the rights of others respecting any of the same. The
operation of the Company's business as now conducted or as proposed to be
conducted does not infringe any patent or other proprietary rights of others
respecting any of the same. Except for the agreements listed on Exhibit F
---------
attached hereto, there are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to patents, patent
applications, licenses, trademarks, trade names, brand names, inventions,
proprietary rights and copyrights of any other person or entity. The Company is
not obligated to make any payments by way of royalties, fees or otherwise to any
owner, licensor of, or other claimant to any patent, trademark, trade name,
copyright or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business, or otherwise. The Company has not
received any communications alleging that it has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity, nor is the Company aware of any basis for the
foregoing. Except for those agreements listed on Exhibit F attached hereto,
---------
there are no agreements, understandings, instruments, contracts, judgments,
orders, writs of decrees to which the Company is a party or by which it is bound
which involve indemnification by the Company with respect to infringements of
proprietary rights.
3
<PAGE>
3.7 Compliance with Other Instruments, None Burdensome, etc. The Company
-------------------------------------------------------
is not in violation of any term of its Restated Articles or Bylaws, nor is the
Company in violation of or in default in any material respect under the terms of
any mortgage, indenture, contract, agreement, instrument, judgment or decree,
the violation of which would have a material adverse effect on the Company as a
whole, and to the best of the knowledge of the Company, is not in violation of
any order, statute, rule or regulation applicable to the Company, the violation
of which would have a material adverse effect on the Company. The execution,
delivery and performance of and compliance with this Agreement or the Rights
Agreement, and the issuance and sale of the Series C Shares will not (a) result
in any such violation, or (b) be in conflict with or constitute a default under
any such term, or (c) result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. To the best knowledge of the Company, there is no
such term which adversely affects, or in the future may materially adversely
affect, the business, prospects, condition, affairs or operations of the Company
or any of its properties or assets.
3.8 Proprietary Agreements; Employees. Each employee of the Company has
---------------------------------
executed an agreement regarding confidentiality and proprietary information, the
form of which has been provided to special counsel to the Purchasers. The
Company is not aware that any of its employees is in violation thereof and will
use its best efforts to prevent any such violation. The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company's business as conducted or
as proposed to be conducted or that would prevent any such employee from
assigning inventions to the Company. Neither the execution nor delivery of this
Agreement or the Rights Agreement, nor the carrying on of the Company's business
as proposed, will, in the Company's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe that it is or will be necessary for the
Company to utilize any inventions of any of its employees made prior to their
employment by the Company.
3.9 Litigation, etc. There is no action, proceeding or investigation
---------------
pending against the Company or its officers, directors or shareholders, or to
the best of the Company's knowledge, against employees or consultants of the
Company (or, to the best of the Company's knowledge, any basis therefor or
threat thereof): (1) which might result, either individually or in the
aggregate, in (a) any material adverse change in the business, prospects,
conditions, affairs or operations of the Company or in any of its properties or
assets, or (b) any material impairment of the right or ability of the Company to
carry on its business as now conducted or as proposed to be conducted, or (c)
any material liability on the part of the Company; or (2) which questions the
validity of this Agreement, the Rights Agreement or any action taken or to be
taken in connection herewith, including in each case, without limitation,
actions pending or threatened involving the prior employment of any of the
Company's employees, the use in connection with the Company's business of any
information or techniques allegedly proprietary to any of its former employees,
or their obligations under any agreements with prior employers. The Company is
not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or
4
<PAGE>
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company currently
intends to initiate.
3.10 Governmental Consent, etc. No consent, approval or authorization of
-------------------------
or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with: (a) the valid execution and
delivery of this Agreement or the Rights Agreement; or (b) the offer, sale or
issuance of the Series C Shares, or the issuance of the shares of Common Stock
issuable upon conversion of the Series C Shares or (c) the obtaining of the
consents, permits and waivers specified in subsection 5.1(b) hereof, except the
filing of the Restated Articles and, if required, filings or qualifications
under the California securities law (the "Law"), or other applicable blue sky
laws, which filings or qualifications, if required, will have been timely filed
or obtained after the sale of the Series C Shares.
3.11 Offering. In reliance on the representations and warranties of the
--------
Purchasers in Section 4 hereof, the offer, sale and issuance of the Series C
Shares in conformity with the terms of this Agreement will not result in a
violation of the requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act") or the qualification or registration requirements
of the Law or other applicable blue sky laws.
3.12 Taxes. The Company has filed all tax returns that are required to
-----
have been filed with appropriate federal, state, county and local governmental
agencies or instrumentalities, except where the failure to do so would not have
a material adverse effect upon the Company, taken as a whole. The Company has
not elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"),
to be treated as a Subchapter S corporation or a collapsible corporation
pursuant to Section 341(f) or Section 1362(a) of the Code, nor has it made any
other elections pursuant to the Code (other than elections which relate solely
to methods of accounting, depreciation or amortization) which would have a
material effect on the Company, its financial condition, its business as
presently conducted or proposed to be conducted or any of its properties or
material assets. The Company has paid or established reserves for all income,
franchise and other taxes, assessments, governmental charges, penalties,
interest and fines due and payable by them on or before the Closing. There is
no pending dispute with any taxing authority relating to any of such returns and
the Company has no knowledge of any proposed liability for any tax to be imposed
upon the properties or assets of the Company for which there is not an adequate
reserve reflected in the Financial Statements (as defined below).
3.13 Title. The Company owns its property and assets, including the
-----
properties and assets reflected in the Financial Statements, free and clear of
all liens, mortgages, loans or encumbrances except liens for current taxes, and
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets leased by the Company, the
Company is in compliance with such leases and, to the best of the Company's
knowledge, holds valid leasehold interests free and clear of any liens, claims
or encumbrances.
3.14 Material Contracts and Commitments. All of the contracts, mortgages,
----------------------------------
indentures, agreements, instruments and transactions to which the Company is a
party or by which it is bound (including purchase orders to the Company or
placed by the Company) which involve
5
<PAGE>
obligations of, or payments to, the Company in excess of Twenty-Five Thousand
Dollars ($25,000) and all agreements between the Company and its officers,
directors, consultants and employees are either (i) attached as exhibits to this
Agreement, or (ii) set forth on the list attached hereto as Exhibit F (the
---------
"Contracts"), copies of which have been delivered to special counsel to the
Purchasers. All of the Contracts are valid, binding and in full force and effect
in all material respects and enforceable by the Company in accordance with their
respective terms in all material respects, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and rules
or laws concerning equitable remedies. The Company is not in material default
under any of such Contracts. To the best of the Company's knowledge, no other
party to any of the Contracts is in material default thereunder. The Company has
not engaged in the past three (3) months in any discussion (i) with any
representative of any corporation or corporations regarding the consolidation or
merger of the Company with or into any such corporation or corporations, (ii)
with any corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or substantially
all of the assets of the Company of a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of, or (iii) regarding any other form of acquisition,
liquidation, dissolution or winding up of the Company.
3.15 Financial Statements. The Company has delivered to the Purchasers
--------------------
(i) its audited balance sheet as of December 31, 1993 and its audited income
statement and cash flow statement for the twelve month period ended December 31,
1993, and (ii) its unaudited balance sheet as of April 30, 1994 (the "Balance
Sheet"), and its unaudited income statement and cash flow statement for the four
(4) month period ended April 30, 1994 (the above financial statements are
hereinafter collectively referred to as the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the relevant period. The Financial
Statements accurately set out and describe the financial condition and operating
results of the Company as of the date, and during the period, indicated therein.
Except as set forth in the Financial Statements, the Company has no liabilities
of any nature (matured or unmatured, fixed or contingent), other than (i)
liabilities incurred in the ordinary course of business subsequent to April 30,
1994, and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company. The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
generally accepted accounting principles.
3.16 Absence of Changes. Since April 30, 1994: (a) the Company has not
------------------
entered into any transaction which was not in the ordinary course of business,
(b) there has been no material adverse change in the condition (financial or
otherwise) of the business, property, assets or liabilities of the Company other
than changes in the ordinary course of its business, none of which, individually
or in the aggregate, has been materially adverse, (c) there has been no damage
to, destruction of or loss of physical property (whether or not covered by
insurance) materially adversely affecting the assets, prospects, financial
condition, operating results, business or operations of the Company, (d) the
Company has not declared or paid any dividend or made
6
<PAGE>
any distribution on its stock, or redeemed, purchased or otherwise acquired any
of its stock, (e) the Company has not materially changed any compensation
arrangement or agreement with any of its key employees or executive officers, or
materially changed the rate of pay of its employees as a group, (f) the Company
has not received notice that there has been a cancellation of an order for the
Company's products or a loss of a customer of the Company, the cancellation or
loss of which would materially adversely affect the business of the Company, (g)
the Company has not changed or amended any material contract by which the
Company or any of its assets are bound or subject, except as contemplated by
this Agreement, (h) there has been no resignation or termination of employment
of any key officer or employee of the Company and the Company does not know of
any impending resignation or termination of employment of any such officer or
employee that if consummated would have a material adverse effect on the
business of the Company, (i) there has been no labor dispute involving the
Company or its employees and none is pending or, to the best of the Company's
knowledge, threatened, (j) there has been no change, except in the ordinary
course of business, in the material contingent obligations of the Company (nor
in any contingent obligation of the Company regarding any director, shareholder
or key employee or officer of the Company) by way of guaranty, endorsement,
indemnity, warranty or otherwise, (k) there have been no loans made by the
Company to any of its employees, officers or directors other than travel
advances and other advances made in the ordinary course of business, (l) there
has been no waiver by the Company of a valuable right or of a material debt
owing to it, (m) there has not been any satisfaction or discharge of any lien,
claims or encumbrance or any payment of any obligation by the Company, except in
the ordinary course of business and which is not material to the assets,
properties, financial condition, operating results or business of the Company,
and (n) to the best of the knowledge of the Company, there has been no other
event or condition of any character pertaining to and materially adversely
affecting the assets or business of the Company.
3.17 Outstanding Indebtedness. Except as disclosed in the Balance
------------------------
Sheet, the Company has no indebtedness for borrowed money which it has directly
or indirectly created, incurred, assumed or guaranteed, or with respect to which
it has otherwise become liable, directly or indirectly. The Company has no
material liability or obligation in excess of $10,000, absolute or contingent,
which is not shown or provided for in the latest Balance Sheet, except
obligations under purchase orders, sales contracts, real property leases,
equipment leases or similar obligations incurred in the ordinary course of
business.
3.18 Registration Rights. Other than as granted pursuant to the
-------------------
Rights Agreement, the Company has not granted or agreed to grant any rights to
register as that term is defined in the Rights Agreement, including piggyback
registration rights, to any person or entity.
3.19 Certain Transactions. The Company is not indebted, directly or
--------------------
indirectly, to any of its officers, directors or shareholders or to their
spouses or children, in any amount whatsoever; and none of said officers,
directors or, to the best of the Company's knowledge, shareholders, or any
member of their immediate families, are indebted to the Company or have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship
(except as a holder of securities of a corporation whose securities are publicly
traded and which is subject to the reporting requirements of the Securities
Exchange Act of 1934, to the extent of owning not more than two
7
<PAGE>
percent (2%) of the issued and outstanding securities of such corporation). No
such officer, director or shareholder, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company. The Company is not guarantor or indemnitor of any indebtedness of
any other person, firm or corporation .
3.20 Corporate Documents; Minute Books. Except for amendments
---------------------------------
necessary to satisfy representations and warranties or conditions contained
herein (the form of which amendments has been approved by the Purchasers), the
Amended and Restated Articles of Incorporation and Bylaws of the Company are in
the form previously provided to special counsel to the Purchasers. The minute
books of the Company previously provided to special counsel to the Purchasers
contain a complete summary of all meetings of directors and shareholders since
the time of incorporation of the Company.
3.21 Employee Benefit Plans. The Company does not have any
----------------------
"employee benefit plan" as defined in the Employee Retirement Income Security
Act of 1974, as amended.
3.22 Real Property Holding Corporation. The Company is not a "real
---------------------------------
property holding corporation" within the meaning of Section 897(c)(2) of the
United States Internal Revenue Code of 1986, as amended.
3.23 Disclosure. No representation or warranty by the Company in
----------
this Agreement, or in any document or certificate furnished or to be furnished
to the Purchaser pursuant hereto or in connection with the transactions
contemplated hereby, when taken together, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements made herein and therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that with regard to the operating projections which have been delivered to the
Purchaser, the Company represents only that such projections were prepared in
good faith and that the Company reasonably believes there is a reasonable basis
for such projections. The Company has fully provided each Purchaser with all the
information which such Purchaser has requested for deciding whether to purchase
the Series C Preferred Stock.
3.24 Environmental and Safety Laws. To the best of its knowledge,
-----------------------------
the Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.
3.25 Manufacturing and Marketing Rights. Except pursuant to the
----------------------------------
agreements listed on Exhibit F hereto, the Company has not granted rights to
---------
manufacture, produce, assemble, license, market, or sell its products to any
other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market, or sell
its products.
3.26 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, and insurance against other
hazards, risks and
8
<PAGE>
liabilities to persons and property to the extent and in the manner customary
for companies in similar businesses similarly situated.
3.27 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties are bound by or subject to) any
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the knowledge of the Company, has sought to represent any of
the employees, representatives or agents of the Company. There is no strike or
other labor dispute involving the Company pending, or to the knowledge of the
Company threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. Subject to general principles related to
wrongful termination of employees, the employment of each officer and employee
of the Company is terminable at the will of the Company.
3.28 Section 83(b) Elections. To the best of the Company's
-----------------------
knowledge, all elections and notices required by Section 83(b) of the Internal
Revenue Code and any analogous provisions of applicable state tax laws have been
timely filed by all individuals who have purchased shares of the Company's
Common Stock.
4. Representations and Warranties of Purchaser and Restrictions on
---------------------------------------------------------------
Transfer Imposed by the Securities Act.
- --------------------------------------
4.1 Representations and Warranties by the Purchaser. The Purchaser
-----------------------------------------------
represents and warrants to the Company as follows:
(a) Investment Intent. This Agreement is made with the Purchaser in
-----------------
reliance upon such Purchaser's representation to the Company, evidenced by
Purchaser's execution of this Agreement, that Purchaser is acquiring the Series
C Shares and the Common Stock issuable upon conversion of Series C Preferred
Stock (collectively the "Securities") for investment for such Purchaser's own
account, for investment and not with a view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act and the Law. Purchaser has the full right, power and authority
to enter into and perform this Agreement and the Rights Agreement, and this
Agreement and the Rights Agreement constitute valid and binding obligations upon
it.
(b) Shares Not Registered. Purchaser understands and acknowledges
---------------------
that the offering of the Series C Shares pursuant to this Agreement will not be
registered under the Securities Act or qualified under the Law on the grounds
that the offering and sale of securities contemplated by this Agreement are
exempt from registration under the Securities Act and exempt from qualification
pursuant to Section 25102(f) of the Law, and that the Company's reliance upon
such exemptions is predicated upon such Purchaser's representations set forth in
this Agreement. The Purchaser acknowledges and understands that the Securities
must be held
9
<PAGE>
indefinitely unless the Securities are subsequently registered under the
Securities Act and qualified under the Law or an exemption from such
registration and such qualification is available.
(c) No Transfer. Purchaser covenants that in no event will such
-----------
Purchaser dispose of any of the Securities (other than in conjunction with an
effective registration statement for the Securities under the Act or in
compliance with Rule 144 promulgated under the Act) unless and until (i) such
Purchaser shall have notified the Company of the proposed disposition and shall
have furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (ii) if reasonably requested by the Company, such
Purchaser shall have furnished the Company with an opinion of counsel reasonably
satisfactory in form and substance to the Company to the effect that (x) such
disposition will not require registration under the Securities Act and (y)
appropriate action necessary for compliance with the Securities Act, the Law and
any other applicable state, local or foreign law has been taken. It is agreed
that the Company will not require opinions of counsel for transactions made
pursuant to Rule 144.
(d) Permitted Transfers. Notwithstanding the provisions of subsection
-------------------
(c) above, no registration statement or opinion of counsel shall be
necessary for a transfer by a Purchaser which is a partnership to a partner of
such partnership or a former partner of such partnership who leaves such
partnership after the date hereof, or to the estate of any such partner or
former partner or the transfer by gift, will or intestate succession of any
partner to his spouse or lineal descendants or ancestors, if the transferee
agrees in writing to be bound by the terms of this Agreement to the same extent
as if he were an original Purchaser hereunder.
(e) Knowledge and Experience. Purchaser (i) has such knowledge and
------------------------
experience in financial and business matters as to be capable of evaluating the
merits and risks of such Purchaser's prospective investment in the Securities;
(ii) has the ability to bear the economic risks of such Purchaser's prospective
investment; (iii) has been furnished with and has had access to such information
as such Purchaser has considered necessary to make a determination as to the
purchase of the Securities together with such additional information as is
necessary to verify the accuracy of the information supplied; (iv) has had all
questions which have been asked by such Purchaser satisfactorily answered by the
Company; and (v) has not been offered the Securities by any form of
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any such media.
(f) Not Organized to Purchase. Purchaser has not been organized for
-------------------------
the purpose of purchasing the Securities.
(g) Holding Requirements. Purchaser understands that if the Company
--------------------
does not (i) register its Common Stock with the Securities and Exchange
Commission ("SEC") pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) become subject to Section 15(d) of
the Exchange Act, (iii) supply information pursuant to Rule 15c2-11 thereunder,
or (iv) have a registration statement covering the Securities (or a filing
pursuant to the exemption from registration under Regulation A of the Securities
Act covering the Securities) under the Securities Act in effect when it desires
to sell the Securities,
10
<PAGE>
such Purchaser may be required to hold the Securities for an indeterminate
period. Purchaser also understands that any sale of the Securities that might be
made by such Purchaser in reliance upon Rule 144 under the Securities Act may be
made only in limited amounts in accordance with the terms and conditions of that
rule.
4.2 Legends. Each certificate representing the Securities may be
-------
endorsed with the following legends:
(a) Federal Legend. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
--------------
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER
THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144, OR (iii)
PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
DISTRIBUTION.
(b) Other Legends. Any other legends required by the Law or other
-------------
applicable state blue sky laws.
The Company need not register a transfer of legended Securities, and may also
instruct its transfer agent not to register the transfer of the Securities,
unless the conditions specified in each of the foregoing legends are satisfied.
4.3 Removal of Legend and Transfer Restrictions. Any legend
-------------------------------------------
endorsed on a certificate pursuant to subsection 4.2(a) and the stop transfer
instructions with respect to such legended Securities shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
Securities if such Securities are registered under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder satisfies the requirements of Rule 144(k) and, where
reasonably deemed necessary by the Company, provides the Company with an opinion
of counsel for such holder of the Securities, reasonably satisfactory to the
Company, to the effect that (i) such holder, meets the requirements of Rule
144(k) or (ii) a public sale, transfer or assignment of such Securities may be
made without registration.
4.4 Rule 144. Purchaser is aware of the adoption of Rule 144 by
--------
the SEC promulgated under the Securities Act, which permits limited public
resales of securities acquired in a nonpublic offering, subject to the
satisfaction of certain conditions. The Purchaser understands that under Rule
144, the conditions include, among other things: the availability of certain
current public information about the issuer and the resale occurring not less
than two years after the party has purchased and paid for the securities to be
sold.
11
<PAGE>
5. Conditions to Closing.
---------------------
5.1 Conditions to Purchasers' Obligations. The obligation of the
-------------------------------------
Purchasers to purchase the Series C Shares at the Closing is subject to the
fulfillment to its satisfaction, on or prior to the Closing Date, of the
following conditions, any of which may be waived in accordance with the
provisions of subsection 7.1 hereof:
(a) Representations and Warranties Correct; Performance of
--------------------------------------- --------------
Obligations. The representations and warranties made by the Company in Section
- -----------
3 hereof shall be true and correct when made, and shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of said date. The Company's business and assets
shall not have been adversely affected in any material way prior to the Closing
Date. The Company shall have performed in all material respects all obligations
and conditions herein required to be performed or observed by it on or prior to
the Closing Date.
(b) Consents and Waivers. The Company shall have obtained in a timely
--------------------
fashion any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement.
(c) Filing of the Restated Articles. The Third Amended and Restated
-------------------------------
Articles shall have been filed with the Secretary of State of the State of
California.
(d) Rights Agreement. The Company, the Series A and Series B
----------------
Preferred Stockholders, the Purchasers, and L. William Krause and Adriaan
Ligtenberg shall have executed the Rights Agreement in the form attached as
Exhibit D hereto.
- ---------
(e) Compliance Certificate. The Company shall have delivered a
----------------------
Certificate, executed by the President of the Company, dated the Closing Date,
certifying to the fulfillment of the conditions specified in subsections (a),
(b), (c), and (d) of this section 5.1.
(f) Opinion of Counsel. The Purchasers shall have received an opinion
------------------
from Gray Cary Ware & Freidenrich, A Professional Corporation, the Company's
counsel, in substantially the form attached hereto as Exhibit G.
---------
5.2 Conditions to Obligations of the Company. The Company's
----------------------------------------
obligation to sell and issue the Series C Shares at the Closing is subject to
the fulfillment to the satisfaction of the Company on or prior to the Closing
Date of the following conditions, any of which may be waived by the Company:
(a) Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by the Purchasers in Section 4 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date with the same force
and effect as if they had been made on and as of said date.
(b) Conditions Fulfilled. The conditions set forth in subsections
--------------------
(b), (c), and (d) of Section 5.1 shall have been fulfilled.
12
<PAGE>
6. Affirmative Covenants of the Company. The Company hereby covenants and
------------------------------------
agrees as follows:
6.1 Financial Information. Until the first to occur of (i) the
---------------------
date on which the Company is required to file a report with the SEC pursuant to
Section 13(a) of the Exchange Act, by reason of the Company having registered
any of its securities pursuant to Section 12(g) of the Exchange Act or (ii)
quotations for the Common Stock of the Company are reported by the automated
quotations system operated by the National Association of Securities Dealers,
Inc. or by an equivalent quotations system or (iii) shares of the Common Stock
of the Company are listed on a national securities exchange registered under
Section 6 of the Exchange Act, the Company will furnish to each Purchaser, so
long as such Purchaser or its affiliates own any of the Shares or Common Stock
issued upon conversion of the Shares (as adjusted for stock dividends, stock
splits, recapitalizations and the like):
(i) as soon as practicable after the end of each fiscal year, and in
any event within 90 days thereafter, consolidated balance sheets of the Company
and its subsidiaries, if any, as at the end of such fiscal year, and
consolidated statements of operations and consolidated statements of changes in
financial position (or equivalent cash flow statements if required by the
Financial Accounting Standards Board) of the Company and its subsidiaries, if
any, for such year, prepared in accordance with generally accepted accounting
principles, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company, and
(ii) as soon as practicable after the end of each month and each
quarter (except the last month and last quarter of the fiscal year), and in any
event within 30 and 45 days, respectively, thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such month
or quarter; and consolidated statements of income (or equivalent cash flow
statements if required by the Financial Standards Board), for such month or
quarter and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles (except for required footnotes), all in
reasonable detail and signed, subject to changes resulting from year-end audit
adjustments, by the principal financial officer or chief executive officer of
the Company, and
(iii) as soon as practicable after its adoption or approval
by the Company's Board of Directors, but not later than the commencement of such
fiscal year, an annual plan for each fiscal year which shall include monthly
capital and operating expense budgets, cash flow statements, projected balance
sheets and profit and loss projections for each such month and for the end of
the year, itemized in such detail as the Board of Directors may reasonably
determine.
6.2 Conflicts of Interests. The Company shall use its best efforts
----------------------
to ensure that the Company's employees, during the term of their employment with
the Company, do not engage in activities which would result in a conflict of
interest with the Company. The Company's obligations hereunder include, but are
not limited to, requiring that the Company's employees devote their primary
productive time, ability and attention to the business of the Company (provided,
however, the Company's employees may engage in other professional activity if
such
13
<PAGE>
activity does not materially interfere with their obligations to the Company),
requiring that the Company's employees enter into agreements regarding
proprietary information and confidentiality and preventing the Company's
employees from engaging or participating in any business that is in competition
with the business of the Company.
6.3 Key-Man Insurance. The Company shall maintain in force, until
-----------------
canceled or modified with the written consent of Purchasers holding more than
fifty percent (50%) of the Shares or their transferees, insurance policies on
the lives of L. William Krause and Adriaan Ligtenberg, in the amount of
$1,000,000 and $1,000,000, respectively, naming the Company as holder and
beneficiary.
6.4 Proprietary Agreements. The Company will use its best efforts to
----------------------
prevent any employee from violating the confidentiality and proprietary
information agreement entered into between the Company and each of its
employees.
6.5 Future Stock Issuances. The Company agrees that after the
----------------------
Closing it will not issue more than 2,054,534 shares of Common Stock (or grant
any options, warrants or other rights to purchase the same) to employees,
officers, directors and consultants without unanimous vote of the Company's
Board of Directors. Moreover, except with respect to the employees other than
Messrs. Krause and Ligtenberg (the "Current Employees") of the Company as of the
date of Closing, the Company will not issue any shares of Common Stock (or grant
any options, warrants or other rights to purchase the same) to any employee,
officer, director or consultant except pursuant to agreements which provide for
vesting over a period of at least forty-eight (48) months (with the initial
vesting date to occur after twelve (12) months) and a right of first refusal in
favor of the Company in the event of any proposed transfer unless such issuance
or grant is approved by unanimous vote of the Company's Board of Directors. The
vesting for Current Employees shall commence as of the date of employment by the
Company and shall continue ratably over a forty-eight (48) month period (without
any initial vesting date).
6.6 Inspection. The Company shall permit each Purchaser, at such
----------
Purchaser's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Purchaser; provided, however, that the Company shall not be obligated
pursuant to this Section 6.6 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
7. Miscellaneous.
-------------
7.1 Waivers and Amendments. With the written consent of the record
----------------------
holders of at least two-thirds of the Series C Shares, the rights of the holders
of the Series C Shares under this Agreement may be waived or amended (either
generally or in a particular instance); provided, however, that no such waiver
or amendment shall reduce the aforesaid proportion of Series C Shares, the
holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the record holders of all of the Series C
Shares. Upon the effectuation of each such waiver or amendment, the Company
shall promptly give written notice thereof to the record holders of the Series C
Shares who have not previously consented thereto in writing.
14
<PAGE>
Except to the extent provided in this subsection 7.1, this Agreement or any
provision hereof may be amended, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of the
amendment, waiver, discharge or termination is sought.
7.2 Governing Law. This Agreement shall be governed in all
-------------
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
7.3 Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive the Closing of the transactions
contemplated hereby, notwithstanding any investigation made by the Purchasers.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder as of the date of such
certificate or instrument.
7.4 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
7.5 Entire Agreement. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof and
they supersede, merge and render void every other prior written and/or oral
understanding or agreement among or between the parties hereto.
7.6 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be delivered personally,
mailed by first class mail, postage prepaid, or delivered by courier or
overnight delivery, addressed (a) if to a Purchaser, at such Purchaser's address
set forth in the Schedule of Purchasers, or at such other address as such
Purchaser shall have furnished to the Company in writing or (b) if to the
Company, at its address set forth at the beginning of this Agreement, or at such
other address as the Company shall have furnished to the Purchasers in writing.
Notices that are mailed shall be deemed received five (5) days after deposit in
the United States mail.
7.7 Severability. In case any provision of this Agreement shall be
------------
found by a court of law to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby.
7.8 Finder's Fees and Other Fees.
----------------------------
(a) The Company (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and, (ii) hereby agrees to indemnify and to hold Purchasers harmless
from and against any liability for commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the
Company, or any of its employees or representatives, is responsible.
15
<PAGE>
(b) Each Purchaser (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Company harmless
from and against any liability for any commission or compensation in the nature
of a finder's fee to any broker or other person or firm (and the costs and
expenses of defending against such liability or asserted liability) for which
Purchaser, or any of its employees or representatives, are responsible.
7.9 Expenses. The Company and the Purchasers shall each bear their
--------
own expenses and legal fees in connection with the consummation of this
transaction; provided, however, that the Company will pay the reasonable fees,
up to $10,000, of special counsel for the Purchasers, together with
disbursements and expenses incurred by special counsel in connection with all
transactions leading up to and including the Closing.
7.10 Titles and Subtitles. The titles of the sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.12 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to the Company or to any holder of any
securities issued or to be issued hereunder shall impair any such right, power
or remedy of the Company or such holder, nor shall it be construed to be a
waiver of any breach or default under this Agreement, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any delay or omission to exercise any right, power or remedy or any waiver
of any single breach or default be deemed a waiver of any other right, power or
remedy or breach or default theretofore or thereafter occurring. All remedies,
either under this Agreement, or by law otherwise afforded to the Company or any
holder, shall be cumulative and not alternative.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
STORM TECHNOLOGY, INC.
By:
-----------------
L. William Krause
16
<PAGE>
SIGNATURE PAGE TO SERIES C PREFERRED
STOCK PURCHASE AGREEMENT DATED AS OF MAY 19, 1994
PURCHASERS:
INSTITUTIONAL VENTURE APERTURE ASSOCIATES, L.P.
PARTNERS V
By: Its General Partner
Institutional Venture
Management V
By: _______________________________ By: _________________________________
Title:_______________________________ Title:_________________________________
INSTITUTIONAL VENTURE
MANAGEMENT V
By: Its General Partner
Institutional Venture
Management V
By: _______________________________ _______________________________________
Title:_______________________________ _______________________________________
TECHNOLOGY VENTURE L. WILLIAM KRAUSE
INVESTORS-IV, as nominee for
Technology Venture Investors-4, L.P.,
TVI Partners-4, L.P., and
TVI Affiliates-4, L.P.
By: TVI Management-4, L.P.,
its General Partner
By: _______________________________ _______________________________________
John R. Johnston, L. William Krause
General Partner
17
<PAGE>
SEQUOIA TECHNOLOGY MERRILL, PICKARD,
PARTNERS V ANDERSON & EYRE V, L.P.
by MPAE V Management Co., L.P.
By: _____________________________ By: _________________________________
General Partner
Title:_____________________________
MPAE V Affiliates Fund, L.P.
by MPAE V Management Co., L.P.
By: _________________________________
General Partner
18
<PAGE>
EXHIBIT 10.9
STORM SOFTWARE, INC.
AGREEMENT CONCERNING PURCHASE OF
SERIES D PREFERRED STOCK
THIS AGREEMENT is made as of July 27, 1995, by and among STORM SOFTWARE,
INC., a California corporation (the "Company") and each of the persons named in
the Schedule of Purchasers attached hereto as Exhibit A (herein individually a
---------
"Purchaser" and collectively "Purchasers"). The parties hereby agree as
follows:
1. Authorization and Sale of the Shares.
------------------------------------
1.1 Authorization; Filing of Restated Articles of Incorporation. The
-----------------------------------------------------------
Company has authorized the issuance and sale pursuant to the terms and
conditions hereof of up to 1,307,693 shares of its Series D Preferred Stock, par
value $.001 per share (the "Series D Shares"), having the rights, restrictions,
privileges and preferences as set forth in the form of the Fourth Amended and
Restated Articles of Incorporation of the Company (the "Restated Articles")
attached hereto as Exhibit B. The Company shall adopt and file with the
---------
Secretary of State of California on or before the Closing (as defined below) the
Restated Articles.
1.2 Sale and Issuance of the Series D Shares. Subject to the terms
----------------------------------------
and conditions hereof, the Company will issue and sell to the Purchasers and the
Purchasers will purchase the number of shares of the Series D Shares specified
opposite the Purchaser's names on the Schedule of Purchasers, at a price of
$1.30 per share.
2. Closing Dates; Delivery.
-----------------------
2.1 Closing Date.
------------
(a) Purchase and Sale. The closing of the purchase and sale of
-----------------
an aggregate of 1,307,693 of the Series D Shares shall be held at the offices of
Gray Cary Ware & Freidenrich, A Professional Corporation at 400 Hamilton Avenue,
Palo Alto, California 94301 at 6:00 p.m. on July 27, 1995, or at such other time
and place as the Company and the Purchasers may agree in writing.
(b) Closing. The closing referred to in subsection (a) above is
-------
hereinafter referred to as the "Closing" and the date of the Closing is
hereinafter referred to as the "Closing Date".
2.2 Delivery. Subject to the terms of this Agreement, at the Closing
--------
the Company will deliver to the Purchasers the certificates representing the
Series D Shares to be purchased by the Purchasers from the Company, against
payment of the purchase price therefor by delivery of a check or checks, payable
to the order of the Company, or by wire transfer.
1
<PAGE>
3. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Purchasers that except as set forth on a Schedule
of Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to
---------
be representations and warranties as if made hereunder:
3.1 Organization and Standing; Articles and By-Laws. The Company is
-----------------------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its businesses as now conducted and as proposed to be
conducted. The Company is qualified or licensed to do business as a foreign
corporation in all jurisdictions where such qualification or licensing is
required, except where the failure to so qualify would not have a material
adverse effect upon the Company. Copies of the Company's Amended and Restated
Articles of Incorporation, Bylaws, minutes and consents of shareholders and of
the Board of Directors are available for inspection at the Company's offices and
have been previously provided to special counsel for the Purchasers.
3.2 Corporate Power. The Company has now, or will have at the
---------------
Closing Date, all requisite corporate power necessary for the authorization,
execution and delivery of this Agreement, and the Third Amended and Restated
Rights Agreement in the form attached hereto as Exhibit D (the "Rights
---------
Agreement") to sell and issue the Series D Shares and to issue the Common Stock
upon conversion of the Series D Shares. This Agreement and the Rights Agreement
are valid and binding obligations of the Company enforceable in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
moratorium, and other laws of general application affecting the enforcement of
creditors' rights.
3.3 Subsidiaries. The Company does not control, directly or
------------
indirectly, any other corporation, association or business entity.
3.4 Capitalization. The authorized capital stock of the Company is
--------------
20,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock, of
which 3,000,000 shares have been designated Series A Preferred Stock, 491,709
shares have been designated Series B Preferred Stock, 3,272,873 shares have been
designated Series C Preferred Stock and 1,307,693 shares have been designated
Series D Preferred Stock. There are issued and outstanding 3,587,794 shares of
the Company's 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 and no shares of Series D Preferred Stock. The holders of
record of the presently issued and outstanding Preferred Stock, Common Stock and
options to purchase Common Stock immediately prior to the Closing are as set
forth on Exhibit E. All such issued and outstanding shares have been duly
---------
authorized and validly issued, are fully paid and nonassessable, and were issued
in compliance with all applicable state and federal laws concerning the issuance
of securities. The holders of any and all rights, options, warrants or
conversion rights to purchase or acquire from the Company any of its capital
stock, along with the number of shares of capital stock issuable upon exercise
of such rights, are set forth in Exhibit E hereto. Except for such rights,
---------
there are no outstanding rights, options, warrants, conversion rights or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock. The Company is not a party or subject to any agreement or
understanding between any persons or entities, which
2
<PAGE>
affects or relates to the voting or giving of written consents with respect to
any securities or by any director of the Company.
3.5 Authorization.
-------------
(a) Corporate Action. All corporate action on the part of the
----------------
Company, its officers, directors and shareholders necessary for the sale and
issuance of the Series D Shares, the issuance of the Common Stock issuable upon
conversion of the Series D Shares and the performance of the Company's
obligations hereunder and under the Rights Agreement has been taken or will be
taken prior to the Closing. The Company has duly reserved an aggregate of
1,307,693 shares of Common Stock for issuance upon conversion of the Series D
Shares.
(b) Valid Issuance. The Series D Shares when issued in
--------------
compliance with the provisions of this Agreement, and the shares of Common Stock
issued upon conversion of the Series D Preferred Stock when issued in accordance
with the provisions of the Restated Articles, will be validly issued, fully paid
and nonassessable and will be free of any liens or encumbrances; provided,
however, that all such shares may be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein, and as may be required
by future changes in such laws. The rights, preferences, privileges and
restrictions of the Series D Preferred Stock are as set forth in the Restated
Articles.
(c) No Preemptive Rights. Other than as provided in the Rights
--------------------
Agreement, no person has any right of first refusal or any preemptive rights in
connection with the issuance of the Series D Shares, the issuance of the Common
Stock upon conversion of the Series D Preferred Stock or any future issuances of
securities by the Company.
3.6 Patents, Trademarks, etc. The Company owns and possesses or is
------------------------
licensed under all patents, patent applications, licenses, trademarks, trade
names, brand names, inventions and copyrights employed in the operation of its
business as now conducted and as proposed to be conducted, with no infringement
of or conflict with the rights of others respecting any of the same. The
operation of the Company's business as now conducted or as proposed to be
conducted does not infringe any patent or other proprietary rights of others
respecting any of the same. Except for the agreements listed on Exhibit F
---------
attached hereto, there are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to patents, patent
applications, licenses, trademarks, trade names, brand names, inventions,
proprietary rights and copyrights of any other person or entity. The Company is
not obligated to make any payments by way of royalties, fees or otherwise to any
owner, licensor of, or other claimant to any patent, trademark, trade name,
copyright or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business, or otherwise. The Company has not
received any communications alleging that it has violated or, by conducting its
business as proposed, would violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity, nor is the Company aware of any basis for the
foregoing. Except for those agreements listed on Exhibit F attached hereto,
---------
there are no agreements, understandings, instruments, contracts, judgments,
orders, writs of decrees to which
3
<PAGE>
the Company is a party or by which it is bound which involve indemnification by
the Company with respect to infringements of proprietary rights.
3.7 Compliance with Other Instruments, None Burdensome, etc. The
-------------------------------------------------------
Company is not in violation of any term of its Restated Articles or Bylaws,
nor is the Company in violation of or in default in any material respect under
the terms of any mortgage, indenture, contract, agreement, instrument, judgment
or decree, the violation of which would have a material adverse effect on the
Company as a whole, and to the best of the knowledge of the Company, is not in
violation of any order, statute, rule or regulation applicable to the Company,
the violation of which would have a material adverse effect on the Company. The
execution, delivery and performance of and compliance with this Agreement or the
Rights Agreement, and the issuance and sale of the Series D Shares will not (a)
result in any such violation, or (b) be in conflict with or constitute a default
under any such term, or (c) result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. To the best knowledge of the Company, there is no
such term which adversely affects, or in the future may materially adversely
affect, the business, prospects, condition, affairs or operations of the Company
or any of its properties or assets.
3.8 Proprietary Agreements; Employees. Each employee of the Company
---------------------------------
has executed an agreement regarding confidentiality and proprietary information,
the form of which has been provided to special counsel to the Purchasers. The
Company is not aware that any of its employees is in violation thereof and will
use its best efforts to prevent any such violation. The Company is not aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company's business as conducted or
as proposed to be conducted or that would prevent any such employee from
assigning inventions to the Company. Neither the execution nor delivery of this
Agreement or the Rights Agreement, nor the carrying on of the Company's business
as proposed, will, in the Company's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe that it is or will be necessary for the
Company to utilize any inventions of any of its employees made prior to their
employment by the Company.
3.9 Litigation, etc. There is no action, proceeding or investigation
---------------
pending against the Company or its officers, directors or shareholders, or to
the best of the Company's knowledge, against employees or consultants of the
Company (or, to the best of the Company's knowledge, any basis therefor or
threat thereof): (1) which might result, either individually or in the
aggregate, in (a) any material adverse change in the business, prospects,
conditions, affairs or operations of the Company or in any of its properties or
assets, or (b) any material impairment of the right or ability of the Company to
carry on its business as now conducted or as proposed to be conducted, or (c)
any material liability on the part of the Company; or (2) which questions the
validity of this Agreement, the Rights Agreement or any action taken or to be
taken in connection herewith, including in each case, without limitation,
actions pending or threatened involving the prior employment of any of the
Company's employees, the use in connection with the Company's
4
<PAGE>
business of any information or techniques allegedly proprietary to any of its
former employees, or their obligations under any agreements with prior
employers. The Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company currently intends to initiate.
3.10 Governmental Consent, etc. No consent, approval or
-------------------------
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with: (a) the
valid execution and delivery of this Agreement or the Rights Agreement; or (b)
the offer, sale or issuance of the Series D Shares, or the issuance of the
shares of Common Stock issuable upon conversion of the Series D Shares or (c)
the obtaining of the consents, permits and waivers specified in subsection
5.1(b) hereof, except the filing of the Restated Articles and, if required,
filings or qualifications under the California securities law (the "Law"), or
other applicable blue sky laws, which filings or qualifications, if required,
will have been timely filed or obtained after the sale of the Series D Shares.
3.11 Offering. In reliance on the representations and warranties of
--------
the Purchasers in Section 4 hereof, the offer, sale and issuance of the Series D
Shares in conformity with the terms of this Agreement will not result in a
violation of the requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act") or the qualification or registration requirements
of the Law or other applicable blue sky laws.
3.12 Taxes. The Company has filed all tax returns that are required
-----
to have been filed with appropriate federal, state, county and local
governmental agencies or instrumentalities, except where the failure to do so
would not have a material adverse effect upon the Company, taken as a whole. The
Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended ("Code"), to be treated as a Subchapter S corporation or a collapsible
corporation pursuant to Section 341(f) or Section 1362(a) of the Code, nor has
it made any other elections pursuant to the Code (other than elections which
relate solely to methods of accounting, depreciation or amortization) which
would have a material effect on the Company, its financial condition, its
business as presently conducted or proposed to be conducted or any of its
properties or material assets. The Company has paid or established reserves for
all income, franchise and other taxes, assessments, governmental charges,
penalties, interest and fines due and payable by them on or before the Closing.
There is no pending dispute with any taxing authority relating to any of such
returns and the Company has no knowledge of any proposed liability for any tax
to be imposed upon the properties or assets of the Company for which there is
not an adequate reserve reflected in the Financial Statements (as defined
below).
3.13 Title. The Company owns its property and assets, including the
-----
properties and assets reflected in the Financial Statements, free and clear of
all liens, mortgages, loans or encumbrances except liens for current taxes, and
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets leased by the Company, the
Company is in compliance with such leases and, to the best of the Company's
knowledge, holds valid leasehold interests free and clear of any liens, claims
or encumbrances.
5
<PAGE>
3.14 Material Contracts and Commitments. All of the contracts,
----------------------------------
mortgages, indentures, agreements, instruments and transactions to which the
Company is a party or by which it is bound (including purchase orders to the
Company or placed by the Company) which involve obligations of, or payments to,
the Company in excess of Twenty-Five Thousand Dollars ($25,000) and all
agreements between the Company and its officers, directors, consultants and
employees are either (i) attached as exhibits to this Agreement, or (ii) set
forth on the list attached hereto as Exhibit F (the "Contracts"), copies of
---------
which have been delivered to special counsel to the Purchasers. All of the
Contracts are valid, binding and in full force and effect in all material
respects and enforceable by the Company in accordance with their respective
terms in all material respects, subject to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and rules or laws
concerning equitable remedies. The Company is not in material default under any
of such Contracts. To the best of the Company's knowledge, no other party to any
of the Contracts is in material default thereunder. The Company has not engaged
in the past three (3) months in any discussion (i) with any representative of
any corporation or corporations regarding the consolidation or merger of the
Company with or into any such corporation or corporations, (ii) with any
corporation, partnership, association or other business entity or any individual
regarding the sale, conveyance or disposition of all or substantially all of the
assets of the Company of a transaction or series of related transactions in
which more than fifty percent (50%) of the voting power of the Company is
disposed of, or (iii) regarding any other form of acquisition, liquidation,
dissolution or winding up of the Company.
3.15 Financial Statements. The Company has delivered to the
--------------------
Purchasers (i) its audited balance sheet as of December 31, 1994 and its audited
income statement and cash flow statement for the twelve month period ended
December 31, 1994, and (ii) its unaudited balance sheet as of June 30, 1995 (the
"Balance Sheet"), and its unaudited income statement and cash flow statement for
the six (6) month period ended June 30, 1995 (the above financial statements are
hereinafter collectively referred to as the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the relevant period. The Financial
Statements accurately set out and describe the financial condition and operating
results of the Company as of the date, and during the period, indicated therein.
Except as set forth in the Financial Statements, the Company has no liabilities
of any nature (matured or unmatured, fixed or contingent), other than (i)
liabilities incurred in the ordinary course of business subsequent to June 30,
1995, and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company. The Company maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
generally accepted accounting principles.
3.16 Absence of Changes. Since June 30, 1995: (a) the Company has not
------------------
entered into any transaction which was not in the ordinary course of business,
(b) there has been no material adverse change in the condition (financial or
otherwise) of the business, property, assets or liabilities of the Company other
than changes in the ordinary course of its business, none of which, individually
or in the aggregate, has been materially adverse, (c) there has been no
6
<PAGE>
damage to, destruction of or loss of physical property (whether or not covered
by insurance) materially adversely affecting the assets, prospects, financial
condition, operating results, business or operations of the Company, (d) the
Company has not declared or paid any dividend or made any distribution on its
stock, or redeemed, purchased or otherwise acquired any of its stock, (e) the
Company has not materially changed any compensation arrangement or agreement
with any of its key employees or executive officers, or materially changed the
rate of pay of its employees as a group, (f) the Company has not received notice
that there has been a cancellation of an order for the Company's products or a
loss of a customer of the Company, the cancellation or loss of which would
materially adversely affect the business of the Company, (g) the Company has not
changed or amended any material contract by which the Company or any of its
assets are bound or subject, except as contemplated by this Agreement, (h) there
has been no resignation or termination of employment of any key officer or
employee of the Company and the Company does not know of any impending
resignation or termination of employment of any such officer or employee that if
consummated would have a material adverse effect on the business of the Company,
(i) there has been no labor dispute involving the Company or its employees and
none is pending or, to the best of the Company's knowledge, threatened, (j)
there has been no change, except in the ordinary course of business, in the
material contingent obligations of the Company (nor in any contingent obligation
of the Company regarding any director, shareholder or key employee or officer of
the Company) by way of guaranty, endorsement, indemnity, warranty or otherwise,
(k) there have been no loans made by the Company to any of its employees,
officers or directors other than travel advances and other advances made in the
ordinary course of business, (l) there has been no waiver by the Company of a
valuable right or of a material debt owing to it, (m) there has not been any
satisfaction or discharge of any lien, claims or encumbrance or any payment of
any obligation by the Company, except in the ordinary course of business and
which is not material to the assets, properties, financial condition, operating
results or business of the Company, and (n) to the best of the knowledge of the
Company, there has been no other event or condition of any character pertaining
to and materially adversely affecting the assets or business of the Company.
3.17 Outstanding Indebtedness. Except as disclosed in the Balance
------------------------
Sheet, the Company has no indebtedness for borrowed money which it has directly
or indirectly created, incurred, assumed or guaranteed, or with respect to which
it has otherwise become liable, directly or indirectly. The Company has no
material liability or obligation in excess of $10,000, absolute or contingent,
which is not shown or provided for in the latest Balance Sheet, except
obligations under purchase orders, sales contracts, real property leases,
equipment leases or similar obligations incurred in the ordinary course of
business.
3.18 Registration Rights. Other than as granted pursuant to the
-------------------
Rights Agreement, the Company has not granted or agreed to grant any rights to
register as that term is defined in the Rights Agreement, including piggyback
registration rights, to any person or entity.
3.19 Certain Transactions. The Company is not indebted, directly or
--------------------
indirectly, to any of its officers, directors or shareholders or to their
spouses or children, in any amount whatsoever; and none of said officers,
directors or, to the best of the Company's knowledge, shareholders, or any
member of their immediate families, are indebted to the Company or have any
direct or indirect ownership interest in any firm or corporation with which the
Company is
7
<PAGE>
affiliated or with which the Company has a business relationship (except as a
holder of securities of a corporation whose securities are publicly traded and
which is subject to the reporting requirements of the Securities Exchange Act of
1934, to the extent of owning not more than two percent (2%) of the issued and
outstanding securities of such corporation). No such officer, director or
shareholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company. The Company is
not guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.20 Corporate Documents; Minute Books. Except for amendments
---------------------------------
necessary to satisfy representations and warranties or conditions contained
herein (the form of which amendments has been approved by the Purchasers), the
Amended and Restated Articles of Incorporation and Bylaws of the Company are in
the form previously provided to special counsel to the Purchasers. The minute
books of the Company previously provided to special counsel to the Purchasers
contain a complete summary of all meetings of directors and shareholders since
the time of incorporation of the Company.
3.21 Employee Benefit Plans. The Company does not have any
----------------------
"employee benefit plan" as defined in the Employee Retirement Income Security
Act of 1974, as amended.
3.22 Real Property Holding Corporation. The Company is not a "real
---------------------------------
property holding corporation" within the meaning of Section 897(c)(2) of the
United States Internal Revenue Code of 1986, as amended.
3.23 Disclosure. No representation or warranty by the Company in
----------
this Agreement, or in any document or certificate furnished or to be furnished
to the Purchaser pursuant hereto or in connection with the transactions
contemplated hereby, when taken together, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements made herein and therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that with regard to the operating projections which have been delivered to the
Purchaser, the Company represents only that such projections were prepared in
good faith and that the Company reasonably believes there is a reasonable basis
for such projections. The Company has fully provided each Purchaser with all the
information which such Purchaser has requested for deciding whether to purchase
the Series D Preferred Stock.
3.24 Environmental and Safety Laws. To the best of its knowledge,
-----------------------------
the Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.
3.25 Manufacturing and Marketing Rights. Except pursuant to the
----------------------------------
agreements listed on Exhibit F hereto, the Company has not granted rights to
---------
manufacture, produce, assemble, license, market, or sell its products to any
other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market, or sell
its products.
8
<PAGE>
3.26 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, and insurance against other
hazards, risks and liabilities to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated.
3.27 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties are bound by or subject to) any
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the knowledge of the Company, has sought to represent any of
the employees, representatives or agents of the Company. There is no strike or
other labor dispute involving the Company pending, or to the knowledge of the
Company threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. Subject to general principles related to
wrongful termination of employees, the employment of each officer and employee
of the Company is terminable at the will of the Company.
3.28 Section 83(b) Elections. To the best of the Company's
-----------------------
knowledge, all elections and notices required by Section 83(b) of the Internal
Revenue Code and any analogous provisions of applicable state tax laws have been
timely filed by all individuals who have purchased shares of the Company's
Common Stock.
4. Representations and Warranties of Purchaser and Restrictions on
---------------------------------------------------------------
Transfer Imposed by the Securities Act.
- --------------------------------------
4.1 Representations and Warranties by the Purchaser. The Purchaser
-----------------------------------------------
represents and warrants to the Company as follows:
(a) Investment Intent. This Agreement is made with the
-----------------
Purchaser in reliance upon such Purchaser's representation to the Company,
evidenced by Purchaser's execution of this Agreement, that Purchaser is
acquiring the Series D Shares and the Common Stock issuable upon conversion of
Series D Preferred Stock (collectively the "Securities") for investment for such
Purchaser's own account, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act and the Law. Purchaser has the full right, power and
authority to enter into and perform this Agreement and the Rights Agreement, and
this Agreement and the Rights Agreement constitute valid and binding obligations
upon it.
(b) Shares Not Registered. Purchaser understands and
---------------------
acknowledges that the offering of the Series D Shares pursuant to this Agreement
will not be registered under the Securities Act or qualified under the Law on
the grounds that the offering and sale of securities contemplated by this
Agreement are exempt from registration under the Securities Act and exempt from
qualification pursuant to Section 25102(f) of the Law, and that the Company's
9
<PAGE>
reliance upon such exemptions is predicated upon such Purchaser's
representations set forth in this Agreement. The Purchaser acknowledges and
understands that the Securities must be held indefinitely unless the Securities
are subsequently registered under the Securities Act and qualified under the Law
or an exemption from such registration and such qualification is available.
(c) No Transfer. Purchaser covenants that in no event will such
-----------
Purchaser dispose of any of the Securities (other than in conjunction with an
effective registration statement for the Securities under the Act or in
compliance with Rule 144 promulgated under the Act) unless and until (i) such
Purchaser shall have notified the Company of the proposed disposition and shall
have furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (ii) if reasonably requested by the Company, such
Purchaser shall have furnished the Company with an opinion of counsel reasonably
satisfactory in form and substance to the Company to the effect that (x) such
disposition will not require registration under the Securities Act and (y)
appropriate action necessary for compliance with the Securities Act, the Law and
any other applicable state, local or foreign law has been taken. It is agreed
that the Company will not require opinions of counsel for transactions made
pursuant to Rule 144.
(d) Permitted Transfers. Notwithstanding the provisions of
-------------------
subsection (c) above, no registration statement or opinion of counsel shall be
necessary for a transfer by a Purchaser which is a partnership to a partner of
such partnership or a former partner of such partnership who leaves such
partnership after the date hereof, or to the estate of any such partner or
former partner or the transfer by gift, will or intestate succession of any
partner to his spouse or lineal descendants or ancestors, if the transferee
agrees in writing to be bound by the terms of this Agreement to the same extent
as if he were an original Purchaser hereunder.
(e) Knowledge and Experience. Purchaser (i) has such knowledge
------------------------
and experience in financial and business matters as to be capable of evaluating
the merits and risks of such Purchaser's prospective investment in the
Securities; (ii) has the ability to bear the economic risks of such Purchaser's
prospective investment; (iii) has been furnished with and has had access to such
information as such Purchaser has considered necessary to make a determination
as to the purchase of the Securities together with such additional information
as is necessary to verify the accuracy of the information supplied; (iv) has had
all questions which have been asked by such Purchaser satisfactorily answered by
the Company; and (v) has not been offered the Securities by any form of
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any such media.
(f) Not Organized to Purchase. Purchaser has not been organized
-------------------------
for the purpose of purchasing the Securities.
(g) Holding Requirements. Purchaser understands that if the
--------------------
Company does not (i) register its Common Stock with the Securities and Exchange
Commission ("SEC") pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) become subject to Section 15(d) of
the Exchange Act, (iii) supply information pursuant to Rule 15c2-11 thereunder,
or (iv) have a registration statement covering the Securities (or a
10
<PAGE>
filing pursuant to the exemption from registration under Regulation A of the
Securities Act covering the Securities) under the Securities Act in effect when
it desires to sell the Securities, such Purchaser may be required to hold the
Securities for an indeterminate period. Purchaser also understands that any sale
of the Securities that might be made by such Purchaser in reliance upon Rule 144
under the Securities Act may be made only in limited amounts in accordance with
the terms and conditions of that rule.
4.2 Legends. Each certificate representing the Securities may be
-------
endorsed with the following legends:
(a) Federal Legend. THE SECURITIES REPRESENTED BY THIS
--------------
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR
OTHERWISE DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144, OR
(iii) PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
DISTRIBUTION.
(b) Other Legends. Any other legends required by the Law or
-------------
other applicable state blue sky laws.
The Company need not register a transfer of legended Securities, and may also
instruct its transfer agent not to register the transfer of the Securities,
unless the conditions specified in each of the foregoing legends are satisfied.
4.3 Removal of Legend and Transfer Restrictions. Any legend
-------------------------------------------
endorsed on a certificate pursuant to subsection 4.2(a) and the stop transfer
instructions with respect to such legended Securities shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
Securities if such Securities are registered under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder satisfies the requirements of Rule 144(k) and, where
reasonably deemed necessary by the Company, provides the Company with an opinion
of counsel for such holder of the Securities, reasonably satisfactory to the
Company, to the effect that (i) such holder, meets the requirements of Rule
144(k) or (ii) a public sale, transfer or assignment of such Securities may be
made without registration.
4.4 Rule 144. Purchaser is aware of the adoption of Rule 144 by
--------
the SEC promulgated under the Securities Act, which permits limited public
resales of securities acquired in a nonpublic offering, subject to the
satisfaction of certain conditions. The Purchaser understands that under Rule
144, the conditions include, among other things: the availability of certain
current public information about the issuer and the resale occurring not less
than two years after the party has purchased and paid for the securities to be
sold.
11
<PAGE>
5. Conditions to Closing.
---------------------
5.1 Conditions to Purchasers' Obligations. The obligation of the
-------------------------------------
Purchasers to purchase the Series D Shares at the Closing is subject to the
fulfillment to its satisfaction, on or prior to the Closing Date, of the
following conditions, any of which may be waived in accordance with the
provisions of subsection 7.1 hereof:
(a) Representations and Warranties Correct; Performance of
------------------------------------------------------
Obligations. The representations and warranties made by the Company in Section
3 hereof shall be true and correct when made, and shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of said date. The Company's business and assets
shall not have been adversely affected in any material way prior to the Closing
Date. The Company shall have performed in all material respects all obligations
and conditions herein required to be performed or observed by it on or prior to
the Closing Date.
(b) Consents and Waivers. The Company shall have obtained in a
--------------------
timely fashion any and all consents, permits and waivers necessary or
appropriate for consummation of the transactions contemplated by this Agreement.
(c) Filing of the Restated Articles. The Fourth Amended and
-------------------------------
Restated Articles shall have been filed with the Secretary of State of the State
of California.
(d) Rights Agreement. The Company, the Series A, Series B and
----------------
Series C Preferred Stockholders, the Purchasers, and L. William Krause and
Adriaan Ligtenberg shall have executed the Rights Agreement in the form attached
as Exhibit D hereto.
---------
(e) Compliance Certificate. The Company shall have delivered a
----------------------
Certificate, executed by the President of the Company, dated the Closing Date,
certifying to the fulfillment of the conditions specified in subsections (a),
(b), (c), and (d) of this section 5.1.
(f) Opinion of Counsel. The Purchasers shall have received an
------------------
opinion from Gray Cary Ware & Freidenrich, A Professional Corporation, the
Company's counsel, in substantially the form attached hereto as Exhibit G.
---------
5.2 Conditions to Obligations of the Company. The Company's
----------------------------------------
obligation to sell and issue the Series D Shares at the Closing is subject to
the fulfillment to the satisfaction of the Company on or prior to the Closing
Date of the following conditions, any of which may be waived by the Company:
(a) Representations and Warranties Correct. The representations
--------------------------------------
and warranties made by the Purchasers in Section 4 hereof shall be true and
correct when made, and shall be true and correct on the Closing Date with the
same force and effect as if they had been made on and as of said date.
(b) Conditions Fulfilled. The conditions set forth in
--------------------
subsections (b), (c), and (d) of Section 5.1 shall have been fulfilled.
12
<PAGE>
6. Affirmative Covenants of the Company. The Company hereby covenants
------------------------------------
and agrees as follows:
6.1 Financial Information. Until the first to occur of (i) the
---------------------
date on which the Company is required to file a report with the SEC pursuant to
Section 13(a) of the Exchange Act, by reason of the Company having registered
any of its securities pursuant to Section 12(g) of the Exchange Act or (ii)
quotations for the Common Stock of the Company are reported by the automated
quotations system operated by the National Association of Securities Dealers,
Inc. or by an equivalent quotations system or (iii) shares of the Common Stock
of the Company are listed on a national securities exchange registered under
Section 6 of the Exchange Act, the Company will furnish to each Purchaser, so
long as such Purchaser or its affiliates own any shares of the Company's
Preferred Stock (the "Shares") or Common Stock issued or issuable upon
conversion of the Shares (as adjusted for stock dividends, stock splits,
recapitalizations and the like):
(i) as soon as practicable after the end of each fiscal year, and
in any event within 90 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as at the end of such fiscal year, and
consolidated statements of operations and consolidated statements of changes in
financial position (or equivalent cash flow statements if required by the
Financial Accounting Standards Board) of the Company and its subsidiaries, if
any, for such year, prepared in accordance with generally accepted accounting
principles, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company, and
(ii) as soon as practicable after the end of each quarter (except
the last quarter of the fiscal year), and in any event within 45 days
thereafter, consolidated balance sheets of the Company and its subsidiaries, if
any, as of the end of such quarter; and consolidated statements of income (or
equivalent cash flow statements if required by the Financial Standards Board),
for such quarter and for the current fiscal year to date, prepared in accordance
with generally accepted accounting principles (except for required footnotes),
all in reasonable detail and signed, subject to changes resulting from year-end
audit adjustments, by the principal financial officer or chief executive officer
of the Company, and
(iii) so long as such Purchaser or its affiliates owns in excess
of two hundred thousand (200,000) Shares or an equivalent amount of Common Stock
issued or issuable upon conversion of the Shares (as adjusted for stock
dividends, stock splits, recapitalizations and the like), (i) as soon as
practicable after its adoption or approval by the Company's Board of Directors,
but not later than the commencement of such fiscal year, an annual plan for each
fiscal year which shall include monthly capital and operating expense budgets,
cash flow statements, projected balance sheets and profit and loss projections
for each such month and for the end of the year, itemized in such detail as the
Board of Directors may reasonably determine and (ii) as soon as practicable
after the end of each month (except the last month of the fiscal year), and in
any event within 30 days thereafter, consolidated balance sheets of the Company
and its subsidiaries, if any, as of the end of such month and consolidated
statements of income (or equivalent cash flow statements if required by the
Financial Standards Board), for such month and for the current fiscal year to
date, prepared in accordance with generally accepted accounting principles
(except for required footnotes), all in reasonable detail and signed, subject to
changes
13
<PAGE>
resulting from year-end audit adjustments, by the principal financial officer or
chief executive officer of the Company.
6.2 Conflicts of Interests. The Company shall use its best efforts
----------------------
to ensure that the Company's employees, during the term of their employment with
the Company, do not engage in activities which would result in a conflict of
interest with the Company. The Company's obligations hereunder include, but are
not limited to, requiring that the Company's employees devote their primary
productive time, ability and attention to the business of the Company (provided,
however, the Company's employees may engage in other professional activity if
such activity does not materially interfere with their obligations to the
Company), requiring that the Company's employees enter into agreements regarding
proprietary information and confidentiality and preventing the Company's
employees from engaging or participating in any business that is in competition
with the business of the Company.
6.3 Key-Man Insurance. The Company shall maintain in force, until
-----------------
canceled or modified with the written consent of Purchasers holding more than
fifty percent (50%) of the Shares or their transferees, insurance policies on
the lives of L. William Krause and Adriaan Ligtenberg, in the amount of
$1,000,000 and $1,000,000, respectively, naming the Company as holder and
beneficiary.
6.4 Proprietary Agreements. The Company will use its best efforts
----------------------
to prevent any employee from violating the confidentiality and proprietary
information agreement entered into between the Company and each of its
employees.
6.5 Future Stock Issuances. The Company agrees that after the
----------------------
Closing it will not issue more than a total of 2,054,534 shares of Common Stock
(or grant any options, warrants or other rights to purchase the same) pursuant
to a stock option plan or restricted stock plan to employees, officers,
directors and consultants without unanimous vote of the Company's Board of
Directors. Moreover, except with respect to the employees other than Messrs.
Krause and Ligtenberg (the "Current Employees") of the Company as of the date of
Closing, the Company will not issue any shares of Common Stock (or grant any
options, warrants or other rights to purchase the same) to any employee,
officer, director or consultant except pursuant to agreements which provide for
vesting over a period of at least forty-eight (48) months (with the initial
vesting date to occur after twelve (12) months) and a right of first refusal in
favor of the Company in the event of any proposed transfer unless such issuance
or grant is approved by unanimous vote of the Company's Board of Directors.
6.6 Inspection. The Company shall permit each Purchaser, at such
----------
Purchaser's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Purchaser; provided, however, that the Company shall not be obligated
pursuant to this Section 6.6 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
7. Miscellaneous.
-------------
14
<PAGE>
7.1 Waivers and Amendments. With the written consent of the record
----------------------
holders of at least two-thirds of the Series D Shares, the rights of the holders
of the Series D Shares under this Agreement may be waived or amended (either
generally or in a particular instance); provided, however, that no such waiver
or amendment shall reduce the aforesaid proportion of Series D Shares, the
holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the record holders of all of the Series D
Shares. Upon the effectuation of each such waiver or amendment, the Company
shall promptly give written notice thereof to the record holders of the Series D
Shares who have not previously consented thereto in writing. Except to the
extent provided in this subsection 7.1, this Agreement or any provision hereof
may be amended, waived, discharged or terminated only by a statement in writing
signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought.
7.2 Governing Law. This Agreement shall be governed in all
-------------
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California.
7.3 Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive the Closing of the transactions
contemplated hereby, notwithstanding any investigation made by the Purchasers.
All statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder as of the date of such
certificate or instrument.
7.4 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
7.5 Entire Agreement. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof and
they supersede, merge and render void every other prior written and/or oral
understanding or agreement among or between the parties hereto.
7.6 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be delivered personally,
mailed by first class mail, postage prepaid, or delivered by courier or
overnight delivery, addressed (a) if to a Purchaser, at such Purchaser's address
set forth in the Schedule of Purchasers, or at such other address as such
Purchaser shall have furnished to the Company in writing or (b) if to the
Company, at its address set forth at the beginning of this Agreement, or at such
other address as the Company shall have furnished to the Purchasers in writing.
Notices that are mailed shall be deemed received five (5) days after deposit in
the United States mail.
7.7 Severability. In case any provision of this Agreement shall be
------------
found by a court of law to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby.
7.8 Finder's Fees and Other Fees.
----------------------------
15
<PAGE>
(a) The Company (i) represents and warrants that it has retained
no finder or broker in connection with the transactions contemplated by this
Agreement and, (ii) hereby agrees to indemnify and to hold Purchasers harmless
from and against any liability for commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the
Company, or any of its employees or representatives, is responsible.
(b) Each Purchaser (i) represents and warrants that it has
retained no finder or broker in connection with the transactions contemplated by
this Agreement and (ii) hereby agrees to indemnify and to hold the Company
harmless from and against any liability for any commission or compensation in
the nature of a finder's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which Purchaser, or any of its employees or representatives, are
responsible.
7.9 Expenses. The Company and the Purchasers shall each bear their
--------
own expenses and legal fees in connection with the consummation of this
transaction; provided, however, that the Company will pay the reasonable fees,
up to $7,500, of special counsel for the Purchasers, together with disbursements
and expenses incurred by special counsel in connection with all transactions
leading up to and including the Closing.
7.10 Titles and Subtitles. The titles of the sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.12 Delays or Omissions. No delay or omission to exercise any
-------------------
right, power or remedy accruing to the Company or to any holder of any
securities issued or to be issued hereunder shall impair any such right, power
or remedy of the Company or such holder, nor shall it be construed to be a
waiver of any breach or default under this Agreement, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any delay or omission to exercise any right, power or remedy or any waiver
of any single breach or default be deemed a waiver of any other right, power or
remedy or breach or default theretofore or thereafter occurring. All remedies,
either under this Agreement, or by law otherwise afforded to the Company or any
holder, shall be cumulative and not alternative.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
STORM SOFTWARE, INC.
By:____________________________
L. William Krause
17
<PAGE>
SIGNATURE PAGE TO SERIES D PREFERRED
STOCK PURCHASE AGREEMENT DATED AS OF JULY 27, 1995
PURCHASERS:
INSTITUTIONAL VENTURE APERTURE ASSOCIATES, L.P.
PARTNERS V
By: Its General Partner
Institutional Venture
Management V
By:__________________________________ By:___________________________________
Title:_______________________________ Title:________________________________
INSTITUTIONAL VENTURE L. WILLIAM KRAUSE, TRUSTEE
MANAGEMENT V LWK VENTURES
MONEY
PURCHASE PENSION PLAN DTD
By: Its General Partner 1/1/92
Institutional Venture
Management V
By:__________________________________ By:___________________________________
L. William Krause
Title:_______________________________
TECHNOLOGY VENTURE L. WILLIAM KRAUSE, TRUSTEE
INVESTORS LWK VENTURES PROFIT
SHARING PLAN DTD 1/1/91
By:__________________________________ ___________________________________
John R. Johnston, L. William Krause
General Partner
18
<PAGE>
[BLANK PAGE]
19
<PAGE>
SEQUOIA TECHNOLOGY MERRILL, PICKARD,
PARTNERS ANDERSON & EYRE ____, L.P.
By _____________________, L.P.
By:__________________________________ By:___________________________________
General Partner
Title:_______________________________
MPAE ____ AFFILIATES FUND, L.P.
by ________________________, L.P.
By:___________________________________
General Partner
PRIMAX ELECTRONICS LTD.
By:__________________________________
Title:_______________________________
ANDREW RAPPAPORT
By:__________________________________
Title:_______________________________
Andrew Rappaport
20
<PAGE>
EXHIBIT 10.10
STORM PRIMAX, INC.
AGREEMENT CONCERNING PURCHASE OF
SERIES F PREFERRED STOCK
THIS AGREEMENT is made as of June 11, 1996, by and between Storm Primax,
Inc., a California corporation (the "Company") and Intel Corporation, a Delaware
corporation ("Intel"). The parties hereby agree as follows:
1. Authorization and Sale of the Shares.
------------------------------------
1.1 Authorization; Filing of Restated Articles of Incorporation. The
-----------------------------------------------------------
Company has authorized the issuance and sale pursuant to the terms and
conditions hereof of up to 483,870 shares of its Series F Preferred Stock, par
value $.001 per share (the "Series F Shares"), having the rights, restrictions,
privileges and preferences as set forth in the form of the Sixth Amended and
Restated Articles of Incorporation of the Company (the "Restated Articles")
attached hereto as Exhibit A. The Company shall adopt and file with the
---------
Secretary of State of California on or before the Closing (as defined below) the
Restated Articles.
1.2 Sale and Issuance of the Series F Shares. Subject to the terms
----------------------------------------
and conditions hereof, the Company will issue and sell to Intel and Intel will
purchase 483,870 of shares of the Series F Shares, at a price of $3.10 per
share.
2. Closing Dates; Delivery.
-----------------------
2.1 Closing Date.
------------
(a) Purchase and Sale. The closing of the purchase and sale of an
-----------------
aggregate of 483,870 of the Series F Shares shall be held at the offices of Gray
Cary Ware & Freidenrich, A Professional Corporation at 400 Hamilton Avenue, Palo
Alto, California 94301 at 4:00 p.m. on June 11, 1996, or at such other time and
place as the Company and Intel may agree in writing.
(b) Closing. The closing referred to in subsection (a) above is
-------
hereinafter referred to as the "Closing" and the date of the Closing is
hereinafter referred to as the "Closing Date".
2.2 Delivery. Subject to the terms of this Agreement, at the Closing
--------
the Company will deliver to Intel a certificate representing the Series F Shares
to be purchased by Intel from the Company, against payment of the purchase price
therefor by delivery of a check or checks, payable to the order of the Company,
or by wire transfer.
3. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Intel that except as set forth on a Schedule of
Exceptions attached
1
<PAGE>
hereto as Exhibit B, which exceptions shall be deemed to be representations and
---------
warranties as if made hereunder:
3.1 Organization and Standing; Articles and By-Laws. The Company is
-----------------------------------------------
a corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to carry on its businesses as now conducted and as proposed to be
conducted. The Company is qualified or licensed to do business as a foreign
corporation in all jurisdictions where such qualification or licensing is
required, except where the failure to so qualify would not have a material
adverse effect upon the Company. Copies of the Company's Amended and Restated
Articles of Incorporation, Bylaws, minutes and consents of shareholders and of
the Board of Directors are available for inspection at the Company's offices and
have been previously provided to special counsel for Intel.
3.2 Corporate Power. The Company has now, or will have at the
---------------
Closing Date, all requisite corporate power necessary for the authorization,
execution and delivery of this Agreement, and the First Amendment to the Fourth
Amended and Restated Rights Agreement in the form attached hereto as Exhibit C
---------
(the "Rights Agreement") to sell and issue the Series F Shares and to issue the
Common Stock upon conversion of the Series F Shares. This Agreement and the
Rights Agreement are valid and binding obligations of the Company enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, moratorium, and other laws of general application affecting the
enforcement of creditors' rights.
3.3 Subsidiaries. The Company does not control, directly or
------------
indirectly, any other corporation, association or business entity.
3.4 Capitalization. The authorized capital stock of the Company is
--------------
40,000,000 shares of Common Stock and 40,000,000 shares of Preferred Stock, of
which 3,000,000 shares have been designated Series A Preferred Stock, 491,709
shares have been designated Series B Preferred Stock, 3,272,873 shares have been
designated Series C Preferred Stock, 2,759,589 shares have been designated,
Series D Preferred Stock, 16,857,316 shares of Series E Preferred Stock and
483,870 shares of Series F Preferred Stock. There are issued and outstanding
3,785,043 shares of the Company's 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 no shares of Series F
Preferred Stock. The holders of record of the presently issued and outstanding
Preferred Stock, Common Stock and options to purchase Common Stock immediately
prior to the Closing are as set forth on Exhibit D. All such issued and
---------
outstanding shares have been duly authorized and validly issued, are fully paid
and nonassessable, and were issued in compliance with all applicable state and
federal laws concerning the issuance of securities. The holders of any and all
rights, options, warrants or conversion rights to purchase or acquire from the
Company any of its capital stock, along with the number of shares of capital
stock issuable upon exercise of such rights, are set forth in Exhibit D hereto.
---------
Except for such rights, there are no outstanding
2
<PAGE>
rights, options, warrants, conversion rights or agreements for the purchase or
acquisition from the Company of any shares of its capital stock. The Company is
not a party or subject to any agreement or understanding between any persons or
entities, which affects or relates to the voting or giving of written consents
with respect to any securities or by any director of the Company.
3.5 Authorization.
-------------
(a) Corporate Action. All corporate action on the part of the
----------------
Company, its officers, directors and shareholders necessary for the sale and
issuance of the Series F Shares, the issuance of the Common Stock issuable upon
conversion of the Series F Shares and the performance of the Company's
obligations hereunder and under the Rights Agreement has been taken or will be
taken prior to the Closing. The Company has duly reserved an aggregate of
483,870 shares of Common Stock for issuance upon conversion of the Series F
Shares.
(b) Valid Issuance. The Series F Shares when issued in compliance
--------------
with the provisions of this Agreement, and the shares of Common Stock issued
upon conversion of the Series F Preferred Stock when issued in accordance with
the provisions of the Restated Articles, will be validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances; provided, however,
that all such shares may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein, and as may be required by
future changes in such laws. The rights, preferences, privileges and
restrictions of the Series F Preferred Stock are as set forth in the Restated
Articles.
(c) No Preemptive Rights. Other than as provided in the Rights
--------------------
Agreement, no person has any right of first refusal or any preemptive rights in
connection with the issuance of the Series F Shares, the issuance of the Common
Stock upon conversion of the Series F Preferred Stock or any future issuances of
securities by the Company.
3.6 Patents, Trademarks, etc. The Company owns and possesses or is
------------------------
licensed under all patents, patent applications, licenses, trademarks, trade
names, brand names, inventions and copyrights employed in the operation of its
business as now conducted and as proposed to be conducted, with no infringement
of or conflict with the rights of others respecting any of the same. The
operation of the Company's business as now conducted or as proposed to be
conducted does not infringe any patent or other proprietary rights of others
respecting any of the same. Except for the agreements listed on Exhibit E
---------
attached hereto, there are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to patents, patent
applications, licenses, trademarks, trade names, brand names, inventions,
proprietary rights and copyrights of any other person or entity. The Company is
not obligated to make any payments by way of royalties, fees or otherwise to any
owner, licensor of, or other claimant to any patent, trademark, trade name,
copyright or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business, or otherwise. The Company has not
received any communications alleging that it
3
<PAGE>
has violated or, by conducting its business as proposed, would violate any of
the patents, trademarks, service marks, trade names, copyrights or trade secrets
or other proprietary rights of any other person or entity, nor is the Company
aware of any basis for the foregoing. Except for those agreements listed on
Exhibit E attached hereto, there are no agreements, understandings, instruments,
- ---------
contracts, judgments, orders, writs of decrees to which the Company is a party
or by which it is bound which involve indemnification by the Company with
respect to infringements of proprietary rights.
3.7 Compliance with Other Instruments, None Burdensome, etc. The
-------------------------------------------------------
Company is not in violation of any term of its Restated Articles or Bylaws, nor
is the Company in violation of or in default in any material respect under the
terms of any mortgage, indenture, contract, agreement, instrument, judgment or
decree, the violation of which would have a material adverse effect on the
Company as a whole, and to the best of the knowledge of the Company, is not in
violation of any order, statute, rule or regulation applicable to the Company,
the violation of which would have a material adverse effect on the Company. The
execution, delivery and performance of and compliance with this Agreement or the
Rights Agreement, and the issuance and sale of the Series F Shares will not (a)
result in any such violation, or (b) be in conflict with or constitute a default
under any such term, or (c) result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
pursuant to any such term. To the best knowledge of the Company, there is no
such term which adversely affects, or in the future may materially adversely
affect, the business, prospects, condition, affairs or operations of the Company
or any of its properties or assets.
3.8 Proprietary Agreements; Employees. Each employee of the Company
---------------------------------
has executed an agreement regarding confidentiality and proprietary information,
the form of which has been provided to special counsel to Intel. The Company is
not aware that any of its employees is in violation thereof and will use its
best efforts to prevent any such violation. The Company is not aware that any
of its employees is obligated under any contract (including licenses, covenants
or commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of his or her best efforts to promote the interests of the Company or
that would conflict with the Company's business as conducted or as proposed to
be conducted or that would prevent any such employee from assigning inventions
to the Company. Neither the execution nor delivery of this Agreement or the
Rights Agreement, nor the carrying on of the Company's business as proposed,
will, in the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe that it is or will be necessary for the Company to
utilize any inventions of any of its employees made prior to their employment by
the Company.
3.9 Litigation, etc. There is no action, proceeding or investigation
---------------
pending against the Company or its officers, directors or shareholders, or to
the best of the Company's knowledge, against employees or consultants of the
Company (or, to the best of the Company's knowledge, any basis therefor or
threat thereof): (1) which might result, either
4
<PAGE>
individually or in the aggregate, in (a) any material adverse change in the
business, prospects, conditions, affairs or operations of the Company or in any
of its properties or assets, or (b) any material impairment of the right or
ability of the Company to carry on its business as now conducted or as proposed
to be conducted, or (c) any material liability on the part of the Company; or
(2) which questions the validity of this Agreement, the Rights Agreement or any
action taken or to be taken in connection herewith, including in each case,
without limitation, actions pending or threatened involving the prior employment
of any of the Company's employees, the use in connection with the Company's
business of any information or techniques allegedly proprietary to any of its
former employees, or their obligations under any agreements with prior
employers. The Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company currently intends to initiate.
3.10 Governmental Consent, etc. No consent, approval or authorization
-------------------------
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with: (a) the valid execution and
delivery of this Agreement or the Rights Agreement; or (b) the offer, sale or
issuance of the Series F Shares, or the issuance of the shares of Common Stock
issuable upon conversion of the Series F Shares or (c) the obtaining of the
consents, permits and waivers specified in subsection 5.1(b) hereof, except the
filing of the Restated Articles and, if required, filings or qualifications
under the California securities law (the "Law"), or other applicable blue sky
laws, which filings or qualifications, if required, will have been timely filed
or obtained after the sale of the Series F Shares.
3.11 Offering. In reliance on the representations and warranties of
--------
Intel in Section 4 hereof, the offer, sale and issuance of the Series F Shares
in conformity with the terms of this Agreement will not result in a violation of
the requirements of Section 5 of the Securities Act of 1933, as amended (the
"Securities Act") or the qualification or registration requirements of the Law
or other applicable blue sky laws.
3.12 Taxes. The Company has filed all tax returns that are required
-----
to have been filed with appropriate federal, state, county and local
governmental agencies or instrumentalities, except where the failure to do so
would not have a material adverse effect upon the Company, taken as a whole.
The Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended ("Code"), to be treated as a Subchapter S corporation or a collapsible
corporation pursuant to Section 341(f) or Section 1362(a) of the Code, nor has
it made any other elections pursuant to the Code (other than elections which
relate solely to methods of accounting, depreciation or amortization) which
would have a material effect on the Company, its financial condition, its
business as presently conducted or proposed to be conducted or any of its
properties or material assets. The Company has paid or established reserves for
all income, franchise and other taxes, assessments, governmental charges,
penalties, interest and fines due and payable by them on or before the Closing.
There is no pending dispute with any taxing authority relating to any of such
returns and the Company has no knowledge of any proposed liability for any tax
to be imposed upon the properties or assets
5
<PAGE>
of the Company for which there is not an adequate reserve reflected in the
Financial Statements (as defined below).
3.13 Title. The Company owns its property and assets, including the
-----
properties and assets reflected in the Financial Statements, free and clear of
all liens, mortgages, loans or encumbrances except liens for current taxes, and
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Company's ownership or use of such property or
assets. With respect to the property and assets leased by the Company, the
Company is in compliance with such leases and, to the best of the Company's
knowledge, holds valid leasehold interests free and clear of any liens, claims
or encumbrances.
3.14 Material Contracts and Commitments. All of the contracts,
----------------------------------
mortgages, indentures, agreements, instruments and transactions to which the
Company is a party or by which it is bound (including purchase orders to the
Company or placed by the Company) which involve obligations of, or payments to,
the Company in excess of Fifty Thousand Dollars ($50,000) and all agreements
between the Company and its officers, directors, consultants and employees are
either (i) attached as exhibits to this Agreement, or (ii) set forth on the list
attached hereto as Exhibit E (the "Contracts"), copies of which have been
---------
delivered to special counsel to Intel. All of the Contracts are valid, binding
and in full force and effect in all material respects and enforceable by the
Company in accordance with their respective terms in all material respects,
subject to the effect of applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights and rules or laws concerning equitable
remedies. The Company is not in material default under any of such Contracts.
Except as disclosed in Exhibit B, to the best of the Company's knowledge, no
---------
other party to any of the Contracts is in material default thereunder. The
Company has not engaged in the past three (3) months in any discussion (i) with
any representative of any corporation or corporations regarding the
consolidation or merger of the Company with or into any such corporation or
corporations, (ii) with any corporation, partnership, association or other
business entity or any individual regarding the sale, conveyance or disposition
of all or substantially all of the assets of the Company of a transaction or
series of related transactions in which more than fifty percent (50%) of the
voting power of the Company is disposed of or (iii) regarding any other form of
acquisition, liquidation, dissolution or winding up of the Company.
3.15 Financial Statements. The Company has delivered to Intel (i) its
--------------------
audited balance sheet as of December 31, 1995 and its audited income statement
and cash flow statement for the twelve month period ended December 31, 1995, and
(ii) its unaudited balance sheet as of March 31, 1996 (the "Balance Sheet"), and
its unaudited income statement and cash flow statement for the three (3) month
period ended March 31, 1996 (the above financial statements are hereinafter
collectively referred to as the "Financial Statements"). The Financial
Statements are complete and correct in all material respects and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the relevant period. The Financial Statements
accurately set out and describe the financial condition and operating results of
the Company as of the date, and during the period,
6
<PAGE>
indicated therein. Except as set forth in the Financial Statements, the Company
has no liabilities of any nature (matured or unmatured, fixed or contingent),
other than (i) liabilities incurred in the ordinary course of business
subsequent to March 31, 1996, and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company. The Company maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles.
3.16 Absence of Changes. Since March 31, 1996: (a) the Company has
------------------
not entered into any transaction which was not in the ordinary course of
business, (b) there has been no material adverse change in the condition
(financial or otherwise) of the business, property, assets or liabilities of the
Company other than changes in the ordinary course of its business, none of
which, individually or in the aggregate, has been materially adverse, (c) there
has been no damage to, destruction of or loss of physical property (whether or
not covered by insurance) materially adversely affecting the assets, prospects,
financial condition, operating results, business or operations of the Company,
(d) the Company has not declared or paid any dividend or made any distribution
on its stock, or redeemed, purchased or otherwise acquired any of its stock, (e)
the Company has not materially changed any compensation arrangement or agreement
with any of its key employees or executive officers, or materially changed the
rate of pay of its employees as a group, (f) the Company has not received notice
that there has been a cancellation of an order for the Company's products or a
loss of a customer of the Company, the cancellation or loss of which would
materially adversely affect the business of the Company, (g) the Company has not
changed or amended any material contract by which the Company or any of its
assets are bound or subject, except as contemplated by this Agreement, (h) there
has been no resignation or termination of employment of any key officer or
employee of the Company and the Company does not know of any impending
resignation or termination of employment of any such officer or employee that if
consummated would have a material adverse effect on the business of the Company,
(i) there has been no labor dispute involving the Company or its employees and
none is pending or, to the best of the Company's knowledge, threatened, (j)
there has been no change, except in the ordinary course of business, in the
material contingent obligations of the Company (nor in any contingent obligation
of the Company regarding any director, shareholder or key employee or officer of
the Company) by way of guaranty, endorsement, indemnity, warranty or otherwise,
(k) there have been no loans made by the Company to any of its employees,
officers or directors other than travel advances and other advances made in the
ordinary course of business, (l) there has been no waiver by the Company of a
valuable right or of a material debt owing to it, (m) there has not been any
satisfaction or discharge of any lien, claims or encumbrance or any payment of
any obligation by the Company, except in the ordinary course of business and
which is not material to the assets, properties, financial condition, operating
results or business of the Company, and (n) to the best of the knowledge of the
Company, there has been no other event or condition of any character pertaining
to and materially adversely affecting the assets or business of the Company.
7
<PAGE>
3.17 Outstanding Indebtedness. Except as disclosed in the Balance
------------------------
Sheet, the Company has no indebtedness for borrowed money which it has directly
or indirectly created, incurred, assumed or guaranteed, or with respect to which
it has otherwise become liable, directly or indirectly. The Company has no
material liability or obligation in excess of $10,000, absolute or contingent,
which is not shown or provided for in the latest Balance Sheet, except
obligations under purchase orders, sales contracts, real property leases,
equipment leases or similar obligations incurred in the ordinary course of
business.
3.18 Registration Rights. Other than as granted pursuant to the
-------------------
Rights Agreement, the Company has not granted or agreed to grant any rights to
register as that term is defined in the Rights Agreement, including piggyback
registration rights, to any person or entity.
3.19 Certain Transactions. The Company is not indebted, directly or
--------------------
indirectly, to any of its officers, directors or shareholders or to their
spouses or children, in any amount whatsoever; and none of said officers,
directors or, to the best of the Company's knowledge, shareholders, or any
member of their immediate families, are indebted to the Company or have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship
(except as a holder of securities of a corporation whose securities are publicly
traded and which is subject to the reporting requirements of the Securities
Exchange Act of 1934, to the extent of owning not more than two percent (2%) of
the issued and outstanding securities of such corporation). No such officer,
director or shareholder, or any member of their immediate families, is, directly
or indirectly, interested in any material contract with the Company. The
Company is not guarantor or indemnitor of any indebtedness of any other person,
firm or corporation.
3.20 Corporate Documents; Minute Books. Except for amendments
---------------------------------
necessary to satisfy representations and warranties or conditions contained
herein (the form of which amendments has been approved by Intel), the Amended
and Restated Articles of Incorporation and Bylaws of the Company are in the form
previously provided to special counsel to Intel. The minute books of the
Company previously provided to special counsel to Intel contain a complete
summary of all meetings of directors and shareholders since the time of
incorporation of the Company.
3.21 Employee Benefit Plans. The Company does not have any "employee
----------------------
benefit plan" as defined in the Employee Retirement Income Security Act of 1974,
as amended.
3.22 Real Property Holding Corporation. The Company is not a "real
---------------------------------
property holding corporation" within the meaning of Section 897(c)(2) of the
United States Internal Revenue Code of 1986, as amended.
3.23 Disclosure. No representation or warranty by the Company in this
----------
Agreement, or in any document or certificate furnished or to be furnished to
Intel pursuant
8
<PAGE>
hereto or in connection with the transactions contemplated hereby, when taken
together, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
made herein and therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that with regard to the operating
projections which have been delivered to Intel, the Company represents only that
such projections were prepared in good faith and that the Company reasonably
believes there is a reasonable basis for such projections. The Company has fully
provided Intel with all the information which Intel has requested for deciding
whether to purchase the Series F Preferred Stock.
3.24 Environmental and Safety Laws. To the best of its knowledge, the
-----------------------------
Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law, or regulation.
3.25 Manufacturing and Marketing Rights. Except pursuant to the
----------------------------------
agreements listed on Exhibit E hereto, the Company has not granted rights to
---------
manufacture, produce, assemble, license, market, or sell its products to any
other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market, or sell
its products.
3.26 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, and insurance against other
hazards, risks and liabilities to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated.
3.27 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to (and none of its assets or properties are bound by or subject to) any
contract, commitment or arrangement with any labor union, and no labor union has
requested or, to the knowledge of the Company, has sought to represent any of
the employees, representatives or agents of the Company. There is no strike or
other labor dispute involving the Company pending, or to the knowledge of the
Company threatened, which could have a material adverse effect on the assets,
properties, financial condition, operating results, or business of the Company
(as such business is presently conducted and as it is proposed to be conducted),
nor is the Company aware of any labor organization activity involving its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. Subject to general principles related to
wrongful termination of employees, the employment of each officer and employee
of the Company is terminable at the will of the Company.
3.28 Section 83(b) Elections. To the best of the Company's knowledge,
-----------------------
all elections and notices required by Section 83(b) of the Internal Revenue Code
and any
9
<PAGE>
analogous provisions of applicable state tax laws have been timely filed by all
individuals who have purchased shares of the Company's Common Stock.
4. Representations and Warranties of Purchaser and Restrictions on
---------------------------------------------------------------
Transfer Imposed by the Securities Act.
- --------------------------------------
4.1 Representations and Warranties by Intel. Intel represents and
---------------------------------------
warrants to the Company as follows:
(a) Investment Intent. This Agreement is made with Intel in reliance
-----------------
upon such Purchaser's representation to the Company, evidenced by Purchaser's
execution of this Agreement, that Purchaser is acquiring the Series F Shares and
the Common Stock issuable upon conversion of Series F Preferred Stock
(collectively the "Securities") for investment for such Purchaser's own account,
for investment and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities Act
and the Law. Purchaser has the full right, power and authority to enter into
and perform this Agreement and the Rights Agreement, and this Agreement and the
Rights Agreement constitute valid and binding obligations upon it.
(b) Shares Not Registered. Purchaser understands and acknowledges
---------------------
that the offering of the Series F Shares pursuant to this Agreement will not be
registered under the Securities Act or qualified under the Law on the grounds
that the offering and sale of securities contemplated by this Agreement are
exempt from registration under the Securities Act and exempt from qualification
pursuant to Section 25102(f) of the Law, and that the Company's reliance upon
such exemptions is predicated upon such Purchaser's representations set forth in
this Agreement. Intel acknowledges and understands that the Securities must be
held indefinitely unless the Securities are subsequently registered under the
Securities Act and qualified under the Law or an exemption from such
registration and such qualification is available.
(c) No Transfer. Purchaser covenants that in no event will such
-----------
Purchaser dispose of any of the Securities (other than in conjunction with an
effective registration statement for the Securities under the Act or in
compliance with Rule 144 promulgated under the Act) unless and until (i) such
Purchaser shall have notified the Company of the proposed disposition and shall
have furnished the Company with a statement of the circumstances surrounding the
proposed disposition, and (ii) if reasonably requested by the Company, such
Purchaser shall have furnished the Company with an opinion of counsel reasonably
satisfactory in form and substance to the Company to the effect that (x) such
disposition will not require registration under the Securities Act and (y)
appropriate action necessary for compliance with the Securities Act, the Law and
any other applicable state, local or foreign law has been taken. It is agreed
that the Company will not require opinions of counsel for transactions made
pursuant to Rule 144.
(d) Permitted Transfers. Notwithstanding the provisions of subsection
-------------------
(c) above, no registration statement or opinion of counsel shall be necessary
for a
10
<PAGE>
transfer by a Purchaser which is a partnership to a partner of such partnership
or a former partner of such partnership who leaves such partnership after the
date hereof, or to the estate of any such partner or former partner or the
transfer by gift, will or intestate succession of any partner to his spouse or
lineal descendants or ancestors, if the transferee agrees in writing to be bound
by the terms of this Agreement to the same extent as if he were an original
Purchaser hereunder.
(e) Knowledge and Experience. Purchaser (i) has such knowledge and
------------------------
experience in financial and business matters as to be capable of evaluating the
merits and risks of such Purchaser's prospective investment in the Securities;
(ii) has the ability to bear the economic risks of such Purchaser's prospective
investment; (iii) has been furnished with and has had access to such information
as such Purchaser has considered necessary to make a determination as to the
purchase of the Securities together with such additional information as is
necessary to verify the accuracy of the information supplied; (iv) has had all
questions which have been asked by such Purchaser satisfactorily answered by the
Company; and (v) has not been offered the Securities by any form of
advertisement, article, notice or other communication published in any
newspaper, magazine, or similar media or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any such media.
(f) Not Organized to Purchase. Purchaser has not been organized for
-------------------------
the purpose of purchasing the Securities.
(g) Holding Requirements. Purchaser understands that if the Company
--------------------
does not (i) register its Common Stock with the Securities and Exchange
Commission ("SEC") pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (ii) become subject to Section 15(d) of
the Exchange Act, (iii) supply information pursuant to Rule 15c2-11 thereunder,
or (iv) have a registration statement covering the Securities (or a filing
pursuant to the exemption from registration under Regulation A of the Securities
Act covering the Securities) under the Securities Act in effect when it desires
to sell the Securities, such Purchaser may be required to hold the Securities
for an indeterminate period. Purchaser also understands that any sale of the
Securities that might be made by such Purchaser in reliance upon Rule 144 under
the Securities Act may be made only in limited amounts in accordance with the
terms and conditions of that rule.
4.2 Legends. Each certificate representing the Securities may be
-------
endorsed with the following legends:
(a) Federal Legend. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
--------------
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER
THE ACT. THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SHARES UNDER THE ACT OR (ii) IN COMPLIANCE WITH RULE 144, OR
11
<PAGE>
(iii) PURSUANT TO AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER OR
DISTRIBUTION.
(b) Other Legends. Any other legends required by the Law or
-------------
other applicable state blue sky laws.
The Company need not register a transfer of legended Securities, and may also
instruct its transfer agent not to register the transfer of the Securities,
unless the conditions specified in each of the foregoing legends are satisfied.
4.3 Removal of Legend and Transfer Restrictions. Any legend endorsed
-------------------------------------------
on a certificate pursuant to subsection 4.2(a) and the stop transfer
instructions with respect to such legended Securities shall be removed, and the
Company shall issue a certificate without such legend to the holder of such
Securities if such Securities are registered under the Securities Act and a
prospectus meeting the requirements of Section 10 of the Securities Act is
available or if such holder satisfies the requirements of Rule 144(k) and, where
reasonably deemed necessary by the Company, provides the Company with an opinion
of counsel for such holder of the Securities, reasonably satisfactory to the
Company, to the effect that (i) such holder, meets the requirements of Rule
144(k) or (ii) a public sale, transfer or assignment of such Securities may be
made without registration.
4.4 Rule 144. Purchaser is aware of the adoption of Rule 144 by the
--------
SEC promulgated under the Securities Act, which permits limited public resales
of securities acquired in a nonpublic offering, subject to the satisfaction of
certain conditions. Intel understands that under Rule 144, the conditions
include, among other things: the availability of certain current public
information about the issuer and the resale occurring not less than two years
after the party has purchased and paid for the securities to be sold.
5. Conditions to Closing.
---------------------
5.1 Conditions to Purchasers' Obligations. The obligation of Intel
-------------------------------------
to purchase the Series F Shares at the Closing is subject to the fulfillment to
its satisfaction, on or prior to the Closing Date, of the following conditions,
any of which may be waived in accordance with the provisions of subsection 7.1
hereof:
(a) Representations and Warranties Correct; Performance of
--------------------------------------- --------------
Obligations. The representations and warranties made by the Company in Section
3 hereof shall be true and correct when made, and shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of said date. The Company's business and assets
shall not have been adversely affected in any material way prior to the Closing
Date. The Company shall have performed in all material respects all obligations
and conditions herein required to be performed or observed by it on or prior to
the Closing Date.
12
<PAGE>
(b) Consents and Waivers. The Company shall have obtained in a timely
--------------------
fashion any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement.
(c) Filing of the Restated Articles. The Restated Articles shall have
-------------------------------
been filed with the Secretary of State of the State of California.
(d) Rights Agreement. The Company, the Series A, Series B, Series C,
----------------
Series D and Series E Preferred Stockholders, Intel, L. William Krause and
Adriaan Ligtenberg shall have executed the Rights Agreement in the form attached
as Exhibit C hereto.
---------
(e) Compliance Certificate. The Company shall have delivered a
----------------------
Certificate, executed by the President of the Company, dated the Closing Date,
certifying to the fulfillment of the conditions specified in subsections (a),
(b), (c), and (d) of this section 5.1.
(f) Opinion of Counsel. Intel shall have received an opinion from
------------------
Gray Cary Ware & Freidenrich, A Professional Corporation, the Company's counsel,
in substantially the form attached hereto as Exhibit F.
---------
(h) Confidentiality and Invention Assignment Agreements. Each key
---------------------------------------------------
officer and employee of the Company as listed in Schedule 5.1 shall have entered
------------
into a confidentiality and invention assignment agreement. The Company shall
use its best efforts to have the remainder of the employees and officers sign
such an agreement.
5.2 Conditions to Obligations of the Company. The Company's
----------------------------------------
obligation to sell and issue the Series F Shares at the Closing is subject to
the fulfillment to the satisfaction of the Company on or prior to the Closing
Date of the following conditions, any of which may be waived by the Company:
(a) Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by Intel in Section 4 hereof shall be true and correct when
made, and shall be true and correct on the Closing Date with the same force and
effect as if they had been made on and as of said date.
(b) Conditions Fulfilled. The conditions set forth in subsections
--------------------
(b), (c), and (d) of Section 5.1 shall have been fulfilled.
6. Affirmative Covenants of the Company. The Company hereby covenants
------------------------------------
and agrees as follows:
6.1 Financial Information. Until the first to occur of (i) the date
---------------------
on which the Company is required to file a report with the SEC pursuant to
Section 13(a) of the Exchange Act, by reason of the Company having registered
any of its securities pursuant to
13
<PAGE>
Section 12(g) of the Exchange Act or (ii) quotations for the Common Stock of the
Company are reported by the automated quotations system operated by the National
Association of Securities Dealers, Inc. or by an equivalent quotations system or
(iii) shares of the Common Stock of the Company are listed on a national
securities exchange registered under Section 6 of the Exchange Act, the Company
will furnish to each Purchaser, so long as such Purchaser or its affiliates own
any shares of the Company's Preferred Stock (the "Shares") or Common Stock
issued or issuable upon conversion of the Shares (as adjusted for stock
dividends, stock splits, recapitalizations and the like):
(i) as soon as practicable after the end of each fiscal year, and in
any event within 90 days thereafter, consolidated balance sheets of the Company
and its subsidiaries, if any, as at the end of such fiscal year, and
consolidated statements of operations and consolidated statements of changes in
financial position (or equivalent cash flow statements if required by the
Financial Accounting Standards Board) of the Company and its subsidiaries, if
any, for such year, prepared in accordance with generally accepted accounting
principles, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company, and
(ii) as soon as practicable after the end of each quarter (except the
last quarter of the fiscal year), and in any event within 45 days thereafter,
consolidated balance sheets of the Company and its subsidiaries, if any, as of
the end of such quarter; and consolidated statements of income (or equivalent
cash flow statements if required by the Financial Standards Board), for such
quarter and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles (except for required footnotes), all in
reasonable detail and signed, subject to changes resulting from year-end audit
adjustments, by the principal financial officer or chief executive officer of
the Company, and
(iii) so long as such Purchaser or its affiliates owns in excess of
two hundred thousand (200,000) Shares or an equivalent amount of Common Stock
issued or issuable upon conversion of the Shares (as adjusted for stock
dividends, stock splits, recapitalizations and the like), (i) as soon as
practicable after its adoption or approval by the Company's Board of Directors,
but not later than the commencement of such fiscal year, an annual plan for each
fiscal year which shall include monthly capital and operating expense budgets,
cash flow statements, projected balance sheets and profit and loss projections
for each such month and for the end of the year, itemized in such detail as the
Board of Directors may reasonably determine and (ii) as soon as practicable
after the end of each month (except the last month of the fiscal year), and in
any event within 30 days thereafter, consolidated balance sheets of the Company
and its subsidiaries, if any, as of the end of such month and consolidated
statements of income (or equivalent cash flow statements if required by the
Financial Standards Board), for such month and for the current fiscal year to
date, prepared in accordance with generally accepted accounting principles
(except for required footnotes), all in reasonable detail and signed, subject to
changes resulting from year-end audit adjustments, by the principal financial
officer or chief executive officer of the Company.
14
<PAGE>
6.2 Conflicts of Interests. The Company shall use its best efforts
----------------------
to ensure that the Company's employees, during the term of their employment with
the Company, do not engage in activities which would result in a conflict of
interest with the Company. The Company's obligations hereunder include, but are
not limited to, requiring that the Company's employees devote their primary
productive time, ability and attention to the business of the Company (provided,
however, the Company's employees may engage in other professional activity if
such activity does not materially interfere with their obligations to the
Company), requiring that the Company's employees enter into agreements regarding
proprietary information and confidentiality and preventing the Company's
employees from engaging or participating in any business that is in competition
with the business of the Company.
6.3 Key-Man Insurance. The Company shall maintain in force, until
-----------------
canceled or modified with the written consent of Purchasers holding more than
fifty percent (50%) of the Shares or their transferees, insurance policies on
the lives of L. William Krause and Adriaan Ligtenberg, in the amount of
$1,000,000 and $1,000,000, respectively, naming the Company as holder and
beneficiary.
6.4 Proprietary Agreements. The Company will use its best efforts to
----------------------
prevent any employee from violating the confidentiality and proprietary
information agreement entered into between the Company and each of its
employees.
6.5 Future Stock Issuances. The Company agrees that after the
----------------------
Closing it will not issue more than a total of 4,444,842 shares of Common Stock
(or grant any options, warrants or other rights to purchase the same) pursuant
to a stock option plan or restricted stock plan to employees, officers,
directors and consultants without unanimous vote of the Company's Board of
Directors. Moreover, except with respect to the employees other than Messrs.
Krause and Ligtenberg (the "Current Employees") of the Company as of the date of
Closing, the Company will not issue any shares of Common Stock (or grant any
options, warrants or other rights to purchase the same) to any employee,
officer, director or consultant except pursuant to agreements which provide for
vesting over a period of at least [forty-eight (48) months] (with the initial
vesting date to occur after twelve (12) months) and a right of first refusal in
favor of the Company in the event of any proposed transfer unless such issuance
or grant is approved by unanimous vote of the Company's Board of Directors.
6.6 Inspection. The Company shall permit each Purchaser, at such
----------
Purchaser's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by Intel; provided, however, that the Company shall not be obligated pursuant to
this Section 6.6 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
6.7 Change-in-Control. In the event that the Company would enter
-----------------
into any transaction that would result in a change of control of the Company or
a sale of all or substantially all of the Company's assets (a "Change-in-Control
Event"), prior to entering into
15
<PAGE>
such Change-in-Control Event, the Company shall give Intel the opportunity to
acquire the Company in the following manner:
(a) The Company shall give notice to Intel in writing specifying the
proposed consideration to be paid and the other principal terms and conditions
of the proposal (the "Original Acquisition Proposal").
(b) Intel shall have the right, exercisable by written notice given by
Intel to the Company within ninety (90) days after receipt of the notice, to
deliver a proposal to acquire the Company on terms and conditions no less
favorable to the Company than those contained in the Original Acquisition
Proposal.
(c) If Intel timely delivers such acquisition proposal, the Board of
Directors of the Company shall determine in good faith and in compliance with
its fiduciary duties to the Company's shareholders (after consultation with and
based upon the advise of its financial and legal advisors) whether the terms and
conditions of the transaction proposed by Intel in its acquisition proposal
(including but not limited to the acquisition consideration to be paid) are at
least as favorable to the Company's shareholders from a financial point of view
as the terms and conditions of the transaction proposed in the Original
Acquisition Proposal.
(d) If Intel timely delivers an acquisition proposal and the Board of
Directors determines, in accordance with Section 6.7(c), that such acquisition
proposal is at least as favorable to the Company's shareholders as the Original
Acquisition Proposal, the Company shall be obligated to either: (i) accept
Intel's acquisition proposal, in which case the Company and Intel shall be
legally obligated to consummate the transaction contemplated thereby or (ii)
reject both the acquisition proposal of Intel and the Original Acquisition
Proposal.
(e) If Intel does not exercise its right of first refusal hereunder
within the time specified for such exercise, or if the Company's Board of
Directors determines, in accordance with Section 6.7(c), that Intel's
acquisition proposal is not as favorable to the Company's shareholders as the
Original Acquisition Proposal, the Company shall be free, during the period of
ninety (90) calendar days following the expiration of such time for exercise or
such board determination, to conclude the transaction specified in the
acquisition notice on terms no less favorable to the Company than the terms
specified in the acquisition notice. In the event the Company has not
consummated the transaction contemplated by the notice within said ninety (90)
day period, the Company shall not thereafter consummate such transaction without
first offering Intel the right of first refusal in the manner provided in this
Section.
7. Mutual Covenant. The Company and Intel hereby covenant and agree to
---------------
continue to explore opportunities in consumer imaging products through December
31, 1996 which may result in future collaborative efforts.
8. Miscellaneous.
-------------
16
<PAGE>
8.1 Nondisclosure and Nonuse Obligation. The terms and conditions of
-----------------------------------
this Agreement, including its existence shall be "Confidential Information."
Each of the parties agrees that it will not make use of, disseminate, or in any
way disclose any Confidential Information to any person, firm or business,
except to the extent necessary for negotiations, discussions, and consultations
with personnel or authorized representatives of the other party, and any purpose
the other party may hereafter authorize in writing. Furthermore, the existence
of any business negotiations, discussions, consultations or agreements in
progress between the parties shall not be released to any form of public media
without written approval of both parties. Each of the parties agrees that it
shall treat all Confidential Information of the other party with the same degree
of care as it accords to its own Confidential Information, and each of the
parties represents that it exercises reasonable care to protect its own
Confidential Information. Each party agrees that it shall disclose Confidential
Information of the other party only to those of its employees who need to know
such information and certifies that such employees have previously agreed,
either as a condition to employment or in order to obtain the Confidential
Information, to be bound by terms and conditions substantially similar to those
of this Agreement. In the event of a disclosure of Confidential Information
required by law, a valid order by court or other governmental body or necessity
to establish the right of either party under this Agreement, the disclosing
party shall use all reasonable efforts to obtain confidential treatment of
materials disclosed. Each party will immediately give notice to the other party
of any unauthorized use or disclosure of the Confidential Information. Each
party agrees to assist the other party in remedying any such unauthorized use or
disclosure of the Confidential Information.
8.2 Waivers and Amendments. With the written consent of the record
----------------------
holders of at least two-thirds of the Series F Shares, the rights of the holders
of the Series F Shares under this Agreement may be waived or amended (either
generally or in a particular instance); provided, however, that no such waiver
or amendment shall reduce the aforesaid proportion of Series F Shares, the
holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the record holders of all of the Series F
Shares. Upon the effectuation of each such waiver or amendment, the Company
shall promptly give written notice thereof to the record holders of the Series F
Shares who have not previously consented thereto in writing. Except to the
extent provided in this subsection 8.2, this Agreement or any provision hereof
may be amended, waived, discharged or terminated only by a statement in writing
signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought.
8.3 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
8.4 Survival. The representations, warranties, covenants and
--------
agreements made herein shall survive the Closing of the transactions
contemplated hereby, notwithstanding any investigation made by Intel. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto or in
17
<PAGE>
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder as of the date of such
certificate or instrument.
8.5 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
8.6 Entire Agreement. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof and
they supersede, merge and render void every other prior written and/or oral
understanding or agreement among or between the parties hereto.
8.7 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be delivered personally,
mailed by first class mail, postage prepaid, or delivered by courier or
overnight delivery, addressed (a) if to a Purchaser, at such Purchaser's address
set forth in the Schedule of Purchasers, or at such other address as such
Purchaser shall have furnished to the Company in writing or (b) if to the
Company, at its address set forth at the beginning of this Agreement, or at such
other address as the Company shall have furnished to Intel in writing. Notices
that are mailed shall be deemed received five (5) days after deposit in the
United States mail.
8.8 Severability. In case any provision of this Agreement shall be
------------
found by a court of law to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby.
8.9 Finder's Fees and Other Fees.
----------------------------
(a) The Company (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and, (ii) hereby agrees to indemnify and to hold Purchasers harmless
from and against any liability for commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the
Company, or any of its employees or representatives, is responsible.
(b) Intel (i) represents and warrants that it has retained no finder
or broker in connection with the transactions contemplated by this Agreement and
(ii) hereby agrees to indemnify and to hold the Company harmless from and
against any liability for any commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which Purchaser,
or any of its employees or representatives, are responsible.
8.10 Expenses. The Company and Intel shall each bear their own
--------
expenses and legal fees in connection with the consummation of this transaction;
provided, however,
18
<PAGE>
that the Company will pay the reasonable fees, up to $7,500, of special counsel
for Intel, together with disbursements and expenses incurred by special counsel
in connection with all transactions leading up to and including the Closing.
8.11 Titles and Subtitles. The titles of the sections and subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
8.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.13 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to the Company or to any holder of any securities
issued or to be issued hereunder shall impair any such right, power or remedy of
the Company or such holder, nor shall it be construed to be a waiver of any
breach or default under this Agreement, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any delay or
omission to exercise any right, power or remedy or any waiver of any single
breach or default be deemed a waiver of any other right, power or remedy or
breach or default theretofore or thereafter occurring. All remedies, either
under this Agreement, or by law otherwise afforded to the Company or any holder,
shall be cumulative and not alternative.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
STORM PRIMAX, INC.
By:
---------------------------------------
L. William Krause
President and Chief Executive
Officer
INTEL CORPORATION
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
20
<PAGE>
EXHIBIT 10.11
FOURTH AMENDED AND RESTATED RIGHTS AGREEMENT
This Amended and Restated Rights Agreement (the "Agreement") is entered
into as of the 18th day of March, 1996 by and among Storm Primax, Inc., a
California corporation (the "Company"), and the undersigned holders of Series A,
Series B, Series C and Series D Preferred Stock of the Company (the "Prior
Holders"), the undersigned holders of Series E Preferred Stock of the Company
(the "New Holders") (Prior Holders and New Holders may be collectively referred
to as "Preferred Shareholders") and L. William Krause and Adriaan Ligtenberg
(the "Founders").
RECITALS
--------
A. The Prior Holders and Founders have previously been granted certain
registration rights and rights of first refusal by the Company pursuant to that
certain Amended and Restated Rights Agreement dated July 27, 1995, as amended,
(the "Rights Agreement").
B. The Company proposes to sell up to 16,857,316 shares of Series E
Preferred Stock to the New Holders pursuant to an Agreement and Plan of
Reorganization and an Asset Transfer Agreement of even date herewith (the
"Series E Agreements") and desires that the New Holders receive the same
registration rights as the Prior Holders.
C. The Prior Holders and Founders beneficially owning at least two-thirds
(2/3) of the Company's shares held by all Prior Holders and Founders which are
subject to the Rights Agreement wish to amend the Rights Agreement to grant
registration rights to the New Holders identical to the registration rights of
the Prior Holders, and to waive their right of first refusal with respect to the
sale of Series E Preferred Stock pursuant to the Series E Agreements.
D. The New Holders desire to become parties to the Rights Agreement as
amended and restated hereby.
E. The Founders, the Prior Holders and the New Holders (collectively the
"Purchasers") and the Company now desire to set forth the registration rights
applicable to the Preferred Stock by amending and restating the Rights Agreement
in its entirety as set forth below.
AGREEMENT
---------
In consideration of the foregoing and of the mutual promises and covenants
contained herein, the parties agree as follows:
1. Registration Rights.
-------------------
1.1 Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
1
<PAGE>
"Commission" shall mean the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Conversion Stock" means the Common Stock issued or issuable upon
----------------
conversion of the Series A, Series B, Series C, Series D and Series E Preferred
Stock.
"Founder's Stock" shall mean any shares of Common Stock held by a Founder.
---------------
"Holder" shall mean any shareholder of the Company holding Registrable
------
Securities (including Series A, Series B, Series C, Series D and Series E
Preferred Stock) and any person holding Registrable Securities to whom the
rights under this Section 1 have been transferred in accordance with Sections
1.11 and 3.3 hereof.
"Initiating Holders" shall mean any Holder or Holders of at least sixty
------------------
percent (60%) of the Registrable Securities (adjusted after the original
issuance thereof for stock splits, stock dividends, recapitalizations and the
like).
"Registrable Securities" means (i) the Conversion Stock; (ii) shares of
----------------------
capital stock of the Company issued or issuable upon exercise of a warrant or
warrants unanimously approved by the Board of Directors and issued in connection
with an equipment lease, equipment financing or a bank line financing; (iii)
stock issued in lieu of the stock described in (ii) in any reorganization which
has not been sold to the public; or (iv) stock issued in respect of the stock
referred to in (i), (ii) and (iii) as a result of a stock split, stock dividend,
recapitalization or the like, which have not been sold to the public. Except
for subsections 1.2, 1.4, 1.10, 2.1, 3.1 through 3.3, and 5.4, Registrable
Securities shall mean shares of Common Stock of the Company issued or issuable
to the Founders and to those officers and directors of the Company to whom the
Board of Directors of the Company by unanimous vote extends the registration
rights contained in subsection 1.3; provided, however, that such grant of rights
to the Founders, officers, directors or employees shall not be deemed to
restrict or limit the registration rights otherwise afforded to L. William
Krause with respect to the Series A, Series C, Series D and Series E Preferred
Stock purchased by him.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise stated
---------------------
below, incurred by the Company in complying with Sections 1.2, 1.3 and 1.4
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and disbursements of one counsel for all
Holders in the event of each registration provided for in Sections 1.2, 1.3 and
1.4 hereof.
2
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth above, all reasonable fees and
disbursements of counsel for the selling Holders.
1.2 Requested Registration.
----------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration
with respect to a number of shares the reasonably anticipated aggregate price to
the public of which, net of underwriting discounts and commissions, would exceed
$3,000,000 the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
-------- -------
any action to effect any such registration, qualification or compliance pursuant
to this Section 1.2:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) At any time prior to the earlier of six (6) months
after the effective date of the Company's initial public offering of its
securities pursuant to a registration statement declared effective under the
Securities Act or January 1, 1998;
(C) Within one hundred eighty (180) days of the effective
date of, any registration statement pertaining to securities of the Company
(other than a registration of securities in a Rule 145 transaction or with
respect to an employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective;
(D) After the Company has effected two such registrations
pursuant to this Section 1.2(a), and such registrations have been declared or
ordered effective (provided that,
3
<PAGE>
if prior to the effectiveness of a registration statement, the number of Holders
participating or the number of shares of underlying Common Stock would not be
sufficient to initiate a registration pursuant to this Section 1.2(a), the
Company may withdraw its registration statement and, unless such insufficiency
resulted from shares of underlying Common Stock being withdrawn as a result of a
materially adverse event or circumstance relating to the Company which was not
known to the Initiating Holders at the time of their request for demand
registration, the Company will be deemed to have satisfied one of its
obligations to register underlying common stock for purposes of this Section
1.2(a)(ii)(D));
(E) If the Company shall furnish to such Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
its shareholders for a registration statement to be filed in the near future,
then the Company's obligation to use its best efforts to register, qualify or
comply under this Section 1.2 shall be deferred for a period not to exceed one
hundred twenty (120) days from the date of receipt of written request from the
Initiating Holders, provided that the Company may not use this right more than
once in any twelve month period.
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
------------
Section 1.2 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.2(a)(i). In such event, the right of any Holder to participate in such
registration shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 1.2, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders, but subject to the Company's
reasonable approval. Notwithstanding any other provision of this Section 1.2, if
the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all participating Holders and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
To facilitate the allocation of shares in accordance with the above provisions,
the Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities, and/or other securities so withdrawn shall also be
withdrawn from registration, and such securities shall not be transferred in a
public distribution
4
<PAGE>
prior to one hundred eighty (180) days after the effective date of such
registration, or such other shorter period of time as the underwriters may
require.
If the underwriter has not limited the number of Registrable Securities to
be underwritten, the Company may include securities for its own account (or for
the account of other shareholders) in such registration if the underwriter so
agrees and if the number of Registrable Securities that would otherwise have
been included in such registration and underwriting will not thereby be limited.
1.3 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time the
----------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Commission Rule 145 transaction, or (iii) a registration
effected pursuant to Sections 1.2 or 1.4 hereof the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within twenty (20) days after receipt of such written notice from
the Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company, but subject to the reasonable approval of Holders holding more than a
majority of the Registrable Securities to be included in such registration.
Notwithstanding any other provision of this Section 1.3, if the managing
underwriter determines that marketing factors require limitation of the number
of shares to be underwritten, the managing underwriter may limit the Registrable
Securities to be included in such registration. The Company shall so advise all
Holders and other holders distributing their securities through such
underwriting and the number of shares of securities that may be included in the
registration and underwriting (other than on behalf of the Company) shall be
allocated among all Holders and such other holders (provided that such other
holders have contractual rights to participate in such registration that are not
subordinate to the Holders) in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities or other securities requested to be
included in such registration by such Holders and such other holders; provided,
however, in no event shall the amount of Registrable Securities of the Holders
included in the offering be reduced below thirty percent (30%) of the total
amount of securities included in such offering, unless such offering is the
initial public offering of the Company's securities in which case the Holders
may be excluded entirely if the underwriters make the determination described
above or the Holders holding a majority
5
<PAGE>
of the Registrable Securities consent in writing to such a reduction; and
provided, further, however that the Registrable Securities held by Employee-
Holders, as defined in Section 1.3(c), shall be reduced before any reduction in
the Registrable Securities to be offered by the Preferred Shareholders, except
that the Employee-Holders shall be entitled to include Registrable Securities
held by them for up to five percent (5%) of the total amount of securities
included in such offering, with the Preferred Shareholders retaining the right
to include Registrable Securities held by them for up to twenty-five percent
(25%) of the total amount of securities included in such offering. The Company
shall so advise all Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among Holders requesting registration in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities held
by each of such Holders as of the date of the notice pursuant to subsection
1.3(a)(i) above. To facilitate the allocation of shares in accordance with the
above provisions, the Company may round the number of shares allocated to any
Holder or holder to the nearest 100 shares. If any Holder or holder disapproves
of the terms of any such underwriting, he may elect to withdraw therefrom by
written notice to the Company and the managing underwriter. Any securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration, and shall not be transferred in a public distribution prior to
ninety (90) days after the effective date of the registration statement relating
thereto, or such other shorter period of time as the underwriters may require.
(c) Registration Rights of Founders, Officers, Directors and
--------------------------------------------------------
Employees. Upon any sale by the Company of shares of its Common Stock to the
- ---------
public in a firmly underwritten public offering, the Founders and any other
officer, director or employee designated by the Company's Board of Directors by
unanimous vote shall be entitled to include any of their shares of Common Stock
in any registration by the Company under this subsection 1.3, if such persons
who choose to include any of their securities in such registration shall
continue to serve the Company as officer, director or employee on the effective
date of such registration statement, and such persons agree to be bound by all
other provisions of this Agreement and participate in any such registration on
the same basis as each Holder in accordance with all applicable provisions of
this Agreement (such persons are collectively referred to as "Employee-
Holders").
1.4 Registration on Form S-3.
------------------------
(a) If any Holder or Holders holding in the aggregate not less than
five percent (5%) of the then outstanding Registrable Securities request that
the Company file a registration statement on Form S-3 (or any successor form to
Form S-3) for a public offering of shares of the Registrable Securities the
reasonably anticipated aggregate price to the public of which, net of
underwriting discounts and commissions, would exceed $1,000,000, and the Company
is a registrant entitled to use Form S-3 to register the Registrable Securities
for such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as the
Holder or Holders may reasonably request; provided, however, that the Company
shall not be required to effect more than one (1) registration pursuant to this
Section 1.4 in any twelve (12) month period. The substantive provisions of
Section 1.2(b) shall be applicable to each registration initiated under this
Section 1.4.
6
<PAGE>
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 1.4:
(i) in any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(ii) if the Company, within ten (10) days of the receipt of the
request of the Initiating Holders, gives notice of its bona fide intention to
effect the filing of a registration statement with the Commission within sixty
(60) days of receipt of such request (other than with respect to a registration
statement relating to a Rule 145 transaction, an offering solely to employees or
any other registration which is not appropriate for the registration of
Registrable Securities);
(iii) within one hundred eighty (180) days of the effective date
of any registration referred to in Sections 1.2 and 1.3 above provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iv) if the Company shall furnish to such Holder a certificate
signed by the President of the Company stating that in good faith judgment of
the Board of Directors it would be seriously detrimental to the Company or its
shareholders for registration statements to be filed in the near future, then
the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed one hundred twenty (120)
days from the receipt of the request to file such registration by such Holder,
provided that the Company may not use this right more than once in any twelve
month period.
1.5 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date hereof, without the approval of the holders of a majority of the
Registrable Securities the Company shall not enter into any agreement granting
any holder or prospective holder of any securities of the Company registration
rights with respect to such securities unless such new registration rights,
including standoff obligations, are subordinate to the registration rights
granted to Holders hereunder. Nothing in this Section 1.5 shall be deemed to
restrict the Company's right to grant registration rights to individual
Employee-Holders pursuant to Section 1.3(c) above.
1.6 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with all registrations pursuant to Sections 1.2 and 1.3 and for the
first four registrations pursuant to Section 1.4 shall be borne by the Company.
Unless otherwise stated, all Selling Expenses relating to securities registered
on behalf of the Holders shall be borne by the Holders of such securities pro
rata on the basis of the number of shares so registered.
1.7 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration and as to the completion thereof. At its expense the Company
will:
7
<PAGE>
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the Registration
Statement has been completed.
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
(c) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
(g) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
8
<PAGE>
1.8 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such person within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers and directors, and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, within a reasonable period after such expenses are incurred, provided
that the Company will not be liable to any such person in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission (or alleged untrue statement or
omission), made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use therein
or the preparation thereby.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein or the preparation thereby. Notwithstanding the
foregoing, the liability of each Holder under this subsection (b) shall be
limited to an amount equal to the initial public
9
<PAGE>
offering price of the shares sold by such Holder, unless such liability arises
out of or is based on willful conduct by such Holder.
(c) Each party entitled to indemnification under this Section 1.8
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 1 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
1.9 Information by Holder. The Holders of securities included in any
---------------------
registration shall furnish to the Company such information regarding such
Holders, the Registrable Securities held by them and the distribution proposed
by such Holders as the Company may request in writing and as shall be required
in connection with any registration, qualification or compliance referred to in
this Section 1.
1.10 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act.
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements).
(c) So long as a Preferred Shareholder owns any Restricted Securities
to furnish to the Preferred Shareholder forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements of
said Rule 144 (at any time after ninety (90) days after the effective date of
the first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as a Preferred Shareholder
may
10
<PAGE>
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Preferred Shareholder to sell any such securities without
registration.
1.11 Transfer of Registration Rights. The rights to cause the Company to
-------------------------------
register securities granted Preferred Shareholders under sections 1.2, 1.3 and
1.4 may be assigned to a transferee or assignee reasonably acceptable to the
Company in connection with any transfer or assignment of Registrable Securities
by a Preferred Shareholder provided that: (i) such transfer may otherwise be
effected in accordance with applicable securities laws, and (ii) such assignee
or transferee (together with its Related Persons) acquires at least 50,000
shares of Registrable Securities (appropriately adjusted for Recapitalizations).
1.12 Standoff Agreement. Each Holder agrees in connection with the
------------------
Company's initial public offering of the Company's securities that, upon request
of the Company or the underwriters managing any underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such period
of time (not to exceed one hundred eighty (180) days) from the effective date of
such registration as may be requested by the underwriters; provided, that the
officers, directors of the Company who own stock of the Company and any
shareholder holding more than five percent (5%) of the outstanding voting
securities of the Company also agree to such restrictions.
1.13 Termination. Any registration rights granted pursuant to this
-----------
Section 1 shall terminate with respect to any Holder at such date, (i) seven
years after the closing date of the Company's initial public offering or
after the Company's initial registered public offering, when and for so long as
(ii) all remaining Registrable Securities held or entitled to be held by such
Holder may be sold under Rule 144 during any three (3) month period.
2. Right of First Refusal Upon Issuance of Securities by the Company.
-----------------------------------------------------------------
2.1 Right of First Refusal.
----------------------
(a) The Company hereby grants to each Preferred Shareholder (provided
such Preferred Shareholder is then a current holder of at least ten percent
(10%) of the number of shares of Series A, Series B, Series C, Series D or
Series E Preferred Stock (or Conversion Stock) originally purchased by such
Preferred Shareholder) and each Founder (provided the Founder remains a director
or officer of the Company) (collectively, hereinafter, the "Rights Holders") the
right of first refusal to purchase, pro rata, all or any part of New Securities
(as defined in this Section 2.1) which the Company may, from time to time,
propose to sell and issue. A pro rata share, for purposes of this right of first
refusal, is the ratio that the number of shares of Conversion Stock and
Founder's Stock then held by each Rights Holder bears to the sum of the total
number of shares of Conversion Stock and Founder's Stock then outstanding.
(b) The Company hereby grants to Primax Electronics, Ltd., an ROC
corporation ("Primax Taiwan") the right to assign the right to purchase up to
30% of the New Securities subject to the right of first offer described in
paragraph (a) to members of Primax Taiwan's management,
11
<PAGE>
provided (i) Primax Taiwan is then a current holder of at least 30% of the
- --------
Conversion Stock then outstanding; (ii) the New Securities have a per share
price greater than the per share price of the shares of Series E Preferred Stock
(as adjusted for stock splits, dividends and the like); (iii) the New Securities
are not being sold to a strategic partner in connection with the development of
a digital camera; and (iv) that this right to assign may only be exercised once
provided that this limitation shall not apply to (iii) above.
(c) "Equity Securities" shall mean any securities having voting
rights in the election of the Board of Directors not contingent upon default, or
any securities evidencing an ownership interest in the Company, or any
securities convertible into or exercisable for any shares of the foregoing, or
any securities issuable pursuant to any agreement or commitment to issue any of
the foregoing.
(d) Except as set forth below, "New Securities" shall mean any Equity
Securities, whether now authorized or not, and rights, options or warrants to
purchase said Equity Securities. Notwithstanding the foregoing, "New Securities"
does not include (i) Common Stock issued to employees, officers, consultants or
directors of the Company pursuant to sales or options granted at any time after
the date of incorporation of the Company pursuant to a stock option plan or
restricted stock plan unanimously approved by the Company's Board of Directors
up to a total of 2,944,842 (plus any of such shares which are repurchased by the
Company or as to which such options expire unexercised) or pursuant to any other
plan or agreement unanimously approved by the Company's Board of Directors; (ii)
securities offered to the public generally pursuant to a registration statement
under the Securities Act; (iii) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of substantially all of
the assets or other reorganization whereby the Company or its shareholders own
not less than fifty-one (51%) percent of the voting power of the surviving or
successor corporation; (iv) the Conversion Stock; (v) warrant or warrants for
the purchase of shares of capital stock of the Company (and stock issued upon
exercise of such warrant or warrants) which have been unanimously approved by
the Board of Directors of the Company and issued in connection with an equipment
lease, equipment financing or bank line financing; (vi) stock issued pursuant to
any rights or agreements including without limitation convertible securities,
options and warrants, provided that the rights of first refusal established by
this Section 2 apply with respect to the initial sale or grant by the Company of
such rights or agreements; or (vii) stock issued in connection with any stock
split, stock dividend or recapitalization by the Company.
(e) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Rights Holder written notice of its intention,
describing the type of New Securities, and the price and terms upon which the
Company proposes to issue the same. Each Rights Holder shall have fifteen (15)
days from the date of receipt of any such notice to agree to purchase up to its
respective pro rata share of such New Securities for the price and upon the
applicable terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.
(f) In the event a Rights Holder fails to exercise the right of first
refusal within said fifteen (15) day period, the Company shall have ninety (90)
days thereafter to sell or enter into an agreement (pursuant to which the sale
of New Securities covered thereby shall be closed, if at all,
12
<PAGE>
within sixty (60) days from the date of said agreement) to sell the New
Securities not elected to be purchased by Rights Holders at the price and upon
the terms no more favorable to the purchasers of such securities than specified
in the Company's notice. In the event the Company has not sold the New
Securities within said ninety (90) day period (or sold and issued New Securities
in accordance with the foregoing within sixty (60) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities,
without first offering such securities in the manner provided above.
(g) The right of first refusal granted under this Agreement shall
expire upon the closing of the first firm commitment underwritten offering of
the Company's securities to the public pursuant to an effective registration
statement under the Securities Act.
(h) The right of first refusal hereunder may be assigned to a
transferee or assignee reasonably acceptable to the Company in connection with
any transfer or assignment of Preferred or securities issuable upon conversion
thereof, or in exchange therefore, by a Rights Holder provided that: (i) such
transfer may otherwise be effected in accordance with applicable securities
laws, and (ii) such assignee or transferee acquires at least 50,000 shares
(appropriately adjusted for Recapitalizations). Notwithstanding the foregoing,
such rights of first refusal may be assigned to any constituent partner of a
Preferred Shareholder, without compliance with item (ii) above, provided written
notice thereof is promptly given to the Company.
(i) In executing this Agreement, the undersigned holders of Series A,
Series B, Series C and Series D Preferred Stock and the Founders waive the
rights of first refusal held by such holders of Series A, Series B, Series C and
Series D Preferred Stock and the Founders with respect to the issuance of the
Series E Preferred Stock pursuant to the Series E Agreements.
3. Right of Co-Sale Upon Transfer by Founders. Each Founder hereby agrees as
------------------------------------------
follows:
3.1 Right of Co-Sale. In the event that a Founder proposes to sell any
----------------
shares of Common Stock (other than as set forth in Section 3.3 below) and the
Company waives any right of first refusal it may have with respect to such
shares, each Preferred Shareholder shall have the right, exercisable upon
written notice to the Founder within forty (40) days after notice by the Company
of such sale to participate in such sale of securities (which are not purchased
by the Company or its assigns) pursuant to the specified terms and conditions of
the notice, subject to the following limitations. The Company shall provide
written notice to each Preferred Shareholder within thirty (30) days after
receiving the notice of the proposed transfer from the Founder. The notice to
the Preferred Shareholders shall state the terms of the proposed transfer and
the date of expiration of the Preferred Shareholders' rights hereunder. Each
participating Preferred Shareholder shall be entitled to sell up to that number
of securities equal to the product obtained by multiplying (i) the shares to be
transferred less the number of shares which are purchased by the Company or its
assigns by (ii) a fraction, the numerator of which is the number of shares of
Conversion Stock of the Company then owned by such Preferred Shareholder and the
denominator of which is the combined number of shares of Conversion Stock of the
Company then owned by the selling Founder and the Preferred Shareholders. For
purposes of making such computation, each Preferred Shareholder shall be deemed
to own the number of shares of Common Stock into which all of the Series A,
Series B, Series C, Series D or Series E Preferred Stock held by such Preferred
Shareholder is at the time
13
<PAGE>
convertible (in addition to any Common Stock issued upon conversion of its
Series A, Series B, Series C, Series D or Series E Preferred Stock).
3.2 Prohibited Transfers. In the event the Founder should sell any
--------------------
Founder's Shares in contravention of the participation rights of a Purchaser
under this Section 3 (a "Prohibited Transfer"), the Purchaser shall have the
option to sell to the Founder a number of shares of Common Stock of the Company
(either directly or through delivery of convertible Preferred Stock) equal to
the number of shares of Common Stock sold by the Founder (or issuable upon
conversion of shares of Preferred Stock so sold) in contravention of such rights
on the following terms and conditions:
(a) The price per share at which such shares are to be sold to the
Founder shall be equal to the price per share paid by the third-party purchaser
or purchasers of the Founder's Shares (the "Contingent Purchaser") to the
Founder assuming conversion of all Preferred shares.
(b) The Purchaser shall deliver to the Founder, within 90 days after
it has received notice from the Founder or otherwise become aware of the
Prohibited Transfer, the certificate or certificates representing shares to be
sold, each certificate to be properly endorsed for transfer.
(c) The Founder shall, upon receipt of the certificates for the
repurchased shares, pay the aggregate purchase price therefor, by certified
check or bank draft made payable to the order of the Purchaser and shall
reimburse the Purchaser for any additional expenses, including legal fees and
expenses, incurred in effecting such purchase and resale.
3.3 Termination and Amendment. The right of co-sale described in Sections
-------------------------
3.1 and 3.2 shall expire on the effective date of the Company's initial
registered public offering. The rights set forth in this Section 3 shall not
apply to (i) transfers of up to ten percent (10%) on a cumulative basis of the
total number of shares of Common Stock owned by a Founder, (ii) a transfer by
any Founder to any members of their respective immediate families (which shall
be deemed to be limited to spouses, ancestors and descendants), or trusts for
the benefit of their respective immediate families, and (iii) a transfer by an
Founder to any entity controlling, controlled by or under common control with
the transferor. Each transferee of any shares of Common Stock pursuant to a
transfer described in (ii) and (iii) shall agree in writing, as a condition
precedent of the transfer of the Common Stock to such transferee, that such
transferee shall hold the Common Stock subject to subsection 3.1 above as if
such transferee was a Founder and shall make no further transfer of such shares
unless such transfer is in compliance with subsection 3.1 above.
3.4 Stock Legend. All certificates representing shares of Common Stock of
------------
the Company held by the Founders and transferees described in subsection 3.2
above shall bear the following legend:
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A RIGHT OF CO-SALE SET FORTH IN A RIGHTS AGREEMENT AMONG THE COMPANY,
THE HOLDER HEREOF AND CERTAIN OTHER SHAREHOLDERS OF THE COMPANY, A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF THE CORPORATION."
14
<PAGE>
4. Voting Agreement
----------------
4.1 Agreement to Vote: Seventh Director. The Fifth Amended and Restated
-----------------------------------
Articles of Incorporation provide that (i) the holders of the Company's Series E
Preferred Stock, (the "Primax Holders"), voting as a separate class, have the
right to elect three of the seven directors of the Company and (ii) the holders
of the Company's Common Stock and Series A, Series B, Series C and Series D
Preferred Stock (the "Storm Holders"), voting together as a separate class, have
the right to elect three of the seven directors of the Company. The Purchasers
hereby agree to vote all of the shares of the Company's voting securities now or
hereafter owned by them, whether beneficially or otherwise, and to otherwise act
with respect to such shares, so as to always elect a designee mutually agreed
upon by the Primax Holders and the Storm Holders, as a seventh director of the
Company, until such time as the closing of the Company's initial public
offering. In the event the Primax Holders and the Storm Holders fail to agree on
a mutually acceptable seventh director, the Primax Holders and the Storm Holders
hereby agree to vote or act with respect to their shares so as to leave one
vacancy on the board.
4.2 Successors in Interest. The provisions of Section 4.1 of this
----------------------
Agreement shall be binding upon the successors in interest of the Primax Holders
to any voting securities of the Company held by the Primax Holders (the "Primax
Shares") and upon the successors of interest of the Storm Holders to any of the
voting securities of the Company held by the Storm Holders (the "Storm Shares").
The Company shall not permit the transfer of any Primax Shares or Storm Shares
on its books or issue a new certificate representing any Primax Shares or Storm
Shares unless and until the person to whom such security is to be transferred
shall have executed a written agreement, satisfactory in form and substance to
the Primax Holders and the Storm Holders, pursuant to which such person becomes
a party to the provisions of Section 4 of this Agreement and agrees to be bound
by all the provisions thereof as if such person was a Primax Holder or Storm
Holder thereunder, as applicable.
4.3 Legend. Each certificate representing any Primax Shares or Storm
------
Shares shall be endorsed by the Company with a legend reading as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING
AGREEMENT SET FORTH IN A RIGHTS AGREEMENT AMONG THE COMPANY, THE HOLDER
HEREOF AND CERTAIN OTHER SHAREHOLDERS OF THE COMPANY, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF THE CORPORATION. BY
ACCEPTING ANY INTEREST IN SUCH SECURITIES THE PERSON ACCEPTING SUCH
INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE
PROVISIONS OF SAID VOTING AGREEMENT.
5. Future Actions. If at any time the Company's officers and directors
--------------
approve (i) the initial public offering of the Company's securities, or (ii)
after effectiveness of the initial public offering of the Company's securities,
provisions relating to cumulative voting with respect to the Company's voting
stock, the Primax Holders agree to cooperate and to take all actions necessary
to complete the
15
<PAGE>
adoption and implementation of such provisions, by, among other things,
executing written consents of shareholders, waivers and such other documents as
are reasonably requested for all Holders.
6. Affirmative Covenants of the Company. The Company hereby covenants and
------------------------------------
agrees as follows:
6.1 Financial Information. Until the first to occur of (i) the date on
---------------------
which the Company is required to file a report with the SEC pursuant to Section
13(a) of the Exchange Act, by reason of the Company having registered any of its
securities pursuant to Section 12(g) of the Exchange Act or (ii) quotations for
the Common Stock of the Company are reported by the automated quotations system
operated by the National Association of Securities Dealers, Inc. or by an
equivalent quotations system or (iii) shares of the Common Stock of the Company
are listed on a national securities exchange registered under Section 6 of the
Exchange Act, the Company will furnish to each Purchaser, so long as such
Purchaser or its affiliates own any shares of the Company's Preferred Stock (the
"Shares") or Common Stock issued or issuable upon conversion of the Shares (as
adjusted for stock dividends, stock splits, recapitalizations and the like):
(a) as soon as practicable after the end of each fiscal year, and in
any event within 90 days thereafter, consolidated balance sheets of the Company
and its subsidiaries, if any, as at the end of such fiscal year, and
consolidated statements of operations and consolidated statements of changes in
financial position (or equivalent cash flow statements if required by the
Financial Accounting Standards Board) of the Company and its subsidiaries, if
any, for such year, prepared in accordance with generally accepted accounting
principles, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company, and
(b) as soon as practicable after the end of each quarter (except the
last quarter of the fiscal year), and in any event within 45 days thereafter,
consolidated balance sheets of the Company and its subsidiaries, if any, as of
the end of such quarter; and consolidated statements of income (or equivalent
cash flow statements if required by the Financial Standards Board), for such
quarter and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles (except for required footnotes), all in
reasonable detail and signed, subject to changes resulting from year-end audit
adjustments, by the principal financial officer or chief executive officer of
the Company, and
(c) so long as such Purchaser or its affiliates owns in excess of two
hundred thousand (200,000) Shares or an equivalent amount of Common Stock issued
or issuable upon conversion of the Shares (as adjusted for stock dividends,
stock splits, recapitalizations and the like), (i) as soon as practicable after
its adoption or approval by the Company's Board of Directors, but not later than
the commencement of such fiscal year, an annual plan for each fiscal year which
shall include monthly capital and operating expense budgets, cash flow
statements, projected balance sheets and profit and loss projections for each
such month and for the end of the year, itemized in such detail as the Board of
Directors may reasonably determine and (ii) as soon as practicable after the end
of each month (except the last month of the fiscal year), and in any event
within 30 days thereafter, consolidated balance sheets of the Company and its
subsidiaries, if any, as of the end of such month and consolidated statements of
income (or equivalent cash flow statements if required by the Financial
Standards Board), for such month and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles (except for
required footnotes), all in reasonable detail and
16
<PAGE>
signed, subject to changes resulting from year-end audit adjustments, by the
principal financial officer or chief executive officer of the Company.
6.2 Conflicts of Interests. The Company shall use its best efforts to
----------------------
ensure that the Company's employees, during the term of their employment with
the Company, do not engage in activities which would result in a conflict of
interest with the Company. The Company's obligations hereunder include, but are
not limited to, requiring that the Company's employees devote their primary
productive time, ability and attention to the business of the Company (provided,
however, the Company's employees may engage in other professional activity if
such activity does not materially interfere with their obligations to the
Company), requiring that the Company's employees enter into agreements regarding
proprietary information and confidentiality and preventing the Company's
employees from engaging or participating in any business that is in competition
with the business of the Company.
6.3 Proprietary Agreements. The Company will use its best efforts to
----------------------
prevent any employee from violating the confidentiality and proprietary
information agreement entered into between the Company and each of its
employees.
6.4 Future Stock Issuances. The Company agrees that after the Closing it
----------------------
will not issue more than a total of 2,944, 842 shares of Common Stock (or grant
any options, warrants or other rights to purchase the same) pursuant to a stock
option plan or restricted stock plan to employees, officers, directors and
consultants without unanimous vote of the Company's Board of Directors.
Moreover, except with respect to the employees other than Messrs. Krause and
Ligtenberg (the "Current Employees") of the Company as of the date of Closing,
the Company will not issue any shares of Common Stock (or grant any options,
warrants or other rights to purchase the same) to any employee, officer,
director or consultant except pursuant to agreements which provide for vesting
over a period of at least forty-eight (48) months (with the initial vesting date
to occur after twelve (12) months on all initial option grants) and a right of
first refusal in favor of the Company in the event of any proposed transfer
unless such issuance or grant is approved by unanimous vote of the Company's
Board of Directors.
6.5 Inspection. The Company shall permit each Purchaser, at such
----------
Purchaser's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Purchaser; provided, however, that the Company shall not be obligated
pursuant to this Section 6.5 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
6.6 Superseded Provisions. This Section 6 supersedes and replaces in
---------------------
their entirety each and every provision of Section 6 "Affirmative Covenants of
the Company" in the following documents: (i) the November 1991 Storm
Technology, Inc. Agreement Concerning Purchase of Series A Preferred Stock; (ii)
the January 1992 Storm Technology, Inc. Agreement Concerning Purchase of Series
B Preferred Stock; (iii) the May 1994 Storm Technology, Inc. Agreement
Concerning Purchase of Series C Preferred Stock; and (iv) the July 1995 Storm
Software, Inc. Agreement Concerning Purchase of Series D Preferred Stock.
17
<PAGE>
6.7 No Other Registration or Other Rights. Except as provided herein, the
-------------------------------------
Company has not granted (i) any right to register any presently outstanding
securities, or any securities which may hereafter be issued, under the
Securities Act or (ii) any right of first refusal upon issuance of securities by
the Company.
7. Miscellaneous
-------------
7.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California as applied to transactions taking place
between California residents and wholly within the State of California.
7.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by any Preferred Shareholder
and the closing of the transactions contemplated hereby.
7.3 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
7.4 Entire Agreement; Amendment. This Agreement constitutes the full and
---------------------------
entire understanding and agreement between the parties with regard to the
subjects hereof, and no party shall be liable or bound to any other party in any
manner by any warranties, representations or covenants except as specifically
set forth herein. With the written consent of the record or beneficial Holders
of at least two-thirds (2/3) of the Registrable Securities, the obligations of
the Company and the rights of the Holders of the Registrable Securities under
this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively, and either for a specified period of time
or indefinitely), and with the same consent the Company, when authorized by
resolution of its Board of Directors, may enter into a supplementary agreement
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement; provided, however, that no
such modification, amendment or waiver shall reduce the aforesaid percentage of
Registrable Securities without the consent of all of the Holders of the
Registrable Securities. Upon the effectuation of each such waiver, consent,
agreement of amendment or modification, the Company shall promptly give written
notice thereof to the record holders of the Registrable Securities who have not
previously consented thereto in writing. Any amendment or waiver affected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company. This Agreement or any provision hereof
may be changed, waived, discharged of terminated only by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, except to the extent provided in this Section 7.4.
7.5 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, certified or registered mail, return receipt requested,
addressed (a) if to any Holder, at such Holder's address as set forth in the
Company's records, or at such other address as such Holder shall have furnished
to the Company in writing, or (b) if to the Company, at Storm Software, Inc.,
1861 Landings Drive, Mountain View, CA 94043, or at such other address as the
Company shall have furnished to the Holder in writing.
18
<PAGE>
7.6 Delays or Omissions. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power or remedy accruing to any holder of any
Shares, upon any breach or default of the Company under this Agreement, shall
impair any such right, power or remedy of such holder nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach or
default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
7.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.8 Severability. If any provision of this Agreement, or the application
------------
thereof, shall for any reason and to any extent be invalid or unenforceable the
remainder of this Agreement and application of such provision to persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto; the parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
which will achieve to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
7.9 Effect on Prior Agreement. The provisions of this Agreement amend and
-------------------------
supersede any rights or obligations under the Rights Agreement.
7.10 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
STORM SOFTWARE, INC. a California
corporation
By:
------------------------------
L. William Krause
19
<PAGE>
COUNTERPART SIGNATURE PAGE
TO STORM SOFTWARE, INC.
FOURTH AMENDED AND RESTATED RIGHTS AGREEMENT
DATED AS OF MARCH 18, 1996
"FOUNDERS"
- ------------------------
L. William Krause
- ------------------------
Adriaan Ligtenberg
20
<PAGE>
COUNTERPART SIGNATURE PAGE
TO STORM SOFTWARE, INC.
FOURTH AMENDED AND RESTATED RIGHTS AGREEMENT
DATED AS OF MARCH 18, 1996
"PRIOR HOLDER"
If you are an individual, please
print your name and sign below.
- ----------------------------------
Name (Please Print)
- ----------------------------------
Signature
If you are signing on behalf of an
entity, please print the name of
the entity and sign below, indicating
your title.
- ----------------------------------
Name (Please Print)
- ----------------------------------
Signature
- ----------------------------------
Title
21
<PAGE>
COUNTERPART SIGNATURE PAGE
TO STORM SOFTWARE, INC.
FOURTH AMENDED AND RESTATED RIGHTS AGREEMENT
DATED AS OF MARCH 18, 1996
"NEW HOLDER"
If you are an individual, please
print your name and sign below.
- ----------------------------------
Name (Please Print)
- ----------------------------------
Signature
If you are signing on behalf of an
entity, please print the name of
the entity and sign below, indicating
your title.
- ----------------------------------
Name (Please Print)
- ----------------------------------
Signature
- ----------------------------------
Title
22
<PAGE>
FIRST AMENDMENT TO THE FOURTH
AMENDED AND RESTATED RIGHTS AGREEMENT
This First Amendment to the Fourth Amended and Restated Rights Agreement
(the "Amendment") is entered into as of the 11th day of June, 1996 by and among
Storm Primax, Inc., a California corporation (the "Company"), and the
undersigned holders of Series A, Series B, Series C, Series D and Series E
Preferred Stock of the Company (the "Prior Holders"), Intel Corporation, a
Delaware corporation ("Intel") (the Prior Holders and Intel may be collectively
referred to as "Preferred Shareholders") and L. William Krause and Adriaan
Ligtenberg (the "Founders").
RECITALS
--------
A. The Prior Holders and Founders have previously been granted certain
registration rights and rights of first refusal by the Company pursuant to that
certain Amended and Restated Rights Agreement dated March 18, 1996, as amended,
(the "Rights Agreement").
B. The Company proposes to sell up to 483,870 shares of Series F Preferred
Stock to Intel pursuant to a Stock Purchase Agreement of even date herewith (the
"Series F Agreement") and desires that Intel receive the same registration
rights as the Prior Holders.
C. The Prior Holders and Founders beneficially owning at least two-thirds
(2/3) of the Company's shares held by all Prior Holders and Founders which are
subject to the Rights Agreement wish to amend the Rights Agreement to grant
registration rights to Intel that are substantially the same to the registration
rights of the Prior Holders, and to waive their right of first refusal with
respect to the sale of Series F Preferred Stock pursuant to the Series F
Agreements.
D. Intel desires to become a party to the Rights Agreement as amended
hereby.
E. The Founders, the Prior Holders and Intel (collectively the
"Purchasers") and the Company now desire to amend the registration rights
applicable to the Preferred Stock as set forth below.
AMENDMENT
---------
1. The following definitions under section 1.1 are amended to read as follows:
"Conversion Stock" means the Common Stock issued or issuable upon
----------------
conversion of the Series A, Series B, Series C, Series D, Series E and Series F
Preferred Stock.
"Holder" shall mean any shareholder of the Company holding Registrable
------
Securities (including Series A, Series B, Series C, Series D, Series E and
Series F Preferred Stock) and any person holding Registrable Securities to whom
the rights under this Section 1 have been transferred in accordance with
Sections 1.11 and 3.3 hereof.
1
<PAGE>
"Initiating Holders" shall mean (i) any Holder or Holders, excluding the
------------------
holder of holders of Series E Preferred Stock, of at least sixty percent (60%)
of the Registrable Securities, less Conversion Stock issued or issuable upon
conversion of the Series E Preferred Stock (adjusted after the original issuance
thereof for stock splits, stock dividends, recapitalizations and the like) or
(ii) any Holder or Holders of at least 60% of the Registrable Securities
(adjusted after the original issuance thereof for stock splits, stock dividends,
recapitalizations and the like), provided that in either instance; provided that
in either instance, Initiating Holders as defined in subsections (i) and (ii) of
this definition are entitled to only one Requested Registration each.
"Registrable Securities" means (i) the Conversion Stock; (ii) shares of
----------------------
capital stock of the Company issued or issuable upon exercise of a warrant or
warrants unanimously approved by the Board of Directors and issued in connection
with an equipment lease, equipment financing or a bank line financing; (iii)
stock issued in lieu of the stock described in (ii) in any reorganization which
has not been sold to the public; or (iv) stock issued in respect of the stock
referred to in (i), (ii) and (iii) as a result of a stock split, stock dividend,
recapitalization or the like, which have not been sold to the public. Except
for subsections 1.2, 1.4, 1.10, 2.1, 3.1 through 3.3, and 5.4, Registrable
Securities shall mean shares of Common Stock of the Company issued or issuable
to the Founders and to those officers and directors of the Company to whom the
Board of Directors of the Company by unanimous vote extends the registration
rights contained in subsection 1.3; provided, however, that such grant of rights
to the Founders, officers, directors or employees shall not be deemed to
restrict or limit the registration rights otherwise afforded to L. William
Krause with respect to the Series A, Series C and Series D Preferred Stock
purchased by him.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
2. The first paragraph under section 2.1 is amended to read in full as
follows:
(a) The Company hereby grants to each Preferred Shareholder (provided
such Preferred Shareholder is then a current holder of at least ten percent
(10%) of the number of shares of Series A, Series B, Series C, Series D, Series
E or Series F Preferred Stock (or Conversion Stock) originally purchased by such
Preferred Shareholder) and each Founder (provided the Founder remains a director
or officer of the Company) (collectively, hereinafter, the "Rights Holders") the
right of first refusal to purchase, pro rata, all or any part of New Securities
(as defined in this Section 2.1) which the Company may, from time to time,
propose to sell and issue. A pro rata share, for purposes of this right of
first refusal, is the ratio that the number of shares of Conversion Stock and
Founder's Stock then held by each Rights Holder bears to the sum of the total
number of shares of Conversion Stock and Founder's Stock then outstanding.
3. Section 3.1 is amended to read in full as follows:
3.1 Right of Co-Sale. In the event that a Founder proposes to sell any
----------------
shares of Common Stock (other than as set forth in Section 3.3 below) and the
Company waives any right of first refusal it may have with respect to such
shares, each Preferred Shareholder shall have the right, exercisable upon
written notice to the Founder within forty (40) days after notice by the Company
of such sale
2
<PAGE>
to participate in such sale of securities (which are not purchased by the
Company or its assigns) pursuant to the specified terms and conditions of the
notice, subject to the following limitations. The Company shall provide written
notice to each Preferred Shareholder within thirty (30) days after receiving the
notice of the proposed transfer from the Founder. The notice to the Preferred
Shareholders shall state the terms of the proposed transfer and the date of
expiration of the Preferred Shareholders' rights hereunder. Each participating
Preferred Shareholder shall be entitled to sell up to that number of securities
equal to the product obtained by multiplying (i) the shares to be transferred
less the number of shares which are purchased by the Company or its assigns by
(ii) a fraction, the numerator of which is the number of shares of Conversion
Stock of the Company then owned by such Preferred Shareholder and the
denominator of which is the combined number of shares of Conversion Stock of the
Company then owned by the selling Founder and the Preferred Shareholders. For
purposes of making such computation, each Preferred Shareholder shall be deemed
to own the number of shares of Common Stock into which all of the Series A,
Series B, Series C, Series D, Series E or Series F Preferred Stock held by such
Preferred Shareholder is at the time convertible (in addition to any Common
Stock issued upon conversion of its Series A, Series B, Series C, Series D,
Series E or Series F Preferred Stock).
4. Section 4.1 is amended to read in full as follows
4.1 Agreement to Vote: Seventh Director and Board Representative. The
------------------------------------------------------------
Fifth Amended and Restated Articles of Incorporation provide that (i) the
holders of the Company's Series E Preferred Stock, (the "Primax Holders"),
voting as a separate class, have the right to elect three of the seven directors
of the Company and (ii) the holders of the Company's Common Stock and Series A,
Series B, Series C, Series D and Series F Preferred Stock (the "Storm Holders"),
voting together as a separate class, have the right to elect three of the seven
directors of the Company. The Purchasers hereby agree to vote all of the shares
of the Company's voting securities now or hereafter owned by them, whether
beneficially or otherwise, and to otherwise act with respect to such shares, so
as to always elect a designee mutually agreed upon by the Primax Holders and the
Storm Holders, as a seventh director of the Company, until such time as the
closing of the Company's initial public offering. In the event the Primax
Holders and the Storm Holders fail to agree on a mutually acceptable seventh
director, the Primax Holders and the Storm Holders hereby agree to vote or act
with respect to their shares so as to leave one vacancy on the board. So long as
any Series F Shares are outstanding and prior to a firm underwritten initial
public offering, the holders of Series F Shares will be entitled to appoint a
representative to attend all Board meetings as an observer.
5. The undersigned holders of Series A, Series B, Series C, Series D and
Series E Preferred Stock hereby waive his or its right to notice and right of
first refusal granted under Section 2.1 of the Fourth Amended and Restated
Rights Agreement. The undersigned further hereby consents to Intel becoming a
party to the Rights Agreement as a "Purchaser," as such term defined in the
Rights Agreement, upon Intel's execution and delivery of a counterpart signature
page to the Rights Agreement.
6. The provisions of this Amendment amend and supersede any rights or
obligations under the Fourth Amended and Restated Rights Agreement. All other
provisions remain valid and enforceable.
3
<PAGE>
7. The foregoing Amendment has been duly approved by the board of directors.
8. The foregoing Amendment has been duly approved by the required vote of
shareholders, such required vote being two thirds (2/3) of the total number of
outstanding shares of Common Stock voting separately as a class and two thirds
(2/3) of the total number of outstanding shares of the Preferred Stock voting
separately as a class.
The foregoing Amendment is hereby executed as of the date first above
written.
"COMPANY"
STORM PRIMAX, INC.
By: _____________________________________
L. William Krause
4
<PAGE>
COUNTERPART SIGNATURE PAGE
TO STORM PRIMAX, INC.
AMENDMENT TO THE FOURTH
AMENDED AND RESTATED RIGHTS AGREEMENT
DATED AS OF JUNE 11, 1996
"FOUNDERS"
- --------------------------------
L. William Krause
- --------------------------------
Adriaan Ligtenberg
5
<PAGE>
COUNTERPART SIGNATURE PAGE
TO STORM PRIMAX, INC.
AMENDMENT TO THE FOURTH
AMENDED AND RESTATED RIGHTS AGREEMENT
DATED AS OF JUNE 11, 1996
"PREFERRED SHAREHOLDERS"
Intel Corporation
By:___________________________________
Its:__________________________________
L. William Krause and
L. Gay Krause, as Trustees of the
Krause Trust Dated June 21, 1994,
as amended
By:___________________________________
Its:__________________________________
Primax Electronics, Ltd.
By: _________________________________
Its: ________________________________
Institutional Venture Partners V
By:___________________________________
Its:___________________________________
Institutional Venture Management V
By:___________________________________
Its:___________________________________
6
<PAGE>
EXHIBIT 10.12
AGREEMENT AND
PLAN OF REORGANIZATION
DATED FEBRUARY 24, 1996
BY AND AMONG
STORM, SUB
AND
PRIMAX (USA)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions............................................................ 1
-----------
1.1 "Affiliate"...................................................... 1
1.2 "Ancillary Documents"............................................ 1
1.3 "Code"........................................................... 1
1.4 "Commission"..................................................... 1
1.5 "Confidential Information"....................................... 1
1.6 "Dissenting Shares".............................................. 2
1.7 "Primax (USA) Products".......................................... 2
1.8 "Primax (USA) Shares"............................................ 2
1.9 "Storm Products"................................................. 2
1.10 "Securities"..................................................... 2
1.11 "Securities Act"................................................. 2
1.12 "Shareholders"................................................... 2
2. Plan of Reorganization................................................. 2
----------------------
2.1 The Merger....................................................... 2
2.2 Conversion of Shares............................................. 2
2.3 Fractional Shares................................................ 3
2.4 Dissenting Rights................................................ 3
2.5 The Closing...................................................... 3
2.6 Effective Time................................................... 3
2.7 Tax Free Reorganization.......................................... 3
2.8 Exemption from Registration...................................... 4
2.9 Restricted Securities............................................ 4
3. Representations and Warranties of Primax (USA)......................... 4
----------------------------------------------
3.1 Organization..................................................... 4
3.2 Capitalization................................................... 4
3.3 Power, Authority and Validity.................................... 5
3.4 Financial Statements............................................. 5
3.5 Tax Matters...................................................... 6
3.6 Tax Free Reorganization.......................................... 6
3.7 Absence of Certain Changes or Events............................. 7
3.8 Title and Related Matters........................................ 7
3.9 Proprietary Rights............................................... 8
3.10 Employee Benefit Plans........................................... 9
3.11 Bank Accounts.................................................... 9
3.12 Contracts........................................................ 9
3.13 Compliance With Law.............................................. 10
3.14 Labor Difficulties; No Discrimination............................ 10
3.15 Insider Transactions............................................. 10
3.16 Employees, Independent Contractors and Consultants............... 11
3.17 Insurance........................................................ 11
3.18 Litigation....................................................... 11
3.19 Governmental Authorizations and Regulations...................... 11
3.20 Subsidiaries..................................................... 11
3.21 Compliance with Environmental Requirements....................... 11
3.22 Corporate Documents.............................................. 11
3.23 No Brokers....................................................... 12
3.24 Disclosure....................................................... 12
4. Representations and Warranties of Storm and Sub........................ 12
-----------------------------------------------
4.1 Organization..................................................... 12
4.2 Capitalization................................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.3 Power, Authority and Validity.................................... 13
4.4 Financial Statements............................................. 14
4.5 Tax Matters...................................................... 14
4.6 Tax Free Reorganization.......................................... 14
4.7 Absence of Certain Changes or Events............................. 15
4.8 Title and Related Matters........................................ 15
4.9 Proprietary Rights............................................... 16
4.10 Employee Benefit Plans........................................... 17
4.11 Bank Accounts.................................................... 17
4.12 Contracts........................................................ 17
4.13 Compliance With Law.............................................. 18
4.14 Labor Difficulties; No Discrimination............................ 18
4.15 Insider Transactions............................................. 18
4.16 Employees, Independent Contractors and Consultants............... 18
4.17 Insurance........................................................ 19
4.18 Litigation....................................................... 19
4.19 Governmental Authorizations and Regulations...................... 19
4.20 Subsidiaries..................................................... 19
4.21 Compliance with Environmental Requirements....................... 19
4.22 Corporate Documents.............................................. 19
4.23 No Brokers....................................................... 19
4.24 Disclosure....................................................... 20
5. Preclosing Covenants of Primax (USA) and Storm......................... 20
----------------------------------------------
5.1 Material Consents................................................ 20
5.2 Advice of Changes................................................ 20
6. Mutual Covenants....................................................... 20
----------------
6.1 Conduct of Business.............................................. 20
6.2 No Public Announcement........................................... 20
6.3 Other Negotiations............................................... 20
6.4 Due Diligence, Investigation, and Audits......................... 20
6.5 Regulatory Filings; Consents; Reasonable Efforts................. 21
6.7 Further Assurances............................................... 21
7. Closing Matters........................................................ 21
---------------
7.1 Filing of Agreement of Merger.................................... 21
7.2 Exchange of Certificates......................................... 21
7.3 Delivery of Documents............................................ 22
8. Conditions to Primax (USA)'s Obligations............................... 22
----------------------------------------
8.1 Accuracy of Representations and Warranties....................... 22
8.2 Covenants........................................................ 22
8.3 No Litigation.................................................... 22
8.4 Authorizations................................................... 23
8.5 No Adverse Development........................................... 23
8.6 Required Consents................................................ 23
8.7 Opinion of Storm's Counsel....................................... 23
8.8 Government Consents.............................................. 23
8.9 Date of Closing.................................................. 23
8.10 Securities Laws.................................................. 23
8.11 Ancillary Agreements............................................. 23
8.12 Storm Articles of Incorporation.................................. 23
8.13 Storm Amended and Restated Rights Agreement...................... 23
9. Conditions to Storm's and Sub's Obligations............................ 23
-------------------------------------------
9.1 Accuracy of Representations and Warranties....................... 23
</TABLE>
ii
<PAGE>
Table of Contents, continued
<TABLE>
<S> <C>
9.2 Covenants........................................................ 24
9.3 No Litigation.................................................... 24
9.4 Authorizations................................................... 24
9.5 No Adverse Development........................................... 24
9.6 Required Consents................................................ 24
9.7 Opinion of Primax (USA)'s Counsel................................ 24
9.8 Government Consents.............................................. 24
9.9 Date of Closing.................................................. 24
9.10 Securities Laws.................................................. 24
9.11 Ancillary Agreements............................................. 24
9.12 Storm Articles of Incorporation.................................. 24
9.13 Storm Amended and Restated Rights Agreement...................... 25
10. Indemnity.............................................................. 25
---------
11. Termination of Agreement............................................... 25
------------------------
11.1 Termination...................................................... 25
11.2 Liability for Termination........................................ 25
11.3 Certain Effects of Termination................................... 25
11.4 Remedies......................................................... 26
11.5 Right to Damages................................................. 26
12. Miscellaneous.......................................................... 26
-------------
12.1 Governing Laws................................................... 26
12.2 Binding upon Successors and Assigns.............................. 26
12.3 Severability..................................................... 26
12.4 Entire Agreement................................................. 26
12.5 Counterparts..................................................... 26
12.6 Expenses......................................................... 27
12.7 Amendment and Waivers............................................ 27
12.8 Survival of Agreements........................................... 27
12.9 No Waiver........................................................ 27
12.10 Arbitration...................................................... 27
12.11 Attorneys' Fees.................................................. 27
12.12 Notices.......................................................... 27
12.13 Time............................................................. 28
12.14 Construction of Agreement........................................ 28
12.15 No Joint Venture................................................. 28
12.16 Pronouns......................................................... 28
12.17 Further Assurances............................................... 28
12.18 Absence of Third Party Beneficiary Rights........................ 29
</TABLE>
Exhibits and Schedules
Exhibit 2.1 Agreement of Merger
Exhibit 8.11 Ancillary Documents
Exhibit 8.12 Restated Articles of Incorporation
Exhibit 8.13 Amended and Restated Rights Agreement
Schedule 2.1 Directors and Officers of Surviving Corporation
Primax (USA) Disclosure Schedule
iii
<PAGE>
Table of Contents, continued
Storm Disclosure Schedule
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered into
this 24th day of February, 1996, by and among Storm Software, Inc., a California
corporation ("Storm"), Storm Acquisition Corporation, a California corporation
and a wholly-owned subsidiary of Storm ("Sub"), and Primax Electronics (USA),
Inc. a California corporation ("Primax (USA)") and Primax Electronics, Ltd., an
ROC corporation and parent corporation of Primax (USA) ("Primax Taiwan").
RECITALS
--------
A. Subject to and in accordance with the terms and conditions of this
Agreement and pursuant to the Agreement of Merger attached hereto as Exhibit 2.1
-----------
("Agreement of Merger"), the respective Board of Directors of Storm, Sub and
Primax (USA) and Storm, as sole shareholder of Sub, have approved the merger of
Sub with and into Primax (USA) (the "Merger"), whereby all of the outstanding
shares of common stock of Primax (USA) ("Primax (USA) Common Stock") will be
converted into shares of Series E Preferred Stock of Storm ("Storm Preferred
Stock").
B. For federal income tax purposes, it is intended that the Merger shall
qualify as a tax free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
C. The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger.
AGREEMENT
---------
NOW, THEREFORE, in reliance on the foregoing recitals and in and for the
consideration and mutual covenants set forth herein, the parties agree as
follows:
1. Definitions.
-----------
1.1 "Affiliate" shall have the meaning set forth in the rules and
regulations promulgated by the Commission pursuant to the Securities Act.
1.2 "Ancillary Documents" shall mean all documents or agreements
required to be delivered by any party hereunder including, among others, (i) the
Agreement of Merger, (ii) the Fourth Amended and Restated Rights Agreement
between Storm Primax, Inc. and certain of its shareholders, (iii) the Asset
Transfer Agreement between Storm Primax, Inc. and Primax Taiwan, (vi) the
Manufacturing and Purchase Agreement between Storm Primax, Inc. and Primax
Taiwan, (v) the Distribution Agreement between Storm Primax, Inc. and Primax
Taiwan for non-A-6 image capture products to be sold by Storm Primax, Inc. in
North America, (vi) the Distribution Agreement between Storm Primax, Inc. and
Primax Taiwan for A6 products to be sold by Primax Taiwan in Asia Pacific, (vii)
the Distribution Agreement between Storm Primax, Inc. and Primax International
for A6 products to be sold by Primax International in Europe, and (vii) the OEM
Sales Representation Agreement between Storm Primax, Inc. and Primax Taiwan for
pointing devices to be sold by Storm Primax, Inc. in North America. The
Distribution Agreements and OEM Agreement listed in subsections (v)-(vii) shall
be collectively referred to as the "Ancillary Distribution Agreements."
1.3 "Code" shall mean the United States Internal Revenue Code of
1986, as amended.
1.4 "Commission" shall mean the United States Securities and Exchange
Commission.
1.5 "Confidential Information" shall mean confidential information of
a party ("Disclosing Party") which is disclosed to another party ("Receiving
Party"). Confidential Information shall include, but not be limited to, trade
secrets, know-how, inventions, techniques, processes, algorithms, software
programs, schematics, designs, contracts, customer lists, financial information,
sales and marketing plans and business information.
1.6 "Primax Dissenting Shares" shall mean those Primax (USA) Shares
held by holders who perfect their dissenters rights under the laws of California
with respect thereto.
1
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1.7 "Primax (USA) Shares" shall mean the shares of Primax (USA)
Common Stock issued and outstanding at the effective time of the Merger, other
than the Dissenting Shares.
1.8 "Storm Products" shall mean all versions and implementations of
any product which has been or is being marketed by Storm or currently is under
development, and all patents, patent applications, trade secrets, copyrights,
trademarks, trade names and other proprietary rights related thereto.
1.9 "Storm Dissenting Shares" shall mean those shares of Storm Common
or Preferred Stock held by holders who perfect their dissenters rights under the
laws of California with respect thereto.
1.10 "Securities" shall mean the Primax (USA) Shares and Primax
Dissenting Shares.
1.11 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
1.12 "Shareholders" shall mean the holders of the outstanding shares
of Primax (USA) Common Stock.
2. Plan of Reorganization.
----------------------
2.1 The Merger. Subject to the terms and conditions of this
----------
Agreement and the Agreement of Merger, Sub shall be merged with and into Primax
(USA) in accordance with the applicable provisions of the laws of the State of
California and with the terms and conditions of this Agreement and the Agreement
of Merger, so that:
(a) At the Effective Time (as defined below), Sub shall be
merged with and into Primax (USA). As a result of the Merger, the separate
corporate existence of Sub shall cease and Primax (USA) shall continue as the
surviving corporation (sometimes referred to herein as the "Surviving
Corporation") and shall succeed to and assume all of the rights and obligations
of Sub in accordance with the laws of California.
(b) The Articles of Incorporation and Bylaws of Primax (USA) in
effect immediately prior to the Effective Time shall be the Articles of
Incorporation and Bylaws, respectively, of Surviving Corporation after the
Effective Time unless and until further amended as provided by law.
(c) The directors and officers as set forth on Schedule 2.1
------------
shall be the directors and officers of the Surviving Corporation after the
Effective Time. Such directors and officers shall hold their position until the
election and qualification of their respective successors or until their tenure
is otherwise terminated in accordance with the Bylaws of Surviving Corporation.
2.2 Conversion of Shares.
--------------------
(a) Each share of Primax (USA) Common Stock, issued and
outstanding immediately prior to the Effective Time, will by virtue of the
Merger and at the Effective Time, and without further action on the part of any
holder thereof, be converted into such number of shares of fully paid and
nonassessable Storm Preferred Stock (the shares of Storm Preferred Stock issued
pursuant hereto shall also be referred to as the "Merger Consideration") as
shall be determined by the Exchange Ratio defined below. The Exchange Ratio
shall equal the result of dividing 5,000,000 shares by the outstanding number of
shares of Common Stock of Primax (USA) as of the date immediately preceding the
Effective Time.
(b) Each share of common stock of Sub issued and outstanding
immediately prior to the Effective Time shall automatically without any action
on the part of the holder thereof be converted into one validly issued, fully
paid and nonassessable share of common stock of the Surviving Corporation.
2.3 Fractional Shares. No fractional shares of Storm Preferred Stock
-----------------
will be issued in connection with the Merger, but in lieu thereof, holders of
Primax (USA) Common Stock who would otherwise be
2
<PAGE>
entitled to receive a fraction of a share of Storm Preferred Stock will receive
from Storm, promptly after the Effective Time, an amount of cash equal to $0.20,
the per share price of Storm Preferred Stock, multiplied by the fraction of a
share of Storm Preferred Stock to which such holder would otherwise be entitled.
2.4 Dissenting Rights. If holders of Primax (USA) Common Stock are
-----------------
entitled to dissenters rights in connection with the Merger, any Primax
Dissenting Shares shall not be converted into a right to receive Storm Preferred
Stock but shall be converted into the right to receive such consideration as may
be determined to be due with respect to such Primax Dissenting Shares pursuant
to the laws of the State of California. Primax (USA) shall give Storm prompt
notice of any demand received by Primax (USA) for appraisal of Primax (USA)
Common Stock, and Primax (USA) shall have the right to control all negotiations
and proceedings with respect to such demand, provided that Storm shall have the
right to participate in all such negotiations and proceedings. In the event of
legal obligation, after the Effective Time of the Merger, to deliver a right to
receive Storm Preferred Stock to a holder of shares of Primax (USA) Common Stock
who shall have failed to make an effective demand for appraisal or shall have
lost his status as a dissenting Shareholder, Storm shall deliver, upon surrender
by such dissenting Shareholder of his certificate or certificates representing
shares of Primax (USA) Common Stock, as applicable, the Storm Preferred Stock to
which such Dissenting Shareholder is then entitled under this Section 2.4 and
the Agreement of Merger. Storm shall assume responsibility and control over all
negotiations and proceeding with respect to Storm Dissenting Shares.
2.5 The Closing. Subject to termination of this Agreement as
-----------
provided in Section 10 below, the closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Gray Cary Ware
& Freidenrich, A Professional Corporation, 400 Hamilton Avenue, Palo Alto,
California, as soon as possible upon the satisfaction or waiver of all
conditions set forth in Section 8 and Section 9 hereof (the "Closing Date"),
or such other time and place as is mutually agreeable to the parties.
2.6 Effective Time. Simultaneously with the Closing, the Agreement
--------------
of Merger shall be filed in the office of the Secretary of State of the State of
California. The Merger shall become effective immediately upon the filing of
the Agreement of Merger with such office. The date and time of the
effectiveness of the Merger under the laws of California is the "Effective
Time."
2.7 Tax Free Reorganization. The parties intend to adopt this
-----------------------
Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the
Code. Each party agrees that it will not take or assert any position on any tax
return, report or otherwise which is inconsistent with the qualification of the
Merger as a reorganization within the meaning of Section 368(a) of the Code.
The Storm Preferred Stock issued in the Merger will be issued solely in exchange
for the Primax (USA) Common Stock, pursuant to this Agreement, and no other
transaction other than the Merger represents, provides for or is intended to be
an adjustment to the consideration paid for the Primax (USA) Common Stock.
Except for cash paid in lieu of fractional shares, no consideration that could
constitute "other property" within the meaning of Section 356 of the Code is
being paid by Storm for the Primax (USA) Common Stock in the Merger. In
addition, Storm represents now, and as of the Closing Date, that it presently
intends to continue Primax (USA)'s historic business or use a significant
portion of Primax (USA)'s business assets in a business. The provisions and
representations contained or referred to in this Section 2.7 shall survive until
the expiration of the applicable statute of limitations.
2.8 Exemption from Registration. The parties hereto expect that the
---------------------------
Storm Preferred Stock to be issued in connection with the Merger will be issued
in a transaction exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), by reason of Section 4(2) thereof, and that the
Storm Preferred Stock hereunder will be exempt from qualification under
California Law.
2.9 Restricted Securities. The Storm Preferred Stock will be subject
---------------------
to the following restrictions:
(a) restrictions imposed by applicable federal and state
securities laws;
(b) certificates representing Storm Preferred Stock will bear
legends describing certain of the applicable restrictions on transferability
referred to in this Section 2.9.
3
<PAGE>
3. Representations and Warranties of Primax (USA). Except as otherwise
----------------------------------------------
set forth in the "Primax (USA) Disclosure Schedule" provided to Storm on or
before March 1, 1996, Primax (USA) and Primax Taiwan represent and warrant to
Storm as set forth below. No fact or circumstance disclosed to Storm shall
constitute an exception to these representations and warranties unless such fact
or circumstance is set forth in the Primax (USA) Disclosure Schedule attached
hereto or such supplements thereto as may mutually be agreed upon in writing by
Primax (USA) and Storm. Whenever the term "enforceable in accordance with its
terms" or like expression is used, it is understood that excepted therefrom are
any limitations on enforceability under applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditor's rights.
3.1 Organization. Primax (USA) is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of California
and has corporate power and authority to carry on its business as it is now
being conducted. Primax (USA) is duly qualified or licensed to do business and
in good standing in each jurisdiction in which the nature of its business or
properties makes such qualification or licensing necessary except where the
failure to be so qualified would not have a material adverse effect on the
operations, assets or financial condition (a "Material Adverse Effect") of
Primax (USA). Primax (USA) has no employees or offices in any state other than
California.
3.2 Capitalization.
--------------
(a) The authorized capital of Primax (USA) consists, or will
consist prior to the Closing, of 4,000,000 shares of common stock, of which
3,325,000 shares are issued and outstanding.
(b) Other than as set forth on the Primax (USA) Disclosure
Schedule, Primax (USA) does not have outstanding any preemptive or subscription
rights, options, warrants, rights to convert or exchange, capital stock
equivalents, or other rights to purchase or otherwise acquire any of Primax
(USA)'s capital stock or other securities.
(c) All of the issued and outstanding shares of Primax (USA)'s
capital stock have been duly authorized, validly issued, are fully paid and
nonassessable, and such capital stock, of Primax (USA), have been issued in full
compliance with all applicable federal and state securities laws. None of Primax
(USA)'s issued and outstanding shares of capital stock is subject to repurchase
or redemption rights. There have not been and are not outstanding any
adjustments made or required to be made to the conversion prices set forth in
Primax (USA)'s current Articles of Incorporation.
(d) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, option, or other
restriction on transfer applicable to any shares of Primax (USA)'s capital
stock.
(e) Primax (USA) is not under any obligation to register under
the Securities Act any shares of its capital stock or any other of its
securities that might be issued in the future if the Merger were not
consummated.
(f) Primax (USA) is not a party or subject to any agreement or
understanding (and, to Primax (USA)'s knowledge, there is no agreement or
understanding between or among any persons) that affects or relates to the
voting or giving of written consent with respect to any security.
3.3 Power, Authority and Validity. Primax (USA) has the corporate
-----------------------------
power to enter into this Agreement and to carry out its obligations hereunder
and thereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors and on the Closing Date, by the
shareholders of Primax (USA) and no other corporate proceedings on the part of
Primax (USA) are necessary to authorize this Agreement and the transactions
contemplated herein and therein. Primax (USA) is not subject to or obligated
under any charter, bylaw or contract provision or any license, franchise or
permit, or subject to any order or decree, which would be breached or violated
by or in conflict with its executing and carrying out this Agreement. Except
for (i) the filing of a an agreement of merger with the Secretary of State of
the State of California and appropriate documents with the relevant authorities
of other states in which Primax (USA) is qualified to do business, and (ii)
filings under applicable securities laws, no consent of any person who is a
party to a contract which is material to Primax (USA)'s business, nor consent of
any governmental authority, is
4
<PAGE>
required to be obtained on the part of Primax (USA) to permit the transactions
contemplated herein and continue the business activities of Primax (USA) as
previously conducted by Primax (USA) without material adverse change. This
Agreement is, and the other Ancillary Documents when executed and delivered by
Primax (USA) and Primax Taiwan shall be, the valid and binding obligations of
Primax (USA) and Primax Taiwan enforceable in accordance with their respective
terms.
3.4 Financial Statements.
--------------------
(a) Primax (USA) has delivered, or will deliver prior to March
1, 1996, to Storm copies of Primax (USA)'s audited balance sheet as of December
31, 1995 and statements of operations, shareholders' equity and cash flow for
the period then-ended (the "Primax (USA) Financial Statements").
(b) The Primax (USA) Financial Statements are complete and in
accordance with the books and records of Primax (USA) and present fairly the
financial position of Primax (USA) as of their historical dates. The Primax
(USA) Financial Statements have been prepared in accordance with GAAP applied on
a basis consistent with prior periods. Except and to the extent reflected or
reserved against in such balance sheets (including the notes thereto), Primax
(USA) does not have, as of the dates of such balance sheets, any liabilities or
obligations (absolute or contingent) of a nature required or customarily
reflected in a balance sheet (or the notes thereto) prepared in accordance with
GAAP. The reserves, if any, reflected on the Primax (USA) Financial Statements
are adequate in light of the contingencies with respect to which they are made.
(c) Primax (USA) has no debt, liability, or obligation of any
nature, whether accrued, absolute, contingent, or otherwise, and whether due or
to become due, that is not reflected or reserved against in the Primax (USA)
Financial Statements, except for those (i) that may have been incurred after the
date of the Primax (USA) Financial Statements or (ii) that are not required by
GAAP to be included in a balance sheet or the notes thereto or (iii) that do not
exceed Fifty Thousand Dollars ($50,000), except that Primax (USA) has not
established any reserves with respect to the costs and fees associated with this
Agreement, the other Ancillary Documents, and the transactions contemplated
hereby and thereby. All material debts, liabilities, and obligations incurred
after the date of the Primax (USA) Financial Statements were incurred in the
ordinary course of business, and are usual and normal in amount both
individually and in the aggregate.
3.5 Tax Matters.
-----------
(a) Primax (USA) has fully and timely, properly and accurately
filed all tax returns and reports required to be filed by it, including all
federal, foreign, state and local tax returns and estimates for all years and
periods (and portions thereof) for which any such returns, reports or estimates
were due. All such returns, reports and estimates were prepared in the manner
required by applicable law. All income, sales, use, occupation, property or
other taxes or assessments due from Primax (USA) have been paid. There are no
pending assessments, asserted deficiencies or claims for additional taxes that
have not been paid. The reserves for taxes, if any, reflected on the Primax
(USA) Financial Statements are adequate and there are no tax liens on any
property or assets of Primax (USA). There have been no audits or examinations of
any tax returns or reports by any applicable governmental agency. No state of
facts exists or has existed which would constitute grounds for the assessment of
any penalty or of any further tax liability beyond that shown on the respective
tax reports, returns or estimates. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any federal,
state or local income tax return or report for any period. All taxes which
Primax (USA) has been required to collect or withhold have been duly withheld or
collected and, to the extent required, have been paid to the proper taxing
authority.
3.6 Tax Free Reorganization.
-----------------------
(a) Neither Primax (USA) nor, to its knowledge, any Primax (USA)
shareholder has taken or agreed to take any action that would prevent the Merger
from constituting a reorganization qualifying under the provisions of Section
368(a) of the Code.
(b) To the best of Primax (USA)'s knowledge, there is no plan or
intention by any Primax (USA) shareholder to sell, exchange or otherwise dispose
of a number of shares of Storm Common Stock to be received in the Merger.
5
<PAGE>
(c) Immediately following the Merger, Sub will hold at least 90%
of the fair market value of Primax (USA)'s net assets and at least 70% of the
fair market value of Primax (USA)'s gross assets held immediately prior to the
Merger. For purposes of this representation, amounts used by Primax (USA) to pay
merger expenses and all redemptions and distributions (except for regular,
normal dividends) made by Primax (USA) will be included as assets of Primax
(USA) immediately prior to the Merger.
(d) Primax (USA) is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
3.7 Absence of Certain Changes or Events. Since December 31, 1995,
------------------------------------
Primax (USA) has not:
(a) suffered any material adverse change in its financial
condition or in the operations of its business, nor any material adverse changes
in its balance sheet, (with the Primax (USA) Financial Statements and any
subsequent balance sheet analyzed as if each had been prepared according to
GAAP), and including but not limited to cash distributions or material decreases
in the net assets of Primax (USA) except those occurring in the ordinary course
of business;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting its properties or business;
(c) granted or agreed to make any increase in the compensation
payable or to become payable by Primax (USA) to its officers or employees,
except those occurring in the ordinary course of business;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Primax (USA)
or declared any direct or indirect redemption, retirement, purchase or other
acquisition by Primax (USA) of such shares;
(e) issued any shares of capital stock of Primax (USA) or any
warrants, rights, options or entered into any commitment relating to the shares
of Primax (USA) except for the issuance of Primax (USA) Shares pursuant to the
exercise of outstanding options;
(f) sold, assigned, transferred, licensed or otherwise disposed
of any patent, trademark, trade name, brand name, copyright (or pending
application for any patent, trademark or copyright) invention, work of
authorship, process, know-how, formula or trade secret or interest thereunder or
other intangible asset except in the ordinary course of its business;
(g) agreed to take any action described in this Section 3.7
outside of its ordinary course of business or which would constitute a breach of
any of the representations contained in this Agreement.
3.8 Title and Related Matters. Primax (USA) has good and marketable
-------------------------
title to all the properties, interests in properties and assets, real and
personal, reflected in the Primax (USA) Financial Statements or acquired after
the date of the Primax (USA) Financial Statements (except properties, interests
in properties and assets sold or otherwise disposed of since the date of the
Primax (USA) Financial Statements in the ordinary course of business), free and
clear of all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except the lien of current taxes not yet due and payable and except
for liens which in the aggregate do not secure more than Fifty Thousand Dollars
($50,000) in liabilities. The equipment of Primax (USA) used in the operation of
its business is in good operating condition and repair. To Primax (USA)'s
knowledge, all real or personal property leases to which Primax (USA) is a party
are valid, binding, enforceable obligations of Primax (USA) effective in
accordance with their respective terms. There is not under any of such leases
any existing material default or event of default or event which, with notice or
lapse of time or both, would constitute a material default. The Primax (USA)
Disclosure Schedule contains a description of all real and personal property
leased or owned by Primax (USA), identifying such property and, in the case of
real property, stating the monthly rental due, term of lease and square feet
leased. True and correct copies of Primax (USA)'s leases have been provided to
Storm or its representatives.
6
<PAGE>
3.9 Proprietary Rights.
------------------
(a) Primax (USA) owns all right, title and interest in and to,
or valid licenses for use of, all patents, copyrights, technology, software,
software tools, know-how, processes, trade secrets, trademarks, service marks,
trade names and other proprietary rights used in or necessary for the conduct of
Primax (USA)'s business as conducted to the date hereof or contemplated, free
and clear of all liens, claims and encumbrances (including without limitation
distribution rights) (all of which are referred to as "Primax (USA) Proprietary
Rights") and Primax (USA) has the right to transfer all such rights to Sub and
Storm. The foregoing representation as it relates to third party technology
licensed by Primax (USA) is limited to Primax (USA)'s interest pursuant to the
third party licenses entered into by Primax (USA), all of which are valid and
enforceable and in full force and effect and which grant Primax (USA) such
rights to such third party technology as are employed in or necessary to the
business of Primax (USA) as conducted or proposed to be conducted. All of Primax
(USA)'s trademark or trade name registrations are valid and in full force and
effect; and consummation of the transactions contemplated hereby will not alter
or impair any such rights. No claims have been asserted against Primax (USA)
(and Primax (USA) is not aware of any claims which are likely to be asserted
against Primax (USA) or which have been asserted against others) by any person
challenging Primax (USA)'s use, possession, manufacture, sale or distribution of
products of Primax (USA) under any patents, trademarks, trade names, copyrights,
trade secrets, software, technology, know-how or processes utilized by Primax
(USA) or challenging or questioning the validity or effectiveness of any license
or agreement relating thereto. To Primax (USA)'s knowledge, the use or
exploitation of any patents, trademarks, trade names, copyrights, software,
technology, know-how or processes by Primax (USA) in its current business
infringes on the rights of, constitutes misappropriation of, or in any way
involves unfair competition with respect to, any proprietary information or
intangible property right of any third person or entity, including without
limitation any patent, trade secret, copyright, trademark or trade name.
(b) To Primax (USA)'s knowledge, no employee of Primax (USA) is
in violation of any term of any employment contract, patent disclosure agreement
or any other contract or agreement relating to the relationship of any such
employee with Primax (USA) or, to Primax (USA)'s knowledge, any other party
because of the nature of the business conducted by Primax (USA) or proposed to
be conducted by Primax (USA).
(c) Each person presently or previously employed by Primax (USA)
(including independent contractors, if any) with access to confidential
information has executed a confidentiality and non-disclosure agreement pursuant
to the form of agreement previously provided to Storm or its representatives.
Such confidentiality and non-disclosure agreements constitute valid and binding
obligations of Primax (USA) and such person, enforceable in accordance with
their respective terms. To Primax (USA)'s knowledge, neither the execution or
delivery of such agreements, nor the carrying on of Primax (USA)'s business as
employees by such persons, nor the conduct of Primax (USA)'s business as
currently anticipated, will conflict with or result in a breach of the terms,
conditions or provisions of or constitute a default under any contract, covenant
or instrument under which any of such persons is obligated.
3.10 Employee Benefit Plans. There is no unfunded prior service cost
----------------------
with respect to any bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, or other employee benefit or fringe
benefit plans, whether formal or informal, maintained by Primax (USA). Each
bonus, deferred compensation, pension, profit-sharing, retirement, stock
purchase, stock option, and other employee benefit or fringe benefit plans,
whether formal or informal, maintained by Primax (USA) conforms to all
applicable requirements of the Employees Retirement Income Security Act of 1974.
3.11 Bank Accounts. The Primax (USA) Disclosure Schedule sets forth
-------------
the names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which Primax (USA) maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
7
<PAGE>
3.12 Contracts.
---------
(a) Except as set forth in the Primax (USA) Disclosure Schedule and
for agreements that do not involve obligations by Primax (USA) of more than
Fifty Thousand Dollars ($50,000), Primax (USA) has (i) no agreements, contracts
or commitments that provide for the sale, licensing or distribution by Primax
(USA) of any of its products, inventions, technology, know-how, trademarks or
trade names except in the ordinary course of its business, (ii) no agreements,
contracts or commitments that call for fixed and/or contingent payments or
expenditures by or to Primax (USA) or (iii) no agreements that grant to any
third party (including, without limitation, OEMs and site license customers) any
rights to reproduce or manufacture any of the Products, or any exclusive rights
of any kind with respect to any of the products of Primax (USA) or any right to
market any of the Primax (USA) Products under any "private label" or "OEM"
arrangements pursuant to which Primax (USA) is not identified as the source of
such goods. True and correct copies of each document or instrument described in
the Primax (USA) Disclosure Schedule pursuant to this Section 3.12(a) have been
made available to Storm or its representatives.
(b) All material contracts, agreements and instruments to which Primax
(USA) is a party are valid, binding, in full force and effect, and enforceable
by Primax (USA) in accordance with their respective terms. Primax (USA) has not
received any notice from any party to any such material contract, agreement or
instrument that such party intends to cancel, withdraw, modify or amend such
contract, agreement or arrangement.
(c) Primax (USA) is not in default under or in breach or violation of,
nor, to Primax (USA)'s knowledge, is there any valid basis for any claim of
default by Primax (USA) under, or breach or violation by Primax (USA) of, any
contract, commitment or restriction to which Primax (USA) is a party or to which
it or any of its properties is bound, where such defaults, breaches, or
violations would, in the aggregate, have a Material Adverse Effect. To Primax
(USA)'s knowledge, no other party is in default under or in breach or violation
of, any material contract, commitment, or restriction to which Primax (USA) is
bound or by which any of its properties is bound, where such defaults, breaches,
or violations would, in the aggregate, have a material adverse effect on the
operations, assets, financial condition or prospects of Primax (USA).
(d) All agreements, contracts and commitments (the "Material
Contracts") listed or described in the Primax (USA) Disclosure Schedule pursuant
to this Section 3.12 are assumable, or will otherwise be the property of, the
Surviving Corporation following the Merger without further action by the
Surviving Corporation or Storm. If any of the Material Contracts are not
assumable by or will not be the property of, the Surviving Corporation following
the Merger, then Primax (USA) has described in the Primax (USA) Disclosure
Schedule such actions as is necessary for assumption of the Material Contract by
the Surviving Corporation.
3.13 Compliance With Law. Primax (USA) is in compliance with all
-------------------
applicable laws and regulations except where such failure would not have a
Material Adverse Effect. Neither Primax (USA) nor, to Primax (USA)'s knowledge,
any of its employees has directly or indirectly paid or delivered any fee,
commission or other sum of money or item of property, however characterized, to
any finder, agent, government official or other party in the United States or
any other country, that was or is in violation of any federal, state, or local
statute or law or of any statute or law of any other country having
jurisdiction. Primax (USA) has not participated directly or indirectly in any
boycotts or other similar practices affecting any of its customers. Primax
(USA) has complied at all times with any and all applicable federal, state and
foreign laws, rules, regulations, proclamations and orders relating to the
importation or exportation of its products.
3.14 Labor Difficulties; No Discrimination. Primax (USA) is not
-------------------------------------
engaged in any unfair labor practice and is not in material violation of any
applicable laws respecting employment and employment practices, terms and
conditions of employment, and wages and hours. There is no unfair labor
practice complaint against Primax (USA) actually pending or to Primax (USA)'s
knowledge threatened before the National Labor Relations Board. Primax (USA)
has not experienced any material work stoppage or other material labor
difficulty. There is and has been no claim against Primax (USA) based on actual
or alleged race, age, sex, disability or other harassment or discrimination, or
similar tortious conduct, nor, to Primax (USA)'s knowledge, is there any basis
for any such claim.
3.15 Insider Transactions. Except as provided in the Primax (USA)
--------------------
Disclosure Schedule, no Affiliate of Primax (USA) is indebted to Primax (USA),
nor is Primax (USA) indebted to any of its Affiliates.
8
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3.16 Employees, Independent Contractors and Consultants. Primax
--------------------------------------------------
(USA) has no currently effective consulting, independent contractor and/or
employment agreements and other material agreements concluded with individual
employees, independent contractors or consultants of Primax (USA). All salaries
and wages paid by Primax (USA) are in compliance with applicable federal, state
and local laws.
3.17 Insurance. The Primax (USA) Disclosure Schedule contains a list
---------
of the principal policies of fire, liability and other forms of insurance held
by Primax (USA).
3.18 Litigation. There are no suits, actions or proceedings pending
----------
or, to Primax (USA)'s knowledge, threatened against or affecting Primax (USA) or
which questions or challenges the validity of this Agreement. There is no
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
against Primax (USA).
3.19 Governmental Authorizations and Regulations. All licenses,
-------------------------------------------
franchises, permits and other governmental authorizations held by Primax (USA)
and material to its business are valid and sufficient for the business presently
carried on by Primax (USA). The business of Primax (USA) is not being conducted
in violation of any law, ordinance or regulation of any governmental entity,
except for violations which either singly or in the aggregate do not and will
not have a material adverse effect on the operations, assets or financial
condition of Primax (USA).
3.20 Subsidiaries. Primax (USA) has no subsidiaries. Primax (USA)
------------
does not own or control (directly or indirectly) any capital stock, bonds or
other securities of, and does not have any proprietary interest in, any other
corporation, general or limited partnership, firm, association or business
organization, entity or enterprise, and Primax (USA) does not control (directly
or indirectly) the management or policies of any other corporation, partnership,
firm, association or business organization, entity or enterprise.
3.21 Compliance with Environmental Requirements. Primax (USA) has
------------------------------------------
obtained all material permits, licenses and other authorizations which are
required under federal, state and local laws relating to pollution or protection
of the environment, including laws or provisions relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants, or
hazardous or toxic materials, substances, or wastes into air, surface water,
groundwater, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants or hazardous or toxic materials, substances, or wastes.
Except as set forth in the Primax (USA) Disclosure Schedule, Primax (USA) is in
material compliance with all terms and conditions of the required permits,
licenses and authorizations. Except as set forth in the Primax (USA) Disclosure
Schedule, Primax (USA) is not aware of, nor has Primax (USA) received notice of,
any conditions, circumstances, activities, practices, incidents, or actions
which may form the basis of any claim, action, suit, proceeding, hearing, or
investigation of, by, against or relating to Primax (USA), based on or related
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or threatened
release into the environment, of any pollutant, contaminant, or hazardous or
toxic substance, material or waste.
3.22 Corporate Documents. Primax (USA) has furnished to Storm for
-------------------
its examination: (i) copies of its Articles of Incorporation and Bylaws; (ii)
its Minute Book containing all records required to be set forth of all
proceedings, consents, actions, and meetings of the shareholders, the board of
directors and any committees thereof; (iii) all permits, orders, and consents
issued by any regulatory agency with respect to Primax (USA), or any securities
of Primax (USA), and all applications for such permits, orders, and consents;
and (iv) the stock transfer books of Primax (USA) setting forth all transfers of
any capital stock. The corporate minute books, stock certificate books, stock
registers and other corporate records of Primax (USA) are complete and accurate
in all material respects, and the signatures appearing on all documents
contained therein are the true signatures of the persons purporting to have
signed the same. All actions reflected in such books and records were duly and
validly taken in compliance with the laws of the applicable jurisdiction.
3.23 No Brokers. Neither Primax (USA) nor, to Primax (USA)'s
----------
knowledge, any Primax (USA) shareholder is obligated for the payment of fees or
expenses of any broker or finder in connection with the origin, negotiation or
execution of this Agreement or the Agreement of Merger or in connection with any
transaction contemplated hereby or thereby.
9
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3.24 Disclosure. No statements by Primax (USA) contained in this
----------
Agreement and the Exhibits attached hereto, any other Transaction Document or
any written statement or certificate furnished or to be furnished pursuant
hereto or in connection with the transactions contemplated hereby and thereby
(when read together) contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
4. Representations and Warranties of Storm and Sub. Except as otherwise
-----------------------------------------------
set forth in the "Storm Disclosure Schedule" provided to Primax (USA) on or
before March 1, 1996, Storm and Sub represent and warrant to Primax (USA) and
Primax Taiwan as set forth below. No fact or circumstance disclosed to Primax
(USA) shall constitute an exception to these representations and warranties
unless such fact or circumstance is set forth in the Storm and Sub Disclosure
Schedule attached hereto or such supplements thereto as may mutually be agreed
upon in writing by Storm and Sub and Primax (USA). Whenever the term
"enforceable in accordance with its terms" or like expression is used, it is
understood that excepted therefrom are any limitations on enforceability under
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting the enforcement of creditor's rights.
4.1 Organization. Storm and Sub are corporations duly organized,
------------
validly existing and in good standing under the laws of the State of California
and have corporate power and authority to carry on their businesses as they are
now being conducted. Storm and Sub are duly qualified or licensed to do
business and in good standing in each jurisdiction in which the nature of their
businesses or properties makes such qualification or licensing necessary except
where the failure to be so qualified would not have a Material Adverse Effect on
Storm. Storm has no employees or offices in any state other than California and
Massachusetts.
4.2 Capitalization.
--------------
(a) The authorized capital of Storm consists, or will consist prior
to the Closing, of:
(i) Preferred Stock. 10,000,000 shares of preferred stock,
---------------
3,000,000 shares of which have been designated Series A Preferred Stock, of
which 3,000,000 shares are issued and outstanding, 491,709 shares of which have
been designated Series B Preferred Stock, of which 479,167 shares are issued and
outstanding, 3,272,873 shares of which have been designated Series C Preferred
Stock, of which 3,272,873 shares are issued and outstanding, 2,759,589 shares of
which have been designated Series D Preferred Stock, of which 2,759,589 shares
are issued and outstanding and 16,857,316 shares of which have been designated
Series E Preferred Stock, none of which are issued and outstanding. The rights,
privileges and preferences of the Preferred Stock are as stated in Storm's Fifth
Amend and Restated Articles of Incorporation. As of the date hereof and
Effective Time, each outstanding share of Preferred Stock is, and shall be,
convertible into one share of Common Stock.
(ii) Common Stock. 20,000,000 shares of common stock ("Common
------------
Stock"), of which 3,785,043 shares are issued and outstanding.
(b) The authorized capital of Sub consists, or will consist prior to
the Closing, of 1,000 shares of common stock, 100 shares of which shares are
issued and outstanding and are owned by Storm.
(c) Other than as set forth on the Storm Disclosure Schedule,
Storm and Sub do not have outstanding any preemptive or subscription rights,
options, warrants, rights to convert or exchange, capital stock equivalents, or
other rights to purchase or otherwise acquire any of Storm's or Sub's capital
stock or other securities.
(d) All of the issued and outstanding shares of Storm's and Sub's
capital stock have been duly authorized, validly issued, are fully paid and
nonassessable, and such capital stock, and all warrants and options to purchase
capital stock of Storm or Sub, have been issued in full compliance with all
applicable federal and state securities laws. None of Storm's or Sub's issued
and outstanding shares of capital stock, or options or rights to purchase
capital stock of Storm or Sub, is subject to repurchase or redemption rights.
There have not been and are not outstanding any adjustments made or required to
be made to the conversion prices set forth in Storm's or Sub's current Articles
of Incorporation. All of Storm's and Sub's options have been issued in
accordance with its current stock option plan and in accordance with all state
securities laws.
10
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(e) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, option, or other
restriction on transfer applicable to any shares of Storm's or Sub's capital
stock.
(f) Storm and Sub are not under any obligation to register
under the Securities Act any shares of its capital stock or any other of its
securities that might be issued in the future if the Merger were not
consummated.
(h) Storm and Sub are not parties or subject to any agreement or
understanding (and, to Storm's and Sub's knowledge, there is no agreement or
understanding between or among any persons) that affects or relates to the
voting or giving of written consent with respect to any security.
4.3 Power, Authority and Validity. Storm and Sub have the corporate
-----------------------------
power to enter into this Agreement and the other Ancillary Documents to which
they are a party and to carry out their obligations hereunder and thereunder.
The execution and delivery of this Agreement and the Ancillary Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by the Boards of Directors and, on the Closing Date, by the
shareholders of Storm and Sub and no other corporate proceedings on the part of
Storm and Sub are necessary to authorize this Agreement, the other Ancillary
Documents and the transactions contemplated herein and therein. Storm and Sub
are not subject to or obligated under any charter, bylaw or contract provision
or any license, franchise or permit, or subject to any order or decree, which
would be breached or violated by or in conflict with their executing and
carrying out this Agreement and the transactions contemplated hereunder and
under the Ancillary Documents. Except for (i) the filing of an agreement merger
with the Secretary of State of the State of California and appropriate documents
with the relevant authorities of other states in which Sub is qualified to do
business, and (ii) filings under applicable securities laws, no consent of any
person who is a party to a contract which is material to Storm's business, nor
consent of any governmental authority, is required to be obtained on the part of
Storm to permit the transactions contemplated herein and continue the business
activities of Storm as previously conducted by Storm without material adverse
change. This Agreement is, and the other Ancillary Documents when executed and
delivered by Storm and Sub shall be, the valid and binding obligations of Storm
and Sub enforceable in accordance with their respective terms.
4.4 Financial Statements.
--------------------
(a) Storm has delivered to Primax (USA) copies of Storm's audited
balance sheet as of December 31, 1995 and statements of operations,
shareholders' equity and cash flow for the period then-ended (the "Storm
Financial Statements").
(b) The Storm Financial Statements are complete and in accordance with
the books and records of Storm and present fairly the financial position of
Storm as of their historical dates. The Storm Financial Statements have been
prepared in accordance with GAAP applied on a basis consistent with prior
periods. Except and to the extent reflected or reserved against in such balance
sheets (including the notes thereto), Storm does not have, as of the dates of
such balance sheets, any liabilities or obligations (absolute or contingent) of
a nature required or customarily reflected in a balance sheet (or the notes
thereto) prepared in accordance with GAAP. The reserves, if any, reflected on
the Storm Financial Statements are adequate in light of the contingencies with
respect to which they are made.
(c) Storm has no debt, liability, or obligation of any nature, whether
accrued, absolute, contingent, or otherwise, and whether due or to become due,
that is not reflected or reserved against in the Storm Financial Statements,
except for those (i) that may have been incurred after the date of the Storm
Financial Statements, (ii) that are not required by GAAP to be included in a
balance sheet or the notes thereto or (iii) that do not exceed Fifty Thousand
Dollars ($50,000), except that Storm has not established any reserves with
respect to the costs and fees associated with this Agreement, the other
Ancillary Documents, and the transactions contemplated hereby and thereby. All
material debts, liabilities, and obligations incurred after the date of the
Storm Financial Statements were incurred in the ordinary course of business, and
are usual and normal in amount both individually and in the aggregate.
11
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4.5 Tax Matters. Storm and Sub have fully and timely, properly and
-----------
accurately filed all tax returns and reports required to be filed by them,
including all federal, foreign, state and local tax returns and estimates for
all years and periods (and portions thereof) for which any such returns, reports
or estimates were due. All such returns, reports and estimates were prepared in
the manner required by applicable law. All income, sales, use, occupation,
property or other taxes or assessments due from Storm or Sub have been paid.
There are no pending assessments, asserted deficiencies or claims for additional
taxes that have not been paid. The reserves for taxes, if any, reflected on the
Storm Financial Statements are adequate and there are no tax liens on any
property or assets of Storm. There have been no audits or examinations of any
tax returns or reports by any applicable governmental agency. No state of facts
exists or has existed which would constitute grounds for the assessment of any
penalty or of any further tax liability beyond that shown on the respective tax
reports, returns or estimates. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any federal, state or
local income tax return or report for any period. All taxes which Storm and Sub
have been required to collect or withhold have been duly withheld or collected
and, to the extent required, have been paid to the proper taxing authority.
Storm and Sub are not currently under any contractual obligation to pay any tax
obligations of, or with respect to any transaction relating to, any other person
or to indemnify any other person with respect to any tax.
4.6 Tax Free Reorganization.
-----------------------
(a) Neither Storm nor, to its knowledge, any Storm shareholder has
taken or agreed to take any action that would prevent the Merger from
constituting a reorganization qualifying under the provisions of Section 368(a)
of the Code.
(b) Immediately following the Merger, Sub will hold at least 90% of
the fair market value of Primax (USA)'s net assets and at least 70% of the fair
market value of Primax (USA)'s gross assets held immediately prior to the
Merger. For purposes of this representation, amounts used by Primax (USA) to
pay merger expenses and all redemptions and distributions (except for regular,
normal dividends) made by Primax (USA) will be included as assets of Primax
(USA) immediately prior to the Merger.
(c) Storm is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
4.7 Absence of Certain Changes or Events. Since December 31, 1995,
------------------------------------
Storm has not:
(a) suffered any material adverse change in its financial condition or
in the operations of its business, nor any material adverse changes in its
balance sheet, (with the Storm Financial Statements and any subsequent balance
sheet analyzed as if each had been prepared according to GAAP), and including
but not limited to cash distributions or material decreases in the net assets of
Storm and Sub except those occurring in the ordinary course of business;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, materially and adversely affecting its properties or business;
(c) granted or agreed to make any increase in the compensation payable
or to become payable by Storm and Sub to its officers or employees, except those
occurring in the ordinary course of business;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Storm and
Sub or declared any direct or indirect redemption, retirement, purchase or other
acquisition by Storm and Sub of such shares;
(e) issued any shares of capital stock of Storm or Sub or any
warrants, rights, options or entered into any commitment relating to the shares
of Storm and Sub except for the issuance of Storm Shares occurring in the
ordinary course of business or the issuance of Storm shares pursuant to the
exercise of outstanding options;
(f) sold, assigned, transferred, licensed or otherwise disposed of any
patent, trademark, trade name, brand name, copyright (or pending application for
any patent, trademark or copyright)
12
<PAGE>
invention, work of authorship, process, know-how, formula or trade secret or
interest thereunder or other intangible asset except in the ordinary course of
its business;
(g) agreed to take any action described in this Section 4.7 or outside
of its ordinary course of business or which would constitute a breach of any of
the representations contained in this Agreement.
4.8 Title and Related Matters. Storm has good and marketable title
-------------------------
to all the properties, interests in properties and assets, real and personal,
reflected in the Storm Financial Statements or acquired after the date of the
Storm Financial Statements (except properties, interests in properties and
assets sold or otherwise disposed of since the date of the Storm Financial
Statements in the ordinary course of business), free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except the
lien of current taxes not yet due and payable and except for liens which in the
aggregate do not secure more than Fifty Thousand Dollars ($50,000) in
liabilities. The equipment of Storm used in the operation of its business is in
good operating condition and repair. To Storm's knowledge, all real or personal
property leases to which Storm is a party are valid, binding, enforceable
obligations of Storm effective in accordance with their respective terms. There
is not under any of such leases any existing material default or event of
default or event which, with notice or lapse of time or both, would constitute a
material default. The Storm Disclosure Schedule contains a description of all
real and personal property leased or owned by Storm, identifying such property
and, in the case of real property, stating the monthly rental due, term of lease
and square feet leased. True and correct copies of Storm's leases have been
provided to Primax (USA) or its representatives.
4.9 Proprietary Rights.
------------------
(a) Storm owns all right, title and interest in and to, or valid
licenses for use of, all patents, copyrights, technology, software, software
tools, know-how, processes, trade secrets, trademarks, service marks, trade
names and other proprietary rights used in or necessary for the conduct of
Storm's business as conducted to the date hereof or contemplated, including,
without limitation, the technology and all proprietary rights developed or
discovered or used in connection with or contained in the Storm Products, free
and clear of all liens, claims and encumbrances (including without limitation
distribution rights) (all of which are referred to as "Storm Proprietary
Rights"). The foregoing representation as it relates to third party technology
licensed by Storm is limited to Storm's interest pursuant to the third party
licenses entered into by Storm, all of which are valid and enforceable and in
full force and effect and which grant Storm such rights to such third party
technology as are employed in or necessary to the business of Storm as conducted
or proposed to be conducted. All of Storm's trademark or trade name
registrations related to the Storm Products and all of Storm's copyrights in any
of the Storm Products are valid and in full force and effect; and consummation
of the transactions contemplated hereby will not alter or impair any such
rights. No claims have been asserted against Storm (and Storm is not aware of
any claims which are likely to be asserted against Storm or which have been
asserted against others) by any person challenging Storm's use, possession,
manufacture, sale or distribution of Storm Products under any patents,
trademarks, trade names, copyrights, trade secrets, software, technology, know-
how or processes utilized by Storm or challenging or questioning the validity or
effectiveness of any license or agreement relating thereto. To Storm's
knowledge, none of the Storm Products nor the use or exploitation of any
patents, trademarks, trade names, copyrights, software, technology, know-how or
processes by Storm in its current business infringes on the rights of,
constitutes misappropriation of, or in any way involves unfair competition with
respect to, any proprietary information or intangible property right of any
third person or entity, including without limitation any patent, trade secret,
copyright, trademark or trade name.
(b) To Storm's knowledge, no employee of Storm is in violation of any
term of any employment contract, patent disclosure agreement or any other
contract or agreement relating to the relationship of any such employee with
Storm or, to Storm's knowledge, any other party because of the nature of the
business conducted by Storm or proposed to be conducted by Storm.
(c) Each person presently or previously employed by Storm (including
independent contractors, if any) with access to confidential information has
executed a confidentiality and non-disclosure agreement pursuant to the form of
agreement previously provided to Primax (USA) or its representatives. Such
confidentiality and non-disclosure agreements constitute valid and binding
obligations of Storm and such person, enforceable in accordance with their
respective terms. To Storm's knowledge, neither the execution or delivery of
such agreements, nor the carrying on of Storm's business as employees by such
persons, nor the conduct of Storm's
13
<PAGE>
business as currently anticipated, will conflict with or result in a breach of
the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any of such persons is obligated.
4.10 Employee Benefit Plans. There is no unfunded prior service cost
----------------------
with respect to any bonus, deferred compensation, pension, profit-sharing,
retirement, stock purchase, stock option, or other employee benefit or fringe
benefit plans, whether formal or informal, maintained by Storm. Each bonus,
deferred compensation, pension, profit-sharing, retirement, stock purchase,
stock option, and other employee benefit or fringe benefit plans, whether formal
or informal, maintained by Storm conforms to all applicable requirements of the
Employees Retirement Income Security Act of 1974.
4.11 Bank Accounts. The Storm Disclosure Schedule sets forth the
-------------
names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which Storm and Sub maintain
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
4.12 Contracts.
---------
(a) Except as set forth in the Storm Disclosure Schedule and for
agreements that do not involve obligations by Storm of more than Fifty Thousand
Dollars ($50,000), Storm has (i) no agreements, contracts or commitments that
provide for the sale, licensing or distribution by Storm of any of its products,
inventions, technology, know-how, trademarks or trade names except in the
ordinary course of its business, (ii) no agreements, contracts or commitments
that call for fixed and/or contingent payments or expenditures by or to Storm or
(iii) no agreements that grant to any third party (including, without
limitation, OEMs and site license customers) any rights to reproduce or
manufacture any of the Products, or any exclusive rights of any kind with
respect to any of the products of Storm or any right to market any of the Storm
Products under any "private label" or "OEM" arrangements pursuant to which Storm
is not identified as the source of such goods. True and correct copies of each
document or instrument described in the Storm Disclosure Schedule pursuant to
this Section 3.12(a) have been made available to Storm or its representatives.
(b) All material contracts, agreements and instruments to which Storm
is a party are valid, binding, in full force and effect, and enforceable by
Storm in accordance with their respective terms. Storm has not received any
notice from any party to any such material contract, agreement or instrument
that such party intends to cancel, withdraw, modify or amend such contract,
agreement or arrangement.
(c) Storm is not in default under or in breach or violation of, nor,
to Storm's knowledge, is there any valid basis for any claim of default by Storm
under, or breach or violation by Storm of, any contract, commitment or
restriction to which Storm is a party or to which it or any of its properties is
bound, where such defaults, breaches, or violations would, in the aggregate,
have a Material Adverse Effect. To Storm's knowledge, no other party is in
default under or in breach or violation of, any material contract, commitment,
or restriction to which Storm is bound or by which any of its properties is
bound, where such defaults, breaches, or violations would, in the aggregate,
have a material adverse effect on the operations, assets, financial condition or
prospects of Storm.
(d) Sub was formed soley for the purposes of effecting the Merger and
has not and will not enter into any material agreements outside of this
Agreement and the Ancillary Documents.
4.13 Compliance With Law. Storm is in compliance with all applicable
-------------------
laws and regulations except where such failure would not have a Material Adverse
Effect. Neither Storm nor, to Storm's knowledge, any of its employees has
directly or indirectly paid or delivered any fee, commission or other sum of
money or item of property, however characterized, to any finder, agent,
government official or other party in the United States or any other country,
that was or is in violation of any federal, state, or local statute or law or of
any statute or law of any other country having jurisdiction. Storm has not
participated directly or indirectly in any boycotts or other similar practices
affecting any of its customers. Storm has complied at all times with any and
all applicable federal, state and foreign laws, rules, regulations,
proclamations and orders relating to the importation or exportation of its
products.
4.14 Labor Difficulties; No Discrimination. Storm is not engaged in
-------------------------------------
any unfair labor practice and is not in material violation of any applicable
laws respecting employment and employment practices, terms and conditions of
employment, and wages and hours. There is no unfair labor practice complaint
against Storm actually pending or, to Storm's knowledge, threatened before the
National Labor Relations Board. Storm has not experienced
14
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any material work stoppage or other material labor difficulty. There is and has
been no claim against Storm based on actual or alleged race, age, sex,
disability or other harassment or discrimination, or similar tortious conduct,
nor, to Storm's knowledge, is there any basis for any such claim.
4.15 Insider Transactions. Except as provided in the Storm
--------------------
Disclosure Schedule, no Affiliate of Storm is indebted to Storm, nor is Storm
indebted to any of its Affiliates.
4.16 Employees, Independent Contractors and Consultants. Storm has
--------------------------------------------------
no currently effective consulting, independent contractor and/or employment
agreements and other material agreements concluded with individual employees,
independent contractors or consultants of Storm. All salaries and wages paid by
Storm are in compliance with applicable federal, state and local laws. Storm
shall disclose in writing to Primax (USA) the annual rate of compensation,
including bonuses and other payments of any kind of all employees.
4.17 Insurance. The Storm Disclosure Schedule contains a list of the
---------
principal policies of fire, liability and other forms of insurance held by
Storm.
4.18 Litigation. There are no suits, actions or proceedings pending
----------
or, to Storm and Sub's knowledge, threatened against or affecting Storm or which
questions or challenges the validity of this Agreement. There is no judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding against Storm.
4.19 Governmental Authorizations and Regulations. All licenses,
-------------------------------------------
franchises, permits and other governmental authorizations held by Storm and
material to its business are valid and sufficient for the business presently
carried on by Storm. The business of Storm is not being conducted in violation
of any law, ordinance or regulation of any governmental entity, except for
violations which either singly or in the aggregate do not and will not have a
material adverse effect on the operations, assets or financial condition of
Storm.
4.20 Subsidiaries. Storm and Sub have no subsidiaries other than as
------------
disclosed herein. Storm and Sub do not own or control (directly or indirectly)
any capital stock, bonds or other securities of, and does not have any
proprietary interest in, any other corporation, general or limited partnership,
firm, association or business organization, entity or enterprise, and Storm and
Sub do not control (directly or indirectly) the management or policies of any
other corporation, partnership, firm, association or business organization,
entity or enterprise.
4.21 Compliance with Environmental Requirements. Storm has obtained
------------------------------------------
all material permits, licenses and other authorizations which are required under
federal, state and local laws relating to pollution or protection of the
environment, including laws or provisions relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, or hazardous or
toxic materials, substances, or wastes into air, surface water, groundwater, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants, contaminants
or hazardous or toxic materials, substances, or wastes. Except as set forth in
the Storm Disclosure Schedule, Storm is in material compliance with all terms
and conditions of the required permits, licenses and authorizations. Except as
set forth in the Storm Disclosure Schedule, Storm is not aware of, nor has Storm
received notice of, any conditions, circumstances, activities, practices,
incidents, or actions which may form the basis of any claim, action, suit,
proceeding, hearing, or investigation of, by, against or relating to Storm,
based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, or hazardous or toxic substance, material or waste.
4.22 Corporate Documents. Storm and Sub have furnished to Primax
-------------------
(USA) for its examination: (i) copies of its Articles of Incorporation and
Bylaws; (ii) its Minute Book containing all records required to be set forth of
all proceedings, consents, actions, and meetings of the shareholders, the board
of directors and any committees thereof; (iii) all permits, orders, and consents
issued by any regulatory agency with respect to Storm and Sub, or any securities
of Storm and Sub, and all applications for such permits, orders, and consents;
and (iv) the stock transfer books of Storm and Sub setting forth all transfers
of any capital stock. The corporate minute books, stock certificate books,
stock registers and other corporate records of Storm and Sub are complete and
accurate in all material respects, and the signatures appearing on all documents
contained therein are the true signatures of the
15
<PAGE>
persons purporting to have signed the same. All actions reflected in such books
and records were duly and validly taken in compliance with the laws of the
applicable jurisdiction.
4.23 No Brokers. Neither Storm and Sub nor, to Storm's and Sub's
----------
knowledge, any Storm and Sub shareholder is obligated for the payment of fees or
expenses of any broker or finder in connection with the origin, negotiation or
execution of this Agreement or the Agreement of Merger or in connection with any
transaction contemplated hereby or thereby.
4.24 Disclosure. No statements by Storm and Sub contained in this
----------
Agreement and the Exhibits attached hereto, any other Transaction Document or
any written statement or certificate furnished or to be furnished pursuant
hereto or in connection with the transactions contemplated hereby and thereby
(when read together) contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
5. Preclosing Covenants of Primax (USA) and Storm.
----------------------------------------------
5.1 Material Consents. Primax (USA) shall exert reasonable, good
-----------------
faith commercial efforts to obtain any and all consents necessary for the
assumption of the Material Contracts by Surviving Corporation concurrent with
the Merger as described in the Disclosure Schedule pursuant to Section 3.12(g)
(the "Material Consents"). Storm and Sub agree to cooperate, as reasonably
requested, in obtaining the Material Consents.
5.2 Advice of Changes.
-----------------
(a) Primax (USA) will promptly advise Storm in writing (i) of any
event occurring subsequent to the date of this Agreement which would render any
representation or warranty of Primax (USA) contained in this Agreement, if made
on or as of the date of such event or the Closing Date, untrue or inaccurate in
any material respect and (ii) of any material adverse change in Primax (USA)'s
business, taken as a whole.
(b) Storm will promptly advise Primax (USA) in writing (i) of any
event occurring subsequent to the date of this Agreement which would render any
representation or warranty of Storm contained in this Agreement, if made on or
as of the date of such event or the Closing Date, untrue or inaccurate in any
material respect and (ii) of any material adverse change in Storm's business,
taken as a whole.
6. Mutual Covenants.
----------------
6.1 Conduct of Business. Until the Closing, Storm and Primax (USA)
-------------------
will continue to conduct its business and maintain their business relationships
in the ordinary and usual course.
6.2 No Public Announcement. The parties shall make no public
----------------------
announcement concerning this Agreement, their discussions or any other memos,
letters or agreements between the parties relating to the Merger until such time
as they agree to the contents of a mutually satisfactory press release which
they intend to publicly-release on the date of this Agreement. Either of the
parties, but only after reasonable consultation with the other, may make
disclosure if required under applicable law.
6.3 Other Negotiations. Between the date hereof and March 19, 1996
------------------
(subject to extension upon mutual agreement), or such earlier date as Storm and
Primax (USA) mutually agree to discontinue discussions of the Merger (the
"Expiration Date"), neither Storm nor Primax (USA) will take any action to
solicit, initiate, seek, encourage or support any inquiry, proposal or offer
from, furnish any information to, or participate in any negotiations with, any
corporation, partnership, person or other entity or group (other than
discussions pursuant to this Agreement) regarding any acquisition, any merger or
consolidation with or involving Primax (USA), or any acquisition of any material
portion of the stock or assets except to the extent that Primax (USA) or Storm
is advised by their respective counsel that the discharge of the fiduciary
duties of the Board of Directors requires that such actions be taken by Primax
(USA) or Storm; provided that the other party shall be promptly notified of any
such action. Primax (USA) and Storm agree that any such negotiations in progress
as of the date hereof will be terminated or suspended during such period.
16
<PAGE>
6.4 Due Diligence, Investigation, and Audits. At such time prior to
----------------------------------------
the Closing as may be reasonably requested, each party shall make available to
the other party and the other party's employees, agents and representatives all
information concerning the operation, business and prospects of such party as
may be reasonably requested by the other party, including, without limitation,
making the working papers of such party's independent certified public
accountants available for inspection by the other party's independent certified
public accountants. Each party will cooperate with the other party for the
purpose of permitting the other party to discuss such party's business and
prospects with such party's customers, creditors, suppliers and other persons
having business dealings with such party.
6.5 Regulatory Filings; Consents; Reasonable Efforts. Subject to the
------------------------------------------------
terms and conditions of this Agreement, Primax (USA) and Storm shall use their
respective best efforts to (i) make all necessary filings with respect to the
Merger and this Agreement under the Securities Act, and applicable blue sky or
similar securities laws and shall use all reasonable efforts to obtain required
approvals and clearances with respect thereto and shall supply all additional
information requested in connection therewith; (ii) make merger notification or
other appropriate filings with federal, state or local governmental bodies or
applicable foreign governmental agencies and shall use all reasonable efforts to
obtain required approvals and clearances with respect thereto and shall supply
all additional information requested in connection therewith; (iii) obtain all
consents, waivers, approvals, authorizations and orders required in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the Merger; and (iv) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.6 Further Assurances. Prior to and following the Closing, each
------------------
party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement.
7. Closing Matters.
---------------
7.1 Filing of Agreement of Merger. On the date of the Closing, but
-----------------------------
not prior to the Closing, the Agreement of Merger shall be filed with the
offices of the Secretary of State of the State of California and the merger of
Sub with and into Primax (USA) shall be consummated.
7.2 Exchange of Certificates.
------------------------
(a) Exchange Agent. Prior to the Closing Date, Storm shall appoint
--------------
Gray Cary Ware & Freidenrich to act as exchange agent (the "Exchange Agent") in
the Merger.
(b) Storm to Provide Stock. Promptly after the Effective Time of the
----------------------
Merger (but in no event later than ten (10) business days thereafter), Storm
shall make available for exchange in accordance with Section 2 and the Merger
Agreement, through such reasonable procedures as Storm may adopt, the shares of
Storm Preferred Stock issuable pursuant to Section 2 and the Merger Agreement
in exchange for outstanding shares of Primax (USA) Common Stock.
(c) Exchange Procedures. As soon as practicable after the Effective
-------------------
Time of the Merger (but no later than fifteen (15) days thereafter), the
Exchange Agent shall mail to each holder of record of a certificate or
certificates that immediately prior to the Effective Time of the Merger
represented outstanding shares of Primax (USA) Common Stock (the
"Certificates"), whose shares are being converted into Storm Preferred Stock
pursuant to Section 2 and the Merger Agreement, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and which shall be in such form and have such other provisions as
Storm may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for Storm Preferred Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Storm together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive the number of shares of Storm Preferred Stock to which such holder is
entitled pursuant to Section 2 hereof. The Certificate so surrendered shall
immediately be canceled. Storm shall make customary provisions for lost stock
17
<PAGE>
certificates. In the event of a transfer of ownership of Primax (USA) Common
Stock that is not registered in the transfer records of Primax (USA), the
appropriate number of shares of Storm Preferred Stock may be delivered to a
transferee if the Certificate represented such Primax (USA) Common Stock is
presented to the Exchange Agent and accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 7.2, each Certificate shall be deemed at any time after the Effective
Time of the Merger to represent the right to receive upon such surrender the
number of shares of Storm Preferred Stock as provided by this Section 7.2 and
by the General Corporation Law of the State of California.
(d) No Further Ownership Rights in Primax (USA) Common Stock. All
--------------------------------------------------------
Storm Preferred Stock delivered upon the surrender for exchange of shares of
Primax (USA) Common Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to such shares
of Primax (USA) Common Stock. There shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the shares
of Primax (USA) Common Stock that were outstanding immediately prior to the
Effective Time of the Merger. If after the Effective Time of the Merger,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section 7.2.
7.3 Delivery of Documents. At the Closing, the parties shall deliver
---------------------
the documents, and shall perform the acts, which are set forth in Section 8 and
Section 9, including delivery of the counterpart signature pages of the
Ancillary Documents executed by Primax (USA), Storm and/or Sub, as the case may
be. All documents which Primax (USA) shall deliver or cause to be delivered
shall be in form and substance reasonably satisfactory to Storm. All documents
which Storm and Sub shall deliver or cause to be delivered shall be in form and
substance reasonably satisfactory to Primax (USA).
8. Conditions to Primax (USA)'s Obligations. Primax (USA)'s obligations
----------------------------------------
to close the transactions contemplated under this Agreement are subject to the
fulfillment or satisfaction on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Primax (USA), but only in
a writing signed by Primax (USA)):
8.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Storm and Sub set forth in Section 4 shall be true on and as
of the Closing with the same force and effect as if they had been made at the
Closing, and Primax (USA) shall receive a certificate to such effect from an
officer of Storm and Sub, respectively.
8.2 Covenants. Storm shall have performed and complied with all of
---------
its covenants contained in Sections 5 and 6 on or before the Closing, and
Primax (USA) shall receive a certificate from Storm and Sub to such effect
signed by an officer of Storm and Sub, respectively.
8.3 No Litigation. No litigation or proceeding shall be threatened
-------------
or pending against Storm and Sub with the purpose or with the probable effect of
enjoining or preventing the consummation of any of the transactions contemplated
by this Agreement, and Primax (USA) shall receive a certificate to such effect
signed by an officer of Storm and Sub, respectively.
8.4 Authorizations. Primax (USA) shall have received from Storm and
--------------
Sub written evidence that the execution, delivery and performance of Storm and
Sub's obligations under this Agreement and the Agreement of Merger have been
duly and validly approved and authorized by the Board of Directors of Storm and
Sub, respectively, and by the holders of at least ninety percent (90%) of the
outstanding shares of capital stock of Storm and Sub, respectively.
8.5 No Adverse Development. There shall not have been any material
----------------------
adverse changes in the financial condition, results of operations, assets,
liabilities, business or prospects of Storm since the date of this Agreement.
8.6 Required Consents. Storm shall have received all written
-----------------
consents, assignments, waivers, authorizations or other certificates (including
Material Consents) reasonably deemed necessary by Storm's legal counsel to
provide for the continuation in full force and effect or assignment or
termination of any and all contracts and leases of Primax (USA) which are
material to the ongoing business of Storm and Primax (USA).
18
<PAGE>
8.7 Opinion of Storm's Counsel. Primax (USA) shall have received
--------------------------
from counsel to Storm, an opinion dated the Closing Date in form and substance
satisfactory to Primax (USA).
8.8 Government Consents. There shall have been obtained at or prior
-------------------
to the date of Closing such permits or authorizations, and there shall have been
taken such other action, as may be required by any regulatory authority having
jurisdiction over the parties and the subject matter and the actions herein
proposed to be taken.
8.9 Date of Closing. The Closing shall occur on or before March 19,
---------------
1996 or such later date as the parties may mutually agree.
8.10 Securities Laws. Primax (USA) and Storm shall have complied
---------------
with all applicable federal and state securities laws.
8.11 Ancillary Distribution Agreements. Primax Taiwan and Storm
---------------------------------
shall have executed the Ancillary Distribution Agreements in such form as is
reasonably satisfactory to each party. Storm and Primax Taiwan covenant to each
other to use best efforts to complete negotiation of and to execute the
Ancillary Distribution Agreements by March 1, 1996.
8.12 Storm Articles of Incorporation. Storm shall have amended and
-------------------------------
restated its Articles of Incorporation in substantially the form attached hereto
as Exhibit 8.12, to, among other things, change Storm's name to Storm Primax,
------------
Inc. and to create the Storm Preferred Stock.
8.13 Storm Amended and Restated Rights Agreement. The Amended and
-------------------------------------------
Restated Rights Agreement dated as of July 27, 1995, as amended, by and among
Storm, certain investors and certain holders of Common Stock of Storm shall have
been amended and restated substantially in the form attached hereto as Exhibit
-------
8.13, to, among other things, grant the same rights to the holders of Storm
- ----
Preferred Stock as had been previously granted to certain shareholders of Storm
and to provide for a procedure for electing directors of Storm.
8.14 Schedules. All of the Schedules to this Agreement shall have
---------
been delivered and the parties shall be reasonably satisfied with the content
and form of all such schedules, with the understanding that acceptance of the
schedules shall not be withheld unless such schedules are materially adversely
different from prior disclosures by the other party.
8.15 Board Approval. The Board of Directors of Primax Taiwan shall
--------------
have approved this Agreement and the Ancillary Agreements to which Primax Taiwan
is a party prior to the Closing.
9. Conditions to Storm's and Sub's Obligations. The obligations of Storm
-------------------------------------------
and Sub are subject to the fulfillment or satisfaction on, and as of the
Closing, of each of the following conditions (any one or more of which may be
waived by Storm, but only in a writing signed by Storm):
9.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Primax (USA) contained in Section 3 shall be true on and as
of the Closing with the same force and effect as if they had been made at the
Closing, and Storm shall receive a certificate from Primax (USA) to such effect
with respect to the representations and warranties of Primax (USA) executed by
the President and Chief Financial Officer of Primax (USA).
9.2 Covenants. Primax (USA) shall have performed and complied with
---------
all of its covenants contained in Sections 5 and 6 on or before the Closing,
and Storm shall receive a certificate from Primax (USA) to such effect signed by
the President and Chief Financial Officer of Primax (USA).
9.3 No Litigation. On and as of the Closing, no litigation or
-------------
proceeding shall be threatened or pending against Primax (USA) for the purpose
or with the probable effect of enjoining or preventing the consummation of any
of the transactions contemplated by this Agreement, or which would have a
material adverse effect on the business, liabilities, income, property,
operations or prospects of Primax (USA) subsequent to the Closing (and no
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency,
19
<PAGE>
instrumentality or arbitrator shall be outstanding against Primax (USA)) and
Storm shall receive a certificate from Primax (USA) to such effect signed by the
President and Chief Financial Officer of Primax (USA).
9.4 Authorizations. Storm shall have received from Primax (USA)
--------------
written evidence that the execution, delivery and performance of this Agreement
and the Agreement of Merger have been duly and validly approved and authorized
by its Board of Directors and by the holders of at least ninety percent (90%) of
the outstanding shares of capital stock of Primax (USA). Storm shall have
received a certificate from Primax (USA) to such effect signed by the President
and Chief Financial Officer of Primax (USA).
9.5 No Adverse Development. There shall not have been any material
----------------------
adverse changes in the financial condition, results of operations, assets
liabilities, business or prospects of Primax (USA) since the date of this
Agreement.
9.6 Required Consents. Storm shall have received all written
-----------------
consents, assignments, waivers, authorizations or other certificates (including
Material Consents) reasonably deemed necessary by Storm's legal counsel to
provide for the continuation in full force and effect or assignment or
termination of any and all contracts and leases of Primax (USA).
9.7 Opinion of Primax (USA)'s Counsel. Storm shall have received
---------------------------------
from counsel to Primax (USA), an opinion dated the Closing Date in form and
substance satisfactory to Storm.
9.8 Government Consents. There shall have been obtained at or prior
-------------------
to the date of Closing such permits or authorizations and there shall have been
taken such other action, as may be required by any regulatory authority having
jurisdiction over the parties and the subject matter and the actions herein
proposed to be taken.
9.9 Date of Closing. The Closing shall occur on or before March 19,
---------------
1996, or such later date as the parties may mutually agree.
9.10 Securities Laws. Primax (USA) and Storm shall have complied
---------------
with all applicable federal and state securities laws.
9.11 Ancillary Distribution Agreements. Primax Taiwan and Storm
---------------------------------
shall have executed the Ancillary Distribution Agreements in such form as is
reasonably satisfactory to each party. Storm and Primax Taiwan covenant to each
other to use best efforts to complete negotiation of and to execute the
Ancillary Distribution Agreements by March 1, 1996.
9.12 Storm Articles of Incorporation. Storm shall have amended and
-------------------------------
restated its Articles of Incorporation in substantially the form attached hereto
as Exhibit 8.12.
------------
9.13 Storm Amended and Restated Rights Agreement. The Amended and
-------------------------------------------
Restated Rights Agreement dated as of July 27, 1996, as amended, by and among
Storm, certain investors and certain holders of Common Stock of Storm shall have
been amended and restated substantially in the form attached hereto as Exhibit
-------
8.13.
- ----
9.14 Schedules. All of the Schedules to this Agreement shall have
---------
been delivered and the parties shall be reasonably satisfied with the content
and form of all such schedules, with the understanding that acceptance of the
schedules shall not be withheld unless such schedules are materially adversely
different from prior disclosures by the other party.
9.15 Indebtedness. Primax (USA) shall have increased its shareholder
------------
equity by One Million Three Hundred Thousand Dollars ($1,300,000) from the
amount set forth on the Primax (USA) Financial Statements and have repaid all
outstanding bank indebtedness of Primax (USA) prior to the Closing.
10. Covenants by Primax Taiwan.
--------------------------
20
<PAGE>
10.1 Indemnity. Primax Taiwan agrees to hold harmless and indemnify
---------
Storm from and against, and shall compensate and reimburse the Indemnitees for,
any loss, damage, liability, claim, demand, or fee (including reasonable
attorneys' fees ("Damages") which arise from or as a result of, or are directly
or indirectly connected with (i) any tax liability incurred by Primax (USA)
prior to the Closing Date, (ii) any dispute with the Internal Revenue Service or
other governmental agency with respect to any actual or alleged tax liability,
or (iii) any Primax Dissenting Shareholders; provided that Storm gives Primax
Taiwan prompt written notice of any such Damages, tenders to Primax Taiwan sole
control over the defense or settlement or settlement of any such Damages at
Primax Taiwan's expense, and cooperates with Primax Taiwan, at Primax Taiwan's
expense, in defending or settling such Damages.
10.2 Guaranty. Primax Taiwan covenants and agrees that it shall
--------
provide a guarantee or guarantees to a bank or banks as requested by Storm for
indebtedness to be incurred by Storm up to a maximum of $3,500,000. Storm
covenants and agrees that any such indebtedness for which Primax Taiwan provides
a guarantee shall constitute the most senior indebtedness of Storm.
11. Termination of Agreement.
------------------------
11.1 Termination. This Agreement may be terminated at any time prior
-----------
to the Closing by the mutual written consent of each of the parties hereto.
This Agreement may also be terminated and abandoned:
(a) By Storm if any of the conditions precedent to Storm's obligations
pursuant to Section 9 shall not have been fulfilled at and as of the Closing;
or
(b) By Primax (USA) if any of the conditions precedent to Primax
(USA)'s obligations pursuant to Section 8 above shall not have been fulfilled
at and as of the Closing.
(c) By either Primax (USA) or Storm, if the Merger is not effected
by March 19, 1996.
Any termination of this Agreement under this Section 11.1 shall be
effective by the delivery of written notice of the terminating party to the
other parties hereto.
11.2 Liability for Termination. Any termination of this Agreement
-------------------------
pursuant to this Section 11 shall be without further obligation or liability
upon any party in favor of any other party hereto; provided, that if such
termination shall result from the willful failure of a party to carry out its
obligations under this Agreement, then such party shall be liable for losses
incurred by the other parties. The provisions of this Section 11.2 shall
survive termination.
11.3 Certain Effects of Termination. In the event of the termination
------------------------------
of this Agreement by either Primax (USA) or Storm as provided in Section 11.1
hereof:
(a) each party, if so requested by the other party, will (i) return
promptly every document (other than documents publicly available) furnished to
it by the other party (or any subsidiary, division, associate or affiliate of
such other party) in connection with the transactions contemplated hereby,
whether so obtained before or after the execution of this Agreement, and any
copies thereof which may have been made, and will cause its representatives and
any representatives of financial institutions and investors and others to whom
such documents were furnished promptly to return such documents and any copies
thereof any of them may have made, or (ii) destroy such documents and cause its
representatives and such other representatives to destroy such documents, and
such party shall deliver a certificate executed by its president or vice
president stating to such effect; and
(b) Primax (USA) and Storm shall continue to abide by the provisions
of the previously executed Mutual Nondisclosure Agreement between Storm and
Primax (USA). This Section 11.3 shall survive any termination of this
Agreement.
11.4 Remedies. No party shall be limited to the termination right
--------
granted in Section 11.1 hereto by reason of the nonfulfillment of any condition
to such party's closing obligations but may, in the alternative, elect to do one
of the following:
21
<PAGE>
(a) proceed to close despite the nonfulfillment of any closing
condition, it being understood that consummation of the transactions
contemplated hereby shall be deemed a waiver of any misrepresentation or breach
of warranty or covenant and of any party's rights and remedies with respect
thereto to the extent that the other party shall have actual knowledge of such
misrepresentation or breach and the Closing shall nonetheless take place; or
(b) decline to close, terminate this Agreement as provided in Section
11.1 hereof, and thereafter seek damages to the extent permitted in Section 11.5
hereof.
11.5 Right to Damages. If this Agreement is terminated pursuant to
----------------
Section 11.1 hereof, neither party hereto shall have any claim against the other
except if the circumstances giving rise to such termination were caused by the
other party's wilful failure to comply with a material covenant set forth
herein, in which event termination shall not be deemed or construed as limiting
or denying any legal or equitable right or remedy of said party, and said party
shall be entitled to recover its costs and expenses which are incurred in
pursuing its rights and remedies (including reasonable attorneys' fees).
12. Miscellaneous.
-------------
12.1 Governing Law. It is the intention of the parties hereto that
-------------
the internal laws of the State of California (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto.
12.2 Binding upon Successors and Assigns. Subject to, and unless
-----------------------------------
otherwise provided in, this Agreement, each and all of the covenants, terms,
provisions, and agreements contained herein shall be binding upon, and inure to
the benefit of, the permitted successors, executors, heirs, representatives,
administrators and assigns of the parties hereto.
12.3 Severability. If any provision of this Agreement, or the
------------
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
12.4 Entire Agreement. This Agreement, the exhibits hereto, the
----------------
documents referenced herein, and the exhibits thereto, constitute the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior and contemporaneous agreements
or understandings, inducements or conditions, express or implied, written or
oral, between the parties with respect hereto and thereto. The parties
expressly acknowledge and agree that the as of the Effective Time, the
Distribution Agreement between Storm and Primax Taiwan dated October 25, 1995
shall be terminated and of no further force or effect, except that all
obligations existing as of such date shall be completed and performed in the
ordinary course of business after such termination. The express terms hereof
control and supersede any course of performance or usage of the trade
inconsistent with any of the terms hereof.
12.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
12.6 Expenses. Except as provided to the contrary herein, each party
--------
shall pay all of its own costs and expenses incurred with respect to the
negotiation, execution and delivery of this Agreement and the exhibits hereto.
All such costs and expenses incurred by Primax (USA) and Primax Taiwan shall be
paid in their entirety by Primax Taiwan.
12.7 Amendment and Waivers. Any term or provision of this Agreement
---------------------
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any
22
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breach hereof for default in payment of any amount due hereunder or default in
the performance hereof shall not be deemed to constitute a waiver of any other
default or any succeeding breach or default.
12.8 Survival of Agreements. All covenants, agreements,
----------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby notwithstanding any investigation of the parties hereto and shall
terminate on the date one year after the Closing Date.
12.9 No Waiver. The failure of any party to enforce any of the
---------
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
12.10 Arbitration. Any dispute arising out of this Agreement shall
-----------
be resolved by binding arbitration. The venue of the arbitration shall be in San
Jose, California if brought by Primax Taiwan, and if brought by Storm Primax,
the venue shall be in Taipei, Taiwan. The rules governing arbitration shall be
the Judicial Arbitration and Mediation Services/Endispute rules if the
arbitration is in San Jose, and if in Taiwan, the rules governing arbitration
shall be those rules as are customary for international arbitrations in Taiwan
(such rules to be collectively and individually referred to as the "Rules"). A
single arbitrator shall be selected according to the Rules within thirty (30)
days of submission of the dispute to arbitration. The arbitration shall be
conducted in English. Except as expressly provided above, no discovery of any
kind shall be taken by either party without the written consent of the other
party, provided, however, that either party may seek the arbitrator's permission
to take any deposition which is necessary to preserve the testimony of a witness
who either is, or may become, outside the subpoena power of the arbitrator or
otherwise unavailable to testify at the arbitration. The arbitrator shall not
have the power to award punitive damages, treble damages, or any other damages
which are not compensatory, even if permitted under the laws of the State of
California or any other applicable law. The arbitrator shall award the
prevailing party its costs and its reasonable attorney's fees, and the losing
party shall bear the entire cost of the arbitration, including the arbitrator's
fee. The arbitration award may be enforced in any court having jurisdiction over
the parties and the subject matter of the arbitration.
12.11 Attorneys' Fees. Should suit be brought to enforce or interpret
---------------
any part of this Agreement, the prevailing party shall be entitled to recover,
as an element of the costs of suit and not as damages, reasonable attorneys'
fees to be fixed by the court (including without limitation, costs, expenses and
fees on any appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds to final
judgment. A party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be counted in
calculating the amount of a judgment for purposes of determining if a party is
entitled to recover costs or attorneys' fees. If Primax (USA) is the prevailing
party in a suit with Sub, Storm agrees that it shall be liable to Primax (USA)
for the damages to, and reasonable attorneys' fees (including without
limitation, costs, expenses and fees on any appeal) incurred by, Primax (USA)
that are caused by Sub.
12.12 Notices. Any notice provided for or permitted under this
-------
Agreement will be treated as having been given when (a) delivered personally,
(b) sent by confirmed telex or telecopy, (c) sent by commercial overnight
courier with written verification of receipt, or (d) mailed postage prepaid by
certified or registered mail, return receipt requested, to the party to be
notified, at the address set forth below, or at such other place of which the
other party has been notified in accordance with the provisions of this Section
12.12.
Primax (USA): Primax Electronics (USA), Inc.
525 Almanor Avenue
Sunnyvale, CA 94086
Attention: Ray Sun
Primax Taiwan Primax Electronics, Ltd.
6F, No. 159, Kang Ning St., Hsi Chih Town
Taipei Hsien, Taiwan, ROC
Attention: Raymond Liang
23
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With copy to: Law Office of Robert D. Cochran
5201 Great America Parkway, Suite 320
Santa Clara, CA 95054
Attn: Robert D. Cochran
Storm: Storm Software, Inc.
1861 Landings Drive
Mountain View, CA 94043
Attention: L. William Krause
With copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: James M. Koshland
Such notice will be treated as having been received upon actual receipt.
12.13 Time. Time is of the essence of this Agreement.
----
12.14 Construction of Agreement. This Agreement has been negotiated
-------------------------
by the respective parties hereto and their attorneys and the language hereof
shall not be construed for or against any party. The titles and headings herein
are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole.
12.15 No Joint Venture. Nothing contained in this Agreement shall
----------------
be deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party shall have
the power to control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent contractors with
respect to each other. No party shall have any power or authority to bind or
commit any other. No party shall hold itself out as having any authority or
relationship in contravention of this Section 12.15.
12.16 Pronouns. All pronouns and any variations thereof shall be
--------
deemed to refer to the masculine, feminine or neuter, singular or plural, as
the identity of the person, persons, entity or entities may require.
12.17 Further Assurances. Each party agrees to cooperate fully with
------------------
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
12.18 Absence of Third Party Beneficiary Rights. No provisions of
-----------------------------------------
this Agreement are intended, nor shall be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, partner of any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof shall be personal solely between the parties
to this Agreement.
24
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
STORM SOFTWARE INC. PRIMAX ELECTRONICS (USA), INC.
By: _________________________________ By: ___________________________________
Title: ______________________________ Title: ________________________________
STORM ACQUISITION CORPORATION PRIMAX ELECTRONICS, LTD.
By: _________________________________ By: ___________________________________
Title: ______________________________ Title: ________________________________
25
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EXHIBIT 10.13
MANUFACTURING AND PURCHASE AGREEMENT
This Manufacturing and Purchase Agreement (the "Agreement") is entered into
this 24th day of February, 1996 by and between Storm Primax, Inc., a California
corporation having a place of business at 1861 Landings Drive, Mountain View,
California 94043 ("Storm Primax") and 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").
RECITALS
A. Pursuant to the terms of an Agreement and Plan of Reorganization dated
of even date herewith (the "Reorganization Agreement"), a wholly-owned
subsidiary of Storm Software, Inc. was merged into Primax Electronics (USA),
Inc. ("Primax USA"), and Primax USA, the surviving entity is now a wholly-owned
subsidiary of Storm Primax, the successor corporation to Storm Software, Inc.
B. Primax Taiwan is in the business of and has expertise in manufacturing
image scanning products and as a condition of the Reorganization Agreement,
Storm Primax has agreed to have certain Storm Primax proprietary A6 image
scanning products manufactured by Primax Taiwan under the terms and conditions
of this Agreement.
C. This Agreement is an Ancillary Agreement, as defined in the
Reorganization Agreement.
NOW, THEREFORE, in consideration of the mutual representations and
covenants of this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Storm Primax and
Primax Taiwan agree as follows:
1. Definitions. For purposes of this Agreement, the following terms will
-----------
have the respective meanings indicated below:
1.1 "A6 Products" means all image scanning products and technology
which accept photos up to a maximum of five (5) inches in width, excluding hand
scanners which are not made to be attached to a feeder base.
1.2 "Asset Transfer Agreement" means the Asset Transfer Agreement of
even date herewith by and between Storm Primax and Primax Taiwan, which
agreement is incorporated herein by reference.
1.3 "Closing Date" means the date of the closing under the
Reorganization Agreement.
1.4 "Confidential Information" means the technical information, know-
how, technology, formulae, system designs, prototypes, ideas, inventions,
improvements, layouts, software, concepts, techniques, discoveries, data, files,
supplier and customer identities and lists, accounting records, forecasts,
project management plans, marketing plans and business plans
1
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relating to this Agreement to which a party has proprietary rights, and all
copies and tangible embodiments thereof (in whatever form or medium)
conspicuously indicated as proprietary information, confidential information or
a substantially similar legend that are not generally known by the public;
provided, however, that any of the foregoing shall not be considered
Confidential Information if the party receiving it can show that it: (i) has
become publicly known through no wrongful act or breach of any obligation of
confidentiality on the receiving party's or any third party's part; (ii) was
rightfully received by the receiving party from a third party not in violation
of any contractual, legal or fiduciary obligation by such third party; (iii) was
approved for release by written authorization by the party having rights
therein; or (iv) was developed by the receiving party independently of the party
having rights therein without breach of any confidentiality or other
obligations; or (v) was disclosed by court order or other legal authority,
provided that the party having rights therein is given an opportunity to oppose
such disclosure and if disclosed, such information is only used for the
specified legal purposes.
1.5 "End User" means a purchaser or licensee of computer products
who acquires such products for use rather than distribution or resale.
1.6 "Enhancements" means any updates or bug fixes to a computer
product.
1.7 "Improvements" mean any and all improvements, Enhancements,
modifications and new versions of A6 Products which are created, invented,
discovered or made after the Closing Date.
1.8 "Licensed Know-How" means the Confidential Information,
designs, documentation, drawings, specifications, test information and all other
data and information known to Storm Primax with respect to the design,
manufacture, maintenance and use of the A6 Products, including, but not limited
to, the Specifications and Schematics, and except as expressly set forth,
includes all Object Code and Source Code.
1.9 "Manufacturing Price" means the price Primax Taiwan charges
Storm Primax for the manufacture of Retail Products, as determined by Section
4.1.
1.10 "Net Invoice Amount" means the net amount invoiced by Primax
Taiwan for shipments of OEM Products after deducting all customer discounts,
freight, transportation or other allowances, sales or other taxes, COD or other
delivery charges, insurance, credits, mailing costs and the like.
1.11 "Object Code" means the fully executable machine-readable
computer code which is directly executable and which, typically, is created by
assembling or compiling Source Code.
1.12 "OEM Customer" means a business entity which engages in
distribution or resale of computer products bundled with other products and
repackaged for distribution or resale as a stand-alone product directly or
indirectly through its distribution channels to End Users.
2
<PAGE>
1.13 "OEM Product" means a version of an A6 Product for use and
distribution by OEM Customers, and except as expressly set forth, includes all
Improvements thereto.
1.14 "Primax Taiwan" means Primax Electronics, Ltd., an ROC
corporation.
1.15 "Primax USA" means Primax Electronics (USA), Inc., a California
corporation.
1.16 "Products" means Retail Products and/or OEM Products, as
applicable.
1.17 "Reorganization Agreement" means the Agreement and Plan of
Reorganization of even date herewith by and among Storm Software, Inc., a
California corporation, Storm Acquisition Corporation, a wholly-owned subsidiary
of Storm Software, Inc., Primax Electronics (USA), Inc., a California
corporation, and Primax Taiwan, which agreement is incorporated herein by
reference.
1.18 "Retail Customer" means an End User or business entity which
engages in distribution or resale of computer products as stand-alone products
to End Users either directly or indirectly.
1.19 "Retail Product" means a version of an A6 Product to be
distributed to Retail Customers through all channels of distribution on a stand-
alone basis, and except as expressly set forth, includes all Improvements
thereto.
1.20 "Source Code" means the human perceivable and modifiable
computer code, including such programmer's notations so that a programmer
reasonably skilled in programming can modify the relevant software.
1.21 "Specifications and Schematics" means the product specification
sheet and schematics for the A6 Products, and any other documents and materials
relating to any A6 Product, now or in the future, that are necessary to
manufacture and repair the A6 Products, as provided to Primax Taiwan by Storm
Primax from time to time.
1.22 "Storm Primax" means Storm Primax, Inc., a California
corporation, the successor corporation to Storm Software, Inc.
1.23 "Third Party Manufacturer" means a manufacturer engaged by
Primax Taiwan to manufacture Products on behalf of Primax Taiwan which does not
manufacture any product that directly competes with the Product to be
manufactured.
2. Licenses.
--------
2.1 Manufacturing.
-------------
(a) Subject to the terms and conditions of this Agreement,
effective as of the Closing Date, Storm Primax grants to Primax Taiwan an
exclusive (subject to Sections
3
<PAGE>
2.1(c) and 2.1(d) below), non-transferable, royalty-free license to use the
Licensed Know-How to (i) manufacture and repair Products; (ii) use and reproduce
the Licensed Know-How in the course of manufacturing Products; and (iii)
sublicense to Third Party Manufacturers the right to use and reproduce the
Licensed Know-How (excluding any Source Code thereof) solely for purposes of
manufacturing the Products.
(b) Primax Taiwan may not make any modifications of any kind
to the Licensed Know-How Source Code except as expressly permitted above. Primax
Taiwan's right to sublicense the Licensed Know-How is limited for the above
express purpose and in all such sublicenses, Primax Taiwan agrees to afford the
Licensed Know-How all of the intellectual property protections as are customary
and ordinary in the usual conduct of its business with respect to other similar
intellectual property which is proprietary to Primax Taiwan (but in no event
with less than reasonable care). Primax Taiwan may not sublicense any of the
Licensed Know-How Source Code to any third party (including Third Party
Manufacturers) without Storm Primax's prior written consent.
(c) Notwithstanding the term "exclusive" in Section 2.1(a)
above, the parties agree that (i) Storm Primax may purchase up to fifteen
percent (15%) of its aggregate requirements for purchased dollar value of the
Products from one or more manufacturers (based on Storm Primax's purchase price
from such manufacturers) other than Primax Taiwan; and (ii) the detailed terms
and conditions in Section 2.1(d) below shall apply.
(d) The parties agree that they intend for Primax Taiwan to
be the highest quality, lowest cost manufacturer of Products for Storm Primax
pursuant to the terms below:
(A) If Primax Taiwan's Manufacturing Price for a
particular Product exceeds the lowest price offered by a third party to Storm
Primax for the manufacture of such Product by greater than ten percent (10%)
(assuming comparable manufacturing quality from such third party), Storm Primax
will give Primax Taiwan written notice of such offer. Within thirty (30) days
after such notice, Primax Taiwan will provide Storm Primax with a cost analysis
and the parties will mutually agree upon a cost target for such Product that
Primax Taiwan must implement within ninety (90) days after agreement on such
cost target. If Primax Taiwan is unable to implement such cost target within the
ninety (90) day period, Storm Primax may, in its discretion and upon two (2)
weeks written notice to Primax Taiwan after the expiration of the ninety (90)
day period, convert the exclusive manufacturing license to a non-exclusive
license for such Product. Primax Taiwan may reinstate the exclusivity of the
manufacturing license with respect to the Product provided that it first
notifies Storm Primax in writing of, and Storm Primax reasonably confirms,
Primax Taiwan's ability to manufacture the particular Product at the price equal
to or less than the prices then being paid by Storm Primax to a third party
manufacturer for such Product. The reinstatement of the exclusive manufacturing
license shall be effective as soon as reasonably practicable after Storm
Primax's competitive price confirmation (but in no event more than 90 days after
such confirmation) , taking into account all facts pertaining to such third
party manufacturer, including without limitation any agreement which Storm
Primax may have with such party.
4
<PAGE>
(B) If Primax Taiwan fails to deliver two acceptable
quality shipments of Products out of any five (5) consecutive deliveries as
defined in Section 7.2(b) below, Storm Primax and Primax Taiwan will meet within
thirty (30) days after such occurrence to develop a mutually agreed upon plan to
deliver acceptable shipments. If Primax Taiwan does not notify Storm Primax
within ninety (90) days of such meeting that it is able to deliver acceptable
shipments or advises that it is unable to deliver acceptable shipments, Storm
Primax may, in its discretion and upon two (2) weeks written notice to Primax
Taiwan after the expiration of the ninety (90) day period, convert the exclusive
manufacturing license to a non-exclusive license for such Product and cancel all
outstanding purchase orders submitted to Primax Taiwan (notwithstanding Primax
Taiwan's acceptance of such purchase orders or Section 3.4(b) below) beginning
with the first purchase order for such Product. In such event, Storm Primax
agrees to purchase at the then prevailing market price materials in Primax
Taiwan's inventory which have been inspected by Storm Primax and are specific to
manufacturing Products under the canceled purchase orders. Primax Taiwan may
reinstate the exclusivity of the manufacturing license with respect to the
Product provided that it first notifies Storm Primax in writing of, and Storm
Primax reasonably confirms, Primax Taiwan's ability to deliver acceptable
shipments of the particular Product. The reinstatement of the exclusive
manufacturing license shall be effective as soon as reasonably practicable after
Storm Primax's confirmation of Primax Taiwan's ability to deliver acceptable
shipments of Products (but in no event more than 90 days after such
confirmation), taking into account all facts pertaining to any third party
manufacturer, including without limitation any agreement which Storm Primax may
have with such party.
(C) If Primax Taiwan fails or is unable to deliver a
Product within ninety (90) days (or another mutually agreed upon period) of the
date Storm Primax places its purchase order for such Product, Storm Primax and
Primax Taiwan will meet within thirty (30) days after such occurrence to develop
a mutually agreed upon plan to deliver shipments as scheduled. If Primax Taiwan
does not notify Storm Primax within ninety (90) days of such meeting that it is
able to deliver shipments on time or advises that it is unable to deliver
shipments on time, Storm Primax may, in its discretion and upon two (2) weeks
written notice to Primax Taiwan after the expiration of the ninety (90) day
period, convert the exclusive manufacturing license to a non-exclusive license
for such Product and cancel all outstanding purchase orders submitted to Primax
Taiwan (notwithstanding Primax Taiwan's acceptance of such purchase orders or
Section 3.4 below) beginning with the first delayed purchase order for such
Product. In such event, Storm Primax agrees to purchase at the then prevailing
market price materials in Primax Taiwan's inventory which have been inspected by
Storm Primax and are specific to manufacturing Products under the canceled
purchase orders. Primax Taiwan may reinstate the exclusivity of the
manufacturing license with respect to the Product provided that it first
notifies Storm Primax in writing of, and Storm Primax reasonably confirms,
Primax Taiwan's ability to deliver the particular Product as specified by the
purchase order from Storm Primax. The reinstatement of the exclusive
manufacturing licensing shall be effective as soon as reasonably practicable
after Storm Primax's confirmation, of Primax Taiwan's ability to deliver (but in
no event more than 90 days after such confirmation), taking into account all
facts pertaining to any third party manufacturer, including without limitation
any agreement which Storm Primax may have with such party.
5
<PAGE>
(D) Storm Primax may request that Primax Taiwan
consent to an exception from the exclusive manufacturing license, which consent
shall not be unreasonably withheld, in order for Storm Primax to engage a third
party to manufacture a product not yet reduced to practice by Storm Primax but
for which Storm Primax has obtained the right to distribute from a third party.
Once Storm Primax reduces such product to practice and has developed its own
proprietary Licensed Know-How for such Product, Storm Primax agrees to engage
Primax Taiwan to manufacture such Product pursuant to the above manufacturing
license, subject to all the terms and conditions of this Agreement.
(E) Without the prior consent of Primax Taiwan, Storm
Primax may engage a third party to manufacture prototypes and engineering
samples of Products.
(e) New Products and Improvements. Storm Primax will
-----------------------------
provide Primax Taiwan with the Licensed Know-How for any new Products and
Improvements as soon as they become necessary for successfully manufacturing the
Products to which the new Products and Improvements relate according to Storm
Primax's specified order schedule, as may be modified from time to time. Primax
Taiwan's use of such Licensed Know-How will be subject to the above license
grant. All portions of the Licensed Know-How comprising Specifications and
Schematics will be prepared in accordance with industry standards and practices
and will be in English. Primax Taiwan will be responsible for all translations
of the Specifications and Schematics or any other Licensed Know-How, if needed.
2.2 Development. Primax Taiwan agrees that it will devote its
-----------
attention and efforts to meeting the Storm Primax's manufacturing requirements
under this Agreement.
2.3 Distribution.
------------
(a) Subject to the terms and conditions of this Agreement,
effective as of the Closing Date, Storm Primax grants Primax Taiwan a non-
exclusive, non-transferable, royalty-free license (including the right to
sublicense through multiple tiers of sublicenses) to distribute Products
existing as of the Closing Date (excluding Improvements thereto) as listed on
Exhibit 2.3(a) which it manufactures pursuant to the above license for OEM
- --------------
Customers and Retail Customers located in Europe, the Middle East and the Asia-
Pacific markets. This distribution license shall be in effect for each Product
until June 30, 1996. After June 30, 1996, Primax Taiwan agrees that it will have
no rights whatsoever under this section to distribute A6 Products.
(b) Subject to the restrictions on distribution in the Asset
Transfer Agreement, Primax Taiwan and Storm Primax agree as follows: Storm
Primax and Primax Taiwan will meet within the first month of each calendar year
during the term of this Agreement to establish Storm Primax's minimum annual
distribution quotas for the aggregate of all OEM Products sold to OEM Customers
in North America. The quotas will be based on United States dollars. If Storm
Primax does not meet the quotas based on shipments from Primax Taiwan such that
actual OEM Product distributions meet 65% or more of quota but fail to meet at
least 85% of quota for OEM Products, Primax Taiwan agrees to cooperate and meet
with Storm Primax to examine and evaluate the parties' relationship under this
Agreement, discuss the causes of the quota shortfall and develop a mutually
agreed upon written plan of action to
6
<PAGE>
increase OEM Product distributions in the following year. On the other hand, if
Storm Primax does not meet the quotas based on shipments from Primax Taiwan such
that OEM Product distributions are less than 65% of quota (except where due to
manufacturing quality issues or, during the 1996 calendar year, failure of the
OEM Product known as "PhotoDrive" to perform) for OEM Products, Primax Taiwan
may elect to distribute its own or third party OEM Products only to OEM
Customers worldwide, provided that Primax Taiwan gives Storm Primax at least six
(6) months prior written notice of its intent to distribute any such OEM
Product. There will be no quota on Storm Primax's distributions of Retail
Products. Primax Taiwan agrees that nothing in this section grants Primax Taiwan
any rights to distribute Retail Products.
3. Order and Shipment Terms.
------------------------
3.1 Order Procedure.
---------------
(a) The terms and conditions of this Agreement shall apply
to all orders for the Products and supersede any different or additional terms
on purchase orders submitted to Primax Taiwan. Purchase orders submitted to
Primax Taiwan are solely for the purpose of requesting delivery dates,
quantities and specifying destination. All orders will be subject to the minimum
order quantities specified in Exhibit 3.1(a) and as mutually agreed to for
--------------
future Products. All orders placed with Primax Taiwan shall be subject to
acceptance by Primax Taiwan at its principal place of business. Unless Primax
Taiwan rejects a purchase order by written notice to Storm Primax within five
(5) working days after receipt, such purchase order will be deemed accepted.
Subject to Section 2.1(d)(C) above, Primax-Taiwan shall use reasonable efforts
to ship Products by the delivery dates stated on accepted purchase orders, but
Primax Taiwan shall not be liable under any circumstances for any damages to
Storm Primax or to any other third party for Primax Taiwan's failure to fill, or
errors in filling, any orders or delay in delivery. Subject to Section 2.1(d)(C)
above, if orders for the Products exceed Primax Taiwan's inventory, Primax
Taiwan shall allocate available inventory on a basis Primax Taiwan deems
equitable in its sole and absolute discretion.
(b) For all Retail Product orders which Storm Primax elects
to place with Primax Taiwan, or is required to place with Primax Taiwan subject
to the terms of Sections 2.1(c) and 2.1(d), Storm Primax will submit purchase
orders directly to Primax Taiwan.
(c) For all OEM Product orders which Storm Primax elects to
place with Primax Taiwan, or is required to place with Primax Taiwan subject to
the terms of Sections 2.1(c) and 2.1(d), Storm Primax will receive purchase
orders from OEM Customers issued to Primax Taiwan and forward copies of such
purchase orders to Primax Taiwan for acceptance pursuant to Section 3.1(a)
above. All OEM agreements for the OEM Products will be between Storm Primax and
the OEM Customer, with sales service to be provided by Storm Primax.
3.2 Delivery. Except as otherwise set forth in a purchase order or
--------
as otherwise mutually agreed upon between Primax Taiwan and Storm Primax, Primax
Taiwan will ship all ordered Products within sixty (60) days after Primax
Taiwan's acceptance of the applicable purchase order.
7
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3.3 Forecasts. By the fifteenth day of each month, Storm Primax
---------
will provide Primax Taiwan with written non-binding rolling 120 day forecasts of
its Product requirements. Such forecasts shall be itemized on a Product by
Product basis between Retail Products and OEM Products.
3.4 Rescheduling and Cancellations.
------------------------------
(a) With Primax Taiwan's prior written consent, 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.
(b) Except as set forth in Sections 2.1(d)(B) and 2.1(d)(C),
Storm Primax may not cancel any purchase order accepted by Primax Taiwan without
the prior written consent of Primax Taiwan .
3.5 Shipments, Risk of Loss, Title.
------------------------------
(a) Primax Taiwan will ship Retail Products F.O.B. shipping
port.
(b) Primax Taiwan will ship OEM Products F.O.B. shipping
port directly to OEM Customers.
4. Payment Terms.
-------------
4.1 Prices.
------
(a) For Retail Products, within a reasonable period after
the Closing Date, the parties will determine the initial Manufacturing Prices
and such prices shall be effective until reviewed and adjusted according to this
Section 4.1. The parties will meet to review Manufacturing Prices on mutually
agreed to dates on or within thirty (30) days before January 1, April 1 and
September 1 of each year. Any agreed upon adjustments will be effective for all
orders accepted on or after such related date (January 1, April 1 and September
1) and continue in effect until further adjusted according to this provision. At
each pricing review, Primax Taiwan will propose a Manufacturing Price based upon
a build-up of manufacturing costs (to include materials cost, labor costs,
overhead and general administrative costs directly related to the manufacturing
process, but excluding research, development and other general administrative
costs). Pursuant to Section 2.1(d)(A) above, Manufacturing Prices must be
competitive with third party manufacturing prices in order to prevent Storm
Primax from converting the exclusive manufacturing license to a non-exclusive
license. Prices proposed by Primax Taiwan should take into account volume of all
manufacturing for the Products and for
8
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like components of other products manufactured by Primax Taiwan. Such proposal
shall form the basis for the parties' good faith negotiations for implementing
price adjustments, if at all.
(b) Notwithstanding the price reviews, the parties will also
meet to review Manufacturing Prices in each of the following situations: (i)
release of a new Product: (ii) an Improvement which results in a change in
Primax Taiwan's manufacturing costs; (iii) any significant increase in volume
for Products relative to forecasts as of the prior adjustment date which would
allow for lower manufacturing costs due to volume discounts on materials; (iv)
any bids for manufacturing of a Product by a third party (with comparable
quality and terms) which are ten percent (10%) or more lower than the then
current Manufacturing Price for such Product; (v) material changes in the market
environment in order for such current Product to remain competitive in the
market; or (vi) material changes in the manufacturing environment involving cost
increases or decreases. For the purposes of subsection (iv) above, such pricing
review must be completed subject to the terms of Section 2.1(d)(A) to avoid
conversion of the manufacturing license to a non-exclusive license pursuant to
Section 2.1(d)(A) above.
(c) The price to Storm Primax for OEM Products delivered on
or before June 30, 1996 will be ninety-five percent (95%) of Primax Taiwan's Net
Invoice Amount. That is, Primax Taiwan will retain ninety-five percent (95%) of
its Net Invoice Amount and pay over to Storm Primax five percent (5%) of Net
Invoice Amount. For shipments of OEM Products delivered after on or after July
1, 1996, Storm Primax will receive from Primax Taiwan an amount equal to the
difference between the price paid by the OEM Customer for such OEM Products and
the cost to Primax Taiwan for manufacturing such OEM Products (and allowances
for extending credit to OEM Customers) as reasonably determined by Primax
Taiwan, and agreed to by Storm Primax, pursuant to the procedures set forth in
Section 4.1(a) above for Retail Products. The parties will also mutually agree
upon how much of such amount will be allocable as a royalty to Storm Primax for
Primax Taiwan's distribution of OEM Products to OEM Customers and how much will
be allocable as a service commission to Storm Primax for providing sales and
service support to such OEM Customers.
4.2 Taxes and Duties.
----------------
(a) Except as set forth in Section 4.2(b) below, in addition
to any payments due under this Agreement, Storm Primax shall pay any taxes,
duties or other amounts, however designated, which are levied or based upon such
payments, or upon this Agreement, provided, however, that Storm Primax shall not
be liable for taxes based on Primax Taiwan's net income.
(b) In addition to any other payments due under this
Agreement, Primax Taiwan agrees to pay any taxes imposed by any governmental
authority in the Republic of China with respect to any payment to be made by
Storm Primax under this Agreement, payment to be made by Primax Taiwan under
this Agreement or any item to be delivered by Primax Taiwan to Storm Primax or
Storm Primax's OEM Customers or Retail Customers under this Agreement.
4.3 Payment.
-------
9
<PAGE>
(a) Storm Primax will be responsible for invoicing Retail
Customers for all deliveries of Retail Products made by Primax Taiwan directly
to Retail Customers and Storm Primax will pay for such Retail Products by wire
transfer in U.S. dollars within ninety (90) days after invoice. Storm Primax
will pay for Retail Products it receives directly from Primax Taiwan within
ninety (90) days of Primax Taiwan's invoice for such Retail Products.
(b) Primax Taiwan will invoice all OEM Customers for OEM
Products delivered by Primax Taiwan, and Storm Primax will be responsible for
ensuring that amounts due to Primax Taiwan are paid by OEM Customers receiving
OEM Products pursuant to the terms of the written agreements between Storm
Primax and such OEM Customers. Primax Taiwan will be responsible for extending
credit to OEM Customers during the 1996 calendar year and thereafter, the
parties agree to review the credit responsibility as reasonably necessary. Storm
Primax agrees that the payment terms of such agreements with its OEM Customers
will not extend payment by a OEM Customer for more than ninety (90) days after
invoice, except as may be consented to by Primax Taiwan.
(c) Primax Taiwan will pay Storm Primax for OEM Products as
required by Section 4.1(c) above by wire transfer in U.S. dollars within five
(5) days after Primax Taiwan receives payment from OEM Customers.
5. Proprietary Rights. Primax Taiwan acknowledges that the structure and
------------------
organization of the Products and Licensed Know-How are proprietary to Storm
Primax. Storm Primax retains exclusive ownership of the Products and Licensed
Know-How, except as otherwise provided for in the Asset Transfer Agreement
regarding product and technology ownership and licensing. Primax Taiwan will
take all reasonable measures to protect Storm Primax's proprietary rights in the
Products and Licensed Know-How. Except as provided herein or in the Asset
Transfer Agreement, Primax Taiwan is not granted any rights to patents,
copyrights, trade secrets, trade names, trademarks (whether registered or
unregistered), or any other rights, franchises or licenses with respect to the
Products or Licensed Know-How. All rights not expressly granted to Primax
Taiwan under this Agreement are reserved to Storm Primax.
6. Confidentiality.
---------------
6.1 Confidentiality of Agreement. Each of the parties covenants to
----------------------------
the other party that it will not in any manner disclose or divulge the contents
of the Agreement or any of the material terms and conditions hereof to any third
party, except as the other parties may expressly consent in advance in writing
or as may be required in obtaining any necessary governmental or regulatory
approval for the transactions contemplated hereby or as may otherwise be
required by any applicable law.
6.2 Treatment of Confidential Information. For a period of five
-------------------------------------
(5) years after receipt of any Confidential Information, each party shall keep
and maintain the other party's Confidential Information in strictest confidence
and, except as otherwise expressly provided herein, each party: (i) shall not
use the other party's Confidential Information, and (ii) shall not provide or
otherwise make available, whether directly or indirectly, any of the other
party's Confidential Information to any party other than: (a) to employees and
officers of a party who
10
<PAGE>
require access to such Confidential Information for performance of their duties
and who have signed a written nondisclosure agreement including the requirement
to protect third party proprietary information or (b) to permitted sublicensees
permitted under this Agreement who shall enter into a nondisclosure agreement to
protect Confidential Information on terms no less restrictive than required in
this Agreement, or (c) as required by any applicable law. Each party shall take
all reasonable actions (by instruction, agreement or otherwise) necessary to
maintain the confidentiality of the other party's Confidential Information.
Notwithstanding the foregoing, each party shall be required to protect the other
party's Confidential Information consistent with the same protections afforded
its own Confidential Information in the ordinary conduct of its business but in
no event with less than reasonable care.
6.3 Return or Destruction. Upon termination of this Agreement, or
---------------------
at any other time if requested by a party, each party promptly shall return to
the other party all Confidential Information received by it or its
representatives by such other party unless the party provides assurances
reasonably satisfactory to such other party that such Confidential Information
has been destroyed.
6.4 Source Code. Primax Taiwan acknowledges that the Licensed
-----------
Know-How Source Code is a trade secret of Storm Primax and due to the importance
of the confidentiality and trade secret status of the Licensed Know-How Source
Code, Primax Taiwan agrees, in addition to complying with the requirements of
this Section 6 as they related to the Licensed Know-How Source Code, to: (i)
inform any employee that is granted access to all or any portion of the Licensed
Know-How Source Code of the importance of preserving the confidentiality and
trade secret status of the Licensed Know-How Source Code; (ii) maintain a
controlled, secure environment for the storage and use of the Licensed Know-How
Source Code; and (iii) use at least the same degree of care in preserving the
confidentiality of the Licensed Know-How Source Code as it uses in the treatment
of its own trade secrets. Primax Taiwan shall not permit others to attempt to
discover the Licensed Know-How Source Code without the express written consent
of Storm Primax.
7. Acceptance and Warranty.
-----------------------
7.1 Product Acceptance. For each unit of Products, Storm Primax
------------------
(or its designee) will have ten (10) calendar days from the date such unit is
received by Storm Primax (or Retail Customers or OEM Customers) (the "Acceptance
Period") to examine and test the Product for conformity to the Specifications
and Schematics. During the Acceptance Period for each unit, Storm Primax (or its
designee) may (i) accept the unit or (ii) reject the unit by notifying Primax
Taiwan in writing of the manner in which the unit fails to conform to the
Specifications and Schematics. Any unit not rejected by Storm Primax (or its
designee) within the Acceptance Period will be deemed to be accepted as of the
first day following the Acceptance Period. In the event that a unit is rejected,
Storm Primax (or its designee) may, at Primax Taiwan's expense and without cost
to Storm Primax (or its designee), either (i) return the unit to Primax Taiwan,
freight collect, for replacement with a new conforming unit or (ii) permit the
modification of the unit to correct the nonconformity (e.g., by providing
replacement components and modification instructions). Units that are replaced
or modified pursuant to this Section 7.1 will be subject to a new Acceptance
Period. With respect to OEM Products, the acceptance provisions of this Section
shall control unless they are inconsistent with the relevant terms of the
written
11
<PAGE>
agreement between Storm Primax and the OEM Customer. In such event, the terms of
such written agreement shall govern acceptance of the OEM Product by the OEM
Customer, provided that Storm Primax has obtained Primax Taiwan's consent to
such different terms.
7.2 Defect Rates and Remedies. The following remedies for
-------------------------
defective products will only extend to defects in Products caused by
manufacturing errors and not design or development errors:
(a) In addition to the rights of Storm Primax to reject
units of Products as more particularly set forth above, Storm Primax may, in its
sole and absolute discretion, test (or cause any of its Retail or OEM Customers
to test) any random sample of any Product shipment Storm Primax or Storm
Primax's Retail or OEM Customers receives pursuant to the provisions of this
Section 7.2. Primax Taiwan and Storm Primax will mutually agree upon the testing
procedures for each Product and update or modify such procedures as reasonably
required. A sample of each shipment to be tested will be tested, and the
corresponding shipment accepted or rejected according to the following
guidelines:
Retail Products and Stand Alone OEM Products
<TABLE>
<CAPTION>
Shipment Test Acceptance Rejection
Delivery Size Sample Size Criteria Criteria
- ------------------ ----------- ------------------------- -------------------------
<S> <C> <C> <C>
501-1,200 units 80 units 2 defective units or less 3 defective units or more
1,201-3,200 125 3 defective units or less 4 defective units or more
3,201 + 200 5 defective units or less 6 defective units or more
</TABLE>
OEM Products Built Into PC's
<TABLE>
<CAPTION>
Shipment Test Acceptance Rejection
Delivery Size Sample Size Criteria Criteria
- ------------------ ----------- ------------------------- -------------------------
<S> <C> <C> <C>
501-1,200 units 80 units 1 defective units or less 2 defective units or more
1,201-3,200 125 2 defective units or less 3 defective units or more
3,201 + 200 3 defective units or less 4 defective units or more
</TABLE>
With respect to OEM Products, the acceptance provisions of this Section
shall control unless they are inconsistent with the relevant terms of the
written agreement between Storm Primax and the OEM Customer. In such event, the
terms of such written agreement shall govern random sample testing of OEM
Products by the OEM Customer, provided that Storm Primax and Primax Taiwan have
mutually agreed to such different terms in writing.
(b) If a shipment is rejected according to the above
procedures and criteria, Storm Primax will immediately notify Primax Taiwan of
the rejection. Primax Taiwan will then provide all reasonably requested and
necessary technical support to test all units in such shipment and repair any
defective units therein. Primax Taiwan shall pay for all such testing and repair
of the units in such shipment, and any related costs or expenses thereof. If
Storm Primax is unable to complete the testing and repair of defective units in
such shipment within a
12
<PAGE>
reasonable period and with no more than reasonable efforts, Storm Primax may
return the entire shipment to Primax Taiwan for testing and repair at Primax
Taiwan's sole expense (including shipping costs to and from Storm Primax or
Storm Primax's OEM Customer or Retail Customer). Neither Storm Primax nor any of
its OEM Customers or Retail Customers will be invoiced for or have any
obligation to pay Primax Taiwan for defective units of Product until and unless
such defective units are repaired or replaced and Storm Primax (or its Retail or
OEM Customer) confirms their conformance with the applicable Specifications and
Schematics.
(c) The "Defect Rate" for each rolling four month period
shall be defined as the fraction (expressed in percentage form) whose numerator
is the number of total units of each specific Product which are both (i)
returned to Storm Primax from its OEM Customers, Retail Customers and End Users;
and (ii) found by Storm Primax upon such return to be defective according to the
testing procedures established under Section 7.2(a), and whose denominator is
equal to Storm Primax's total unit shipments of Products over the applicable
four month period. If the Defect Rate exceeds three percent (3%) for any month
for the combination of Retail Products and Stand Alone OEM Products, or two
percent (2%) for any four month period for OEM Products built into PC's, Primax
Taiwan shall, at Storm Primax's sole option, reimburse Storm Primax, or credit
Storm Primax on open invoices, an amount equal to all shipping expenses incurred
by Storm Primax during such four month period to repair or replace the number of
defective units in excess of the three percent (3%) or two percent (2%) Defect
Rates, as applicable.
7.3 Product Warranty. Primax Taiwan warrants to Storm Primax that
----------------
for a period of sixteen (16) months from the date of shipment from Primax Taiwan
to Storm Primax (or Storm Primax's OEM Customers or Retail Customers, as
applicable) accepts a conforming Product pursuant to Section 7.1 (the "Warranty
Period"), such Product will operate in substantial conformance to the
Specifications and Schematics and will be free from any defects in material or
workmanship. If any Product fails to substantially conform to the Specifications
and Schematics or contains any other defects discovered during the Warranty
Period, Storm Primax, in its discretion, may either (i) attempt to repair the
Product itself at its own labor expense, provided that Primax Taiwan supplies
and pays for any required parts or materials for all Products or (ii) return the
defective Product to Primax Taiwan for repair or replacement (at Primax Taiwan's
sole expense, including shipping costs from Storm Primax to Primax Taiwan).
Storm Primax will be responsible for all costs of shipping defective units and
parts to and from Storm Primax's OEM Customers and Retail Customers and to and
from Storm Primax (except as provided for in Section 7.2(c) above). Primax
Taiwan will be responsible for all return shipping costs of repaired or
replacement units to Storm Primax.
7.4 Primax USA Products. Primax Taiwan agrees that it will comply
-------------------
with and assume all obligations under Primax USA's product warranties for the
Product known as "Color Mobile Office" distributed to OEM Customers and Retail
Customers prior to the Closing Date and after the Closing Date if such Products
are distributed from Primax USA's inventory existing as of the Closing Date.
7.5 Disclaimer. EXCEPT FOR THE ABOVE WARRANTIES, PRIMAX TAIWAN
----------
MAKES NO OTHER WARRANTIES RELATING TO THE PRODUCTS, EXPRESS OR IMPLIED, AND
EXPRESSLY EXCLUDES ANY WARRANTY OF
13
<PAGE>
FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY. THE ABOVE LIMITED WARRANTY
DOES NOT EXTEND TO ANY DEFECTS IN THE PRODUCTS CAUSED DIRECTLY BY THE WILFUL
MISCONDUCT OF STORM PRIMAX, ITS RETAIL CUSTOMERS OR ITS OEM CUSTOMERS.
8. Indemnification.
---------------
8.1 Indemnity by Storm Primax. Subject to Section 9 below, Storm
-------------------------
Primax agrees to defend, indemnify and hold harmless Primax Taiwan, its
officers, directors, employees and sublicensees against any claims, demands,
damages or actions (including reasonable attorneys' fees and costs) arising out
of an actual or alleged infringement of any copyrights or patent rights under
the laws of the Republic of China, Japan, United States, Canada and countries
which are membersof the European Economic Community caused by Primax Taiwan's
manufacture of any Improvements under this Agreement pursuant to and in
accordance with the Licensed Know-How. The foregoing indemnity shall not apply
to any infringement claim arising from any modification or use of the Licensed
Know-How not authorized by Storm Primax in writing.
8.2 Indemnity by Primax Taiwan. Subject to Section 9 below,
--------------------------
Primax Taiwan agrees to defend, indemnify and hold Storm Primax harmless from
any claims or damages (inclusive of Storm Primax's reasonable attorneys' fees
and costs) made against Storm Primax as a result of a failure by Primax Taiwan
to honor Product warranties as more particularly set forth in Section 7. Primax
Taiwan shall be solely responsible for any claims, warranties or representations
made by Primax Taiwan or Primax Taiwan's employees or agents which differ from
those authorized by Storm Primax.
8.3 Indemnification Procedure. The above indemnities shall be
-------------------------
subject to the following procedures:
(a) The party receiving the indemnity ("Indemnitee") will
notify the party with the indemnity obligation ("Indemnitor") of any third party
claim, action or demand within ten (10) days after the Indemnitee receives
notice thereof; provided, however, that failure or delay to provide such
notification shall not reduce or otherwise affect the obligations of the
Indemnitor, except to the extent that such failure or delay shall have
materially prejudiced the Indemnitor's ability to defend against, settle or
satisfy such claim or materially increase the cost thereof.
(b) The Indemnitor, at its expense, shall have the right to
pay, compromise, settle or otherwise dispose of any such claim, provided that no
compromise, settlement or disposal of such claim shall be entered into without
the prior written consent of the Indemnitee, which consent shall not be
unreasonably withheld.
(c) The Indemnitee has the right to reasonably monitor and
participate in the Indemnitor's defense (including the selection of counsel
reasonably satisfactory to both Indemnitor and Indemnitee) or Indemnitee from
any such claims. In any action defended by Indemnitor, Indemnitee shall at all
times have the right to employ its own counsel, but the fees and expenses of
such counsel shall be Indemnitee's own expense unless the
14
<PAGE>
employment of such counsel shall have been authorized by Indemnitor in
connection with the defense of such claims. In such event, such fees and
expenses shall be borne by Indemnitor.
9. Consequential Damages Waiver. EXCEPT FOR A BREACH OF SECTION 6,
----------------------------
NEITHER PARTY SHALL HAVE ANY LIABILITY FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY DAMAGES ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
10. Term and Termination.
--------------------
10.1 Term. The term of this Agreement shall commence as of the
----
Closing Date and continue for four (4) years. Thereafter, this Agreement will
renew only upon the mutual written agreement of the parties.
10.2 Termination With Cause.
----------------------
(a) Each party may terminate this Agreement upon ninety (90)
days written notice of a material breach of this Agreement if such breach is not
cured within such ninety (90) day period.
(b) Either party may immediately terminate this Agreement
after giving written notice if the other party shall become insolvent or upon
any proceeding being commenced by or against the other party under any law
providing relief to such other party as debtor.
10.3 Rights Upon Termination. Upon notice of termination of this
-----------------------
Agreement:
(a) Except as specifically permitted by the Asset Transfer
Agreement and subject to the terms thereof, Primax Taiwan shall immediately
cease, and cause its Third Party Manufacturers to cease, using the Licensed
Know-How.
(b) In the event of termination by Storm Primax, Storm
Primax, in its sole and absolute discretion, may (i) cancel all or part of any
purchase orders submitted to Primax Taiwan without penalty (despite any
acceptance thereof), provided that Storm Primax compensates Primax Taiwan for
any materials, finished goods or work in process for such canceled orders at
purchase price for such materials plus reasonable labor costs; (ii) purchase all
or part of any Retail Products manufactured by Primax Taiwan as of the notice of
termination; or (iii) require Primax Taiwan's completion of any outstanding
purchase orders for OEM Products or Retail Products notwithstanding the fact
that delivery dates for such orders may extend beyond the effective date of
termination.
(c) Upon termination of this Agreement:
15
<PAGE>
(A) The payment date of all monies due either party
shall automatically be accelerated so that they shall become due and payable on
the effective date of termination, even if longer terms had been provided
previously.
(B) All sublicenses of Third Party Manufacturers will
terminate.
(C) Except as specifically provided by the Asset
Transfer Agreement and subject to the terms thereof, Primax Taiwan will return
or destroy all copies of the Licensed Know-How, and any other materials provided
by Storm Primax to Primax Taiwan under this Agreement, in any form.
10.4 Survival. The following sections of this Agreement will
--------
survive any termination of this Agreement: 2.1(b), 4 ("Payment Terms"), 5
("Proprietary Rights"), 6 ("Confidentiality"), 7 ("Acceptance and Warranty"), 8
("Indemnification"), 9 ("Consequential Damages Waiver"), 10 ("Term and
Termination") and 11 ("General Provisions").
11. General Provisions.
------------------
11.1 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.
11.2 Assignability. Except in the case of an assignment in
-------------
connection with a merger, reorganization, consolidation, change of domicile or
sale of all or substantially all the assets of a party, neither Storm Primax nor
Primax Taiwan may assign its rights and obligations, in whole or in part, under
this Agreement without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
11.3 Successors. This Agreement shall be binding upon and shall
----------
inure to the benefit of each party.
11.4 Amendments. This Agreement may be amended or supplemented only
----------
by a writing that is signed by duly authorized representatives of both parties.
11.5 Notices. All notices permitted or required under this
-------
Agreement shall be in writing and shall be delivered as follows with notice
deemed given as indicated: (i) by personal delivery when delivered personally,
(ii) by overnight courier upon written verification of receipt, (iii) by
telecopy or facsimile transmission when confirmed by telecopier or facsimile
transmission, or (iv) by certified or registered mail, return receipt requested,
five (5) days after deposit in the mail. All notices must be sent to the
addresses below or to such other address that the receiving party may have
provided for the purpose of notice in accordance with this Section 11.5.
16
<PAGE>
If to Primax Taiwan: Primax Electronics, Ltd.
6F, No. 159, Kang Ning St., Hsi Chih Town
Taipei Hsien, Taiwan, ROC
Attention: Raymond Liang
With a copy to: Law Office of Robert D. Cochran
5201 Great America Parkway, Suite 320
Santa Clara, CA 95054
Attention: Robert D. Cochran
If to Storm Primax: Storm Primax, Inc.
1861 Landings Drive
Mountain View, CA 94043
Attention: L. William Krause
With a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: James M. Koshland
11.6 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 the International Sale of Goods shall not apply to this
Agreement in any manner whatsoever.
11.7 Arbitration. Any dispute arising out of this Agreement shall
-----------
be resolved by binding arbitration. The venue of the arbitration shall be in San
Jose, California if brought by Primax Taiwan, and if brought by Storm Primax,
the venue shall be in Taipei, Taiwan. The rules governing arbitration shall be
the Judicial Arbitration and Mediation Services/Endispute Rules if the
arbitration is in San Jose, and if in Taiwan, the rules governing arbitration
shall be those as are customary for international arbitrations in Taiwan (such
rules collectively and individually referred to as the "Rules"). A single
arbitrator shall be selected according to the Rules within thirty (30) days of
submission of the dispute to arbitration. The arbitration shall be conducted in
English. Except as expressly provided above, no discovery of any kind shall be
taken by either party without the written consent of the other party, provided,
however, that either party may seek the arbitrator's permission to take any
deposition which is necessary to preserve the testimony of a witness who either
is, or may become, outside the subpoena power of the arbitrator or otherwise
unavailable to testify at the arbitration. The arbitrator shall not have the
power to award punitive damages, treble damages, or any other damages which are
not compensatory, even if permitted under the laws of the State of California or
any other applicable law. The arbitrator shall award the prevailing party its
costs and its reasonable attorney's fees, and the losing party shall bear the
entire cost of the arbitration, including the arbitrator's fee. The arbitration
award may be enforced in any court having jurisdiction over the parties and the
subject matter of the arbitration.
17
<PAGE>
11.8 Waiver. No term or provision hereof will be considered waived
------
by either party, and no breach excused by either party, unless such waiver or
consent is in a writing signed on behalf of the party against whom the waiver is
asserted. No consent by either party to, or waiver of, a breach by either party,
whether express or implied, will constitute a consent to, waiver of, or excuse
of any other different or subsequent breach by such party.
11.9 Severability. In the event that any provision of this
------------
Agreement shall be unenforceable or invalid under any applicable law or be so
held by applicable court decision, such unenforceability or invalidity shall not
render this Agreement unenforceable or invalid as a whole.
11.10 Force Majeure. Neither party shall be liable hereunder by
-------------
reason of any failure or delay in the performance of its obligations hereunder
on account of strikes, shortages, riots, insurrection, fires, flood, storm,
explosions, acts of God, war, governmental action, labor conditions,
earthquakes, material shortages or any other cause beyond the reasonable control
of such party.
11.11 Entire Agreement. This Agreement, including all Exhibits to
----------------
this Agreement, constitute 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.
11.12 Order of Precedence. In the event of any inconsistency or
-------------------
ambiguity between or among the terms and conditions of this Agreement and the
Reorganization Agreement, the inconsistency or ambiguity shall be resolved in
the following order of precedent: (i) this Agreement; and (ii) the
Reorganization Agreement.
11.13 Effectiveness of Agreement. Although this Agreement has been
--------------------------
executed by the parties on the date first above written, this Agreement shall
become effective only on the occurrence of the closing under the Reorganization
Agreement. If the Reorganization Agreement is terminated pursuant to Section 11
thereof, this Agreement shall become void and of no further force or effect.
11.14 Attorneys' Fees. The prevailing party in any dispute arising
---------------
out of or related to this Agreement shall be entitled to recover its reasonable
attorneys' fees and costs.
11.15 No Agency. Nothing contained herein shall be construed as
---------
creating any agency, partnership or other form of joint enterprise between the
parties.
11.16 Headings. The section headings appearing in this Agreement are
--------
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or extent of such section or in any way affect such
section.
11.17 Injunctive Relief. It is expressly agreed that a breach of
-----------------
Section 6 will cause irreparable harm to the non-breaching party and that a
remedy at law would be inadequate. Therefore, in addition to any and all
remedies available at law, the non-breaching
18
<PAGE>
party will be entitled to an injunction or other equitable remedies in all legal
proceedings in the event of any threatened or actual violation of such
provision.
11.18 Export Controls. Primax Taiwan acknowledges that the laws and
---------------
regulations of the United States restrict the export and re-export of
commodities and technical data of United States origin, including the Products
and Licensed Know-How. Primax Taiwan agrees that it will not export or re-export
any of the Products of Licensed Know-How, or any portion thereof on any form
without the appropriate United States and foreign government licenses.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
Storm Primax: Primax Taiwan:
Storm Primax, Inc. Primax Electronics, Ltd.
By:_______________________________ By:____________________________________
Title:____________________________ Title:_________________________________
19
<PAGE>
EXHIBIT 10.14
ASSET TRANSFER AGREEMENT
------------------------
This Agreement is entered into this 24th day of February, 1996 by and
between Storm Primax, Inc., a California corporation having a place of business
at 1861 Landings Drive, Mountain View, California 94043 ("Storm Primax") and
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").
RECITALS
--------
A. Pursuant to the terms of a Reorganization Agreement dated of even date
herewith (the "Reorganization Agreement"), a wholly-owned subsidiary of Storm
Software, Inc. will be merged into Primax Electronics (USA), Inc. ("Primax USA")
and Primax USA, the surviving entity will become a wholly-owned subsidiary of
Storm Primax, the successor corporation to Storm Software, Inc.
B. As a condition of the Reorganization Agreement, Storm Primax will
acquire rights to certain A6 image scanning products and technology, including
but not limited to patents, designs, drawings, tooling, software drivers and
other intellectual property in consideration for an equity interest in Storm
Primax to Primax Taiwan.
C. This Agreement is an Ancillary Agreement, as defined in the
Reorganization Agreement.
NOW, THEREFORE, in consideration of the mutual representations and
covenants of this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Storm Primax and
Primax Taiwan agree as follows:
1. Definitions. The following definitions shall apply to this Agreement:
-----------
1.1 "A6 Products" means all image scanning products and technology
which accept photos up to a maximum of five (5) inches in width, excluding hand
scanners which are not made to be attached to a feeder base.
1.2 "Affiliate" means an entity that directly or indirectly through
one or more intermediaries Controls, is Controlled by, or is under common
Control with Storm Primax, except that "Affiliate" shall not include Primax
Taiwan.
1.3 "Applicant" means the party that first notifies the other party of
its intent to file an Application.
1.4 "Application" means the registration of a United States or foreign
copyright or the filing of a United States or foreign patent application.
1.5 "Approvals" mean any approval, authorization, consent,
qualification or registration, or any waiver of the foregoing or any required to
be obtained from, or any notice,
1
<PAGE>
statement or other communication required to be filed with or delivered to, any
Governmental Entity, association, corporation, individual, partnership, trust or
any other entity or organization.
1.6 "Asia-Pacific Distribution Agreement" means the International
Distribution Agreement by and between Storm Primax and Primax Taiwan as
referenced in the Reorganization Agreement, which agreement is incorporated
herein by reference.
1.7 "ASIC's" shall include but not be limited to circuitry, test
patterns, development system plus development tools listings of application
specific integrated circuits included within the A6 Products.
1.8 "Assigned A6 Products: No License" means the A6 Products,
technology and all Intellectual Property associated with the A6 Products and
technology, as set forth in Exhibit 1.8 to this Agreement.
-----------
1.9 "Assigned A6 Products: License Back" means the technology and
Intellectual Property associated with the A6 Products, as set forth in
Exhibit 1.9 to this Agreement.
- -----------
1.10 "Assigned Contracts" means the Primax Taiwan agreements listed on
Exhibit 1.10 to this Agreement.
- ------------
1.11 "Assigned Patents: License Back" means the United States and
foreign patents and patent applications set forth in Exhibit 1.11 to this
Agreement . ------------
1.12 "Assigned Trademarks" means the logos, trademarks, trade names
and service marks specified in Exhibit 1.12 to this Agreement.
------------
1.13 "Closing Date" means the date of the closing under the
Reorganization Agreement.
1.14 "Confidential Information" means the technical information, know-
how, technology, formulae, system designs, prototypes, ideas, inventions,
improvements, layouts, software, concepts, techniques, discoveries, data, files,
supplier and customer identities and lists, accounting records, forecasts,
project management plans, marketing plans and business plans relating to this
Agreement to which a party has proprietary rights, and all copies and tangible
embodiments thereof (in whatever form or medium) conspicuously indicated as
proprietary information, confidential information or a substantially similar
legend that are not generally known by the public; provided, however, that any
of the foregoing shall not be considered Confidential Information if the party
receiving it can show that it: (i) has become publicly known through no wrongful
act or breach of any obligation of confidentiality on the receiving party's or
any third party's part; (ii) was rightfully received by the receiving party from
a third party not in violation of any contractual, legal or fiduciary obligation
by such third party; (iii) was approved for release by written authorization by
the party having rights therein; or (iv) was developed by the receiving party
independently of the party having rights therein without breach of any
confidentiality or other obligations; or (v) was disclosed by court order or
other legal
2
<PAGE>
authority, provided that the party having rights therein is given an opportunity
to oppose such disclosure and if disclosed, such information is only used for
the specified legal purposes.
1.15 "Connector" means a piece of hardware by which an image capture
device may be attached to or plugged into a computer, including a parallel port
interface with printer pass-through function and DC power jack for PC systems,
serial port interface with power jack for MAC systems, and ISA bus interface
board for PhotoDrive.
1.16 "Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and operating policies
of an entity through ownership of a majority (more than fifty percent (50%)) of
the voting and/or equity securities of such entity.
1.17 "Deliverables" mean the Assigned A6 Products: No License,
Assigned A6 Products: License Back, Jointly Owned A6 Products, Licensed A6
Products, Assigned Patents: License Back and Licensed Patents.
1.18 "Engineering Documentation" shall include but not be limited to a
bill of materials (with component costs), circuit drawings, assembly drawings,
safety/agency certifications, components specifications, mechanical/part
drawings, packaging designs, testing reports, PCB layouts and industrial
designs.
1.19 "Enhancements" means any updates or bug fixes to a computer
product.
1.20 "European Distribution Agreement" means the International
Distribution Agreement by and between Storm Primax and Primax Europe as
referenced in the Reorganization Agreement, which agreement is incorporated
herein by reference.
1.21 "Governmental Entity" means any government or any agency, bureau,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.
1.22 "Improvements" mean any and all improvements, Enhancements,
modifications and new versions which are created, invented, discovered or made
after the Closing Date.
1.23 "Intellectual Property" means any of the following owned by a
party or in which a party has rights and can provide to third parties: patents,
patent applications, patent disclosures and inventions (whether or not patented
or patentable and whether or not reduced to practice); copyrights and
copyrightable works, including but not limited to, computer software programs,
and registrations and applications for registration thereof; mask works and
registrations and applications for registration thereof; trademarks and
registrations and applications for registration thereof; Confidential
Information; and all copies and tangible embodiments thereof (in whatever form
or medium).
3
<PAGE>
1.24 "Jointly Owned A6 Products" means the A6 Products, technology and
all Intellectual Property associated with the A6 Products and technology, as set
forth in Exhibit 1.24.
------------
1.25 "Licensed A6 Products" means the technology and Intellectual
Property associated with the A6 Products, as set forth in Exhibit 1.25.
1.26 "Licensed Patents" means the United States and foreign patents
and patent applications set forth in Exhibit 1.26 to this Agreement.
------------
1.27 "Manufacturing Agreement" means the Manufacturing and Purchase
Agreement of even date herewith by and between Storm Primax and Primax Taiwan,
which agreement is incorporated herein by reference.
1.28 "Non-A6 Products" means hand held scanners, non-A6 sheetfed
scanners, non-A6 flatbed scanners and datapen scanners. Digital cameras or any
other image capture devices are not included.
1.29 "North American Distribution Agreement" means the Distribution
Agreement by and between Storm Primax and Primax Taiwan as referenced in the
Reorganization Agreement, which agreement is incorporated herein by reference.
1.30 "Permit" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued by
any Governmental Entity.
1.31 "Primax Europe" means Primax Electronics Europe B.V., a
Netherlands corporation.
1.32 "Primax Taiwan" means Primax Electronics, Ltd., an ROC
corporation, and any manufacturing facilities Controlled by or under common
Control with Primax Taiwan.
1.33 "Product Patents" means the patents which have been assigned or
licensed under this Agreement.
1.34 "Reorganization Agreement" means the Agreement and Plan of
Reorganization dated of even date herewith by and among Storm Software, Inc., a
California corporation, Storm Acquisition Corporation, a wholly-owned subsidiary
of Storm Software, Inc., Primax Electronics (USA), Inc., a California
corporation, and Primax Taiwan.
1.35 "Storm Primax" means Storm Primax, Inc., a California corporation
and the successor corporation to Storm Software, Inc., and any Affiliates
thereof.
2. Technology Assignments.
----------------------
2.1 Assigned A6 Products: No License. Effective as of the Closing
--------------------------------
Date, Primax Taiwan assigns to Storm Primax all right, title and interest in and
to the Assigned A6 Products: No License and all Intellectual Property covering
the Assigned A6 Products: No
4
<PAGE>
License, including any continuations, divisions, continuations-in-part, reissues
or extensions of any patents and patent applications covering the Assigned A6
Products: No License, subject to the restrictions in Section 7.1 below.
Notwithstanding that Storm Primax owns the Assigned A6 Products: No License,
Storm Primax agrees that for a period of four (4) years after the Closing Date,
it will not license or sublicense all or any portion of the Assigned A6
Products: No License for the purposes of allowing a third party to develop Non-
A6 Products.
2.2 Assigned A6 Products: License Back. Effective as of the Closing
----------------------------------
Date, Primax Taiwan assigns to Storm Primax all right, title and interest in and
to the Assigned A6 Products: License Back and all Intellectual Property covering
the Assigned A6 Products: License Back, including any continuations, divisions,
continuations-in-part, reissues or extensions of any patents and patent
applications covering the Assigned A6 Products: License Back, subject to the
grant-back license to Primax Taiwan in Section 2.6 and the restrictions in
Section 7.1 of this Agreement. Notwithstanding that Storm Primax owns the
Assigned A6 Products: License Back, Storm Primax agrees that for a period of
four (4) years after the Closing Date, it will not license or sublicense all or
any portion of the Assigned A6 Products: License Back for the purposes of
allowing a third party to develop Non-A6 Products.
2.3 Assigned Patents: License Back. Effective as of the Closing Date,
------------------------------
Primax Taiwan assigns to Storm Primax all right, title and interest in and to
the Assigned Patents: License Back and all Intellectual Property covering the
Assigned Patents: License Back, including any continuations, divisions,
continuations-in-part, reissues or extensions of any patents and patent
applications covering the Assigned Patents: License Back, subject to the grant-
back license to Primax Taiwan in Section 2.6 and the restrictions in Section 7.1
of this Agreement. Notwithstanding that Storm Primax owns the Assigned Patents:
License Back, Storm Primax agrees that for a period of four (4) years after the
Closing Date, it will not license or sublicense all or any portion of the
Assigned Patents: License Back for the purposes of allowing a third party to
develop Non-A6 Products.
2.4 Jointly Owned A6 Products. Effective as of the Closing Date,
-------------------------
Primax Taiwan assigns to Storm Primax an undivided one-half interest in all
right, title and interest in and to the Jointly Owned A6 Products and all
Intellectual Property covering the Jointly Owned A6 Products, including any
continuations, divisions, continuations-in-part, reissues or extensions of any
patents and patent applications covering the Jointly Owned A6 Products, subject
to the restrictions in Section 8.1 below.
2.5 Assigned Trademarks. Effective as of the Closing Date, Primax
-------------------
Taiwan assigns to Storm Primax all right, title and interest in and to the
Assigned Trademarks, including all goodwill associated therewith.
2.6 Grant-Back Licenses to Primax Taiwan.
------------------------------------
(a) Assigned A6 Products: License Back. Subject to the terms and
----------------------------------
conditions of this Agreement, effective as of the Closing Date, Storm Primax
grants to Primax Taiwan an irrevocable, perpetual, royalty-free, non-
transferable, non-exclusive, worldwide license to use, manufacture, reproduce,
distribute and create derivative works based upon any and all Assigned A6
Products: License Back solely with respect to Non-A6 Products. The above
5
<PAGE>
license shall not include the right to sublicense (except for manufacturing or
distribution of Non-A6 Products), unless Primax Taiwan obtains the prior written
consent of Storm Primax, which consent shall not be unreasonably withheld. Storm
Primax will give such consent, if at all, on a case-by-case basis and consent to
one sublicense shall not be deemed a consent to all subsequent sublicenses.
(b) Assigned Patents: License Back. Subject to the terms and
------------------------------
conditions of this Agreement, effective as of the Closing Date, Storm Primax
grants to Primax Taiwan an irrevocable, perpetual, royalty-free, non-
transferable, non-exclusive, worldwide license to use, manufacture, reproduce,
distribute and create derivative works based upon any and all Assigned Patents:
License Back solely with respect to Non-A6 Products. The above license shall not
include the right to sublicense (except for manufacturing or distribution of
Non-A6 Products), unless Primax Taiwan obtains the prior written consent of
Storm Primax, which consent shall not be unreasonably withheld. Storm Primax
will give such consent, if at all, on a case-by-case basis and consent to one
sublicense shall not be deemed a consent to all subsequent sublicenses.
(c) Exceptions. Notwithstanding that the above licenses to Primax
----------
Taiwan extend only to Non-A6 Products, Primax Taiwan may request that Storm
Primax consent to an expansion of either or both licenses to cover specialty
image capture products other than Non-A6 Products designed to read images other
than photos. Storm Primax may not unreasonably withhold consent. In the event
Storm Primax consents to the expansion of such license, such consent with
respect to one such product shall not be deemed a consent to a permanent
expansion of the license(s) for all products beyond those defined as Non-A6
Products under this Agreement.
3. Assignment Procedures.
---------------------
3.1 Effecting Assignment. Primax Taiwan and Storm Primax agree to
--------------------
enter into assignment agreements to record the assignment of the copyrights,
trademarks, patents and patent applications to be assigned to Storm Primax under
this Agreement with the United States Patent and Trademark and Copyright Offices
and equivalent offices and agencies in other countries or political subdivisions
thereof. Primax Taiwan shall file all such assignment agreements so that all
assignments will be completed as soon as practicably possible. The cost of
effecting such assignments shall be shared equally between Storm Primax and
Primax Taiwan.
3.2 Filed But Unissued Patents. For all United States and foreign
--------------------------
patent applications, which have been filed as of the Effective Date but for
which patents remain unissued as of the Closing Date, the owner of such A6
Product or Product Patent as of after the Closing Date shall have the sole
responsibility of prosecuting such application.
3.3 Patent Applications in Other Jurisdictions. At any time, either
------------------------------------------
party, as a licensee under this Agreement, must notify the other party in
writing should it intend to file an Application in any jurisdiction for the
Product Patent to which it has obtained a license under this Agreement. Within
fifteen (15) days after the other party's receipt of any such notice, such party
shall provide written notice to the Applicant of its intent to file an
Application in such jurisdiction. If during such fifteen (15) day period the
other party either (i) does not provide any
6
<PAGE>
written notice of its intent or (ii) informs the Applicant that it does not
intend to file an Application in such jurisdiction, the Applicant shall have the
right to file and prosecute the Application, provided that such Application
shall be in the name of the owner of the Product Patent as of immediately after
the Closing Date, as provided for in this Agreement. All costs and fees of such
Application will be paid by the Applicant. Alternatively, if the other party
notifies the Applicant in a timely manner that it will file an application in
such jurisdiction, the Applicant may not proceed to file an Application.
3.4 Further Assistance. Each party agrees to perform all acts deemed
------------------
necessary or desirable by the other party to permit and assist such party in
perfecting and enforcing its rights obtained under this Agreement. Such acts may
include, but are not limited to, execution of documents and assistance or
cooperation in the registration and enforcement, including litigation, of
applicable patents and copyrights or other legal proceedings. In the event that
the Applicant is unable for any reason whatsoever to secure a signature to any
document it believes is reasonably required in order to apply for or execute any
Application permitted or necessary under this Agreement (including Improvements,
renewals, extensions, continuations, divisions or continuations in part
thereof), the other party hereby irrevocably designates and appoints the
Applicant and its duly authorized officers and agents as the other party's
agents and its attorneys-in-fact to act for and on its behalf and instead of it,
to execute and file any such Application and to do all other lawfully permitted
acts to further the prosecution and issuance of patents, copyrights or other
rights therein with the same legal force and effect as if executed by such other
party. In such circumstance, the Applicant shall provide the other party with at
least five (5) days written notice of the intended exercise of such power of
attorney and upon the filing of the Application, the Applicant shall provide the
other party with a copy of such Application. The above shall be considered a
power coupled with an interest and therefore perpetual and irrevocable.
4. License Grants.
--------------
4.1 Licensed A6 Products. Effective as of the Closing Date, Primax
--------------------
Taiwan grants to Storm Primax an exclusive perpetual, irrevocable, worldwide,
royalty-free license (including the right to sublicense for purposes of
manufacturing or distribution) to use, reproduce, distribute, create derivative
works based upon, publicly perform and publicly display the Licensed A6 Products
and all related Intellectual Property solely with respect to A6 Products,
subject to Section 7.2 below. Notwithstanding that Primax Taiwan owns the
Licensed A6 Products, Primax Taiwan agrees that for a period of four (4) years
after the Closing Date, it will not license or sublicense all or any portion of
the Licensed A6 Products for the purposes of allowing a third party to develop
A6 Products.
4.2 Licensed Patents. Effective as of the Closing Date, Primax
----------------
Taiwan grants to Storm Primax an exclusive perpetual, irrevocable, worldwide,
royalty-free license to use, reproduce, distribute, create derivative works
based upon, publicly perform and publicly display, manufacture, have
manufactured and sell the Licensed Patents and all related Intellectual Property
solely with respect to A6 Products, subject to Section 7.2 below. The above
license shall not include the right to sublicense (except for manufacturing or
distribution of A6 Products), unless Storm Primax obtains the prior written
consent of Primax Taiwan, which consent shall not be unreasonably withheld.
Primax Taiwan will give such consent, if at all, on a
7
<PAGE>
case-by-case basis and consent to one sublicense shall not be deemed a consent
to all subsequent sublicenses. Notwithstanding that Primax Taiwan owns the
Licensed Patents, Primax Taiwan agrees that for a period of four (4) years after
the Closing Date, it will not license or sublicense all or any portion of the
Licensed Patents for the purposes of allowing a third party to develop A6
Products.
5. Completion of Current A6 Product Projects. Notwithstanding the
-----------------------------------------
assignment or license of the A6 Products and Product Patents as provided for
above, Primax Taiwan agrees that it will provide engineering development of all
A6 Product projects currently in progress (as more particularly described in
Exhibit 5) at Primax Taiwan's sole expense through June 30, 1996 or the first
- ---------
customer shipment of each such product, whichever is later. Thereafter, Storm
Primax will have sole responsibility for maintaining and continuing the
development of such A6 Products. Any Intellectual Property created or developed
as a result of Primax Taiwan's engineering efforts pursuant to this Section
shall be assigned or licensed from Primax Taiwan to Storm Primax or co-owned by
the parties as specified under the terms of this Agreement upon completion of
such development by Primax Taiwan.
6. Technical Assistance and Inadvertent Exclusions.
-----------------------------------------------
6.1 Technical Assistance. From the Closing Date until June 30, 1996,
--------------------
Primax Taiwan agrees to provide Storm Primax (at no charge) with technical
assistance and training as it relates to A6 Products (including but not limited
to A6 OEM customer support), Improvements related thereto and design and
manufacture thereof, as reasonably requested by Storm Primax. Thereafter, Storm
Primax will pay for such technical assistance and training on a time and
materials basis. Any Improvements developed as a result of technical assistance
to Storm Primax by Primax Taiwan shall be deemed Improvements developed for
Storm Primax and accordingly, will be assigned, or licensed from Primax Taiwan
to Storm Primax or co-owned by the parties as specified under the terms of this
Agreement.
6.2 Inadvertent Exclusion. It is intended that all A6 Products,
---------------------
technology contracts and associated Intellectual Property are assigned, or
licensed from Primax Taiwan to Storm Primax or co-owned by the parties as
specified under the terms of this Agreement. In the event that either Primax
Taiwan or Storm Primax discovers any Intellectual Property of Primax Taiwan
which existed as of the Effective Date but which was inadvertently not included
under this Agreement, as mutually agreed by good faith negotiations of Storm
Primax and Primax Taiwan, such inadvertently excluded Intellectual Property
shall be assigned or licensed to or co-owned by Storm Primax as appropriate in
accordance with the terms of this Agreement, with the parties to execute such
additional documents as are reasonably required to evidence such assignment or
license.
7. Restrictions.
------------
7.1 On Storm Primax. In consideration for Primax Taiwan's grant to Storm
---------------
Primax of exclusive distribution rights for Non-A6 Products pursuant to the
terms of the North American Distribution Agreement, Storm Primax agrees that for
a period of four (4) years after the Closing Date or until the exclusivity is
terminated in a Product category accordance with the terms of the North American
Distribution Agreement, whichever period is shorter, Storm
8
<PAGE>
Primax will not distribute its own Non-A6 Products (whether or not they contain
all or portions of the Assigned A6 Products: No License, Assigned A6 Products:
License Back or Assigned Patents: License Back) or third party Non-A6 Products
which are competitive with Non-A6 Products of Primax Taiwan as to which the
exclusive distribution rights remain effective under the North American
Distribution Agreement.
7.2 On Primax Taiwan.
----------------
(a) International Distribution Agreements.
-------------------------------------
(A) In consideration for Storm Primax's grant to Primax Taiwan of
exclusive distribution rights for A6 Products pursuant to the terms of the Asia-
Pacific Distribution Agreement, Primax Taiwan agrees that for a period of four
(4) years after the Closing Date or until the exclusivity is terminated in
accordance with the terms of the Asia-Pacific Distribution Agreement, whichever
period is shorter, Primax Taiwan will not distribute its own A6 Products
(whether or not they contain all or portions of the Licensed Products or
Licensed Patents) or third party A6 Products which are competitive with A6
Products of Storm Primax as to which the exclusive distribution rights remains
effective.
(B) In consideration for Storm Primax's grant to Primax Europe of
exclusive distribution rights for A6 Products pursuant to the terms of the
European Distribution Agreement, Primax Taiwan agrees that for a period of four
(4) years after the Closing Date or until the exclusivity is terminated in
accordance with the terms of the European Distribution Agreement, whichever
period is shorter, Primax Taiwan will not distribute its own A6 Products
(whether or not they contain all or portions of the Licensed Products or
Licensed Patents) or third party A6 Products which are competitive with A6
Products of Storm Primax as to which the exclusive distribution rights remains
effective.
(b) Primax Taiwan will comply with all provisions of the Manufacturing
Agreement, including but not limited to the terms restricting A6 Product
distributions. In particular, Primax Taiwan agrees that for a period of four (4)
years after the Closing Date, it will not distribute any A6 Products which
contain all or portions of the Licensed Products or Licensed Patents, except as
authorized by the Manufacturing Agreement.
8. Proprietary Rights.
------------------
8.1 Jointly Owned A6 Products.
-------------------------
(a) Each party shall be free to commercially exploit the Jointly Owned
A6 Products worldwide and in any manner whatsoever except as described in this
Section 8.1. During the term of this Agreement, neither party shall have any
obligation to account to the other for use of the Jointly Owned A6 Products and
no payments shall be due to the other party for the use of, or granting a
license to use, the Jointly Owned A6 Products or any derivative works thereof.
Notwithstanding the foregoing, Storm Primax agrees that for a period of four
9
<PAGE>
(4)years after the Closing Date, it will not use, or license or sublicense third
parties to use, all or a portion of the Jointly Owned A6 Products for the
purposes of distributing or allowing third parties to develop Non-A6 Products.
Similarly, Primax Taiwan agrees that for a period of four (4) years after the
Closing Date, it will not use, or license or sublicense third parties to use,
all or a portion of the Jointly Owned A6 Products for the purposes of
distributing or allowing third parties to develop A6 Products.
(b) Each party shall have sole and exclusive ownership of all right,
title and interest in and to any derivative works based upon the Jointly Owned
A6 Products created by or for such party to the extent such derivative works are
distinct from the Jointly Owned A6 Products, and all Intellectual Property
thereto.
(c) Either party may apply for copyright registrations and patent
applications on the Jointly Owned A6 Products in the United States Copyright
Office or United States Patent and Trademark Office, as appropriate, or in any
other equivalent offices or agencies of any country or political subdivision in
the world. At any time, either party must notify the other party in writing of
its intent to file an Application for the Jointly Owned A6 Products or any part
thereof existing as of the Closing Date and excluding Improvements and
derivative works to the extent such Improvements and derivative works are
distinct from the Jointly Owned A6 Products. Within fifteen (15) days after the
other party's receipt of any such notice, such party shall provide written
notice to the Applicant of its intent to join in the Application. If during such
fifteen (15) day period the other party either (i) does not provide any written
notice of its intent or (ii) informs the Applicant that it does not intend to
join in the Application, the Applicant shall have the right to file and
prosecute the Application in its own name, with all costs and fees thereof to be
paid by the Applicant. Alternatively, if the other party notifies the Applicant
in a timely manner that it will join in the Application, the parties' respective
legal counsel will mutually agree on an independent legal counsel for such
purposes. Storm Primax and Primax Taiwan will share all costs, expenses and fees
associated with such Application equally, and jointly own the copyright and
patent, as applicable, without obligation of accounting to each other.
8.2 Improvements.
------------
(a) Any Improvements to the Assigned A6 Products: No License and
Intellectual Property related thereto, shall be the sole and exclusive property
of Storm Primax. Any Improvements to the Assigned A6 Products: License Back,
Jointly Owned A6 Products and Assigned Patents: License Back, and Intellectual
Property related thereto, which are developed by or for either party as allowed
by this Agreement shall be and remain the sole and exclusive property of the
developing party. Subject to Section 2.4 and 8.1, such developing party shall
have the exclusive and entire right, title and interest thereto and shall be
entitled to apply at its own expense for patent or other intellectual property
protection in such Improvements.
(b) Neither party shall have any obligation to the other party to
grant any rights to the other party to any Improvements made by the other party
except for Improvements developed for Storm Primax by Primax Taiwan in the
course of providing Technical Assistance, as provided for in Section 6.1 above.
9. Delivery and Acceptance. By the Closing Date, Primax Taiwan will
-----------------------
deliver the Deliverables (in English) in a form acceptable to Storm Primax. All
Deliverables shall be deemed
10
<PAGE>
accepted by Storm Primax upon receipt. Primax Taiwan shall provide such other
information concerning the Deliverables as Storm Primax shall reasonably
request.
10. Assignment of Contracts. Primax Taiwan hereby assigns all rights and
-----------------------
delegates all obligations under the Assigned Contracts to Storm Primax to the
maximum extent permissible. Such assignment and delegation shall be effective as
soon as reasonably practicable after the Closing Date as mutually determined by
Primax Taiwan and Storm Primax.
11. Financial Terms.
---------------
11.1 Equity. In consideration for the rights and licenses granted
------
in this Agreement, Storm Primax shall issue to Primax Taiwan on the Closing Date
11,857,316 shares of Storm Primax's Series E Preferred Stock. A stock
certificate representing such shares shall be delivered to Primax Taiwan on the
Closing Date. The parties agree that such shares represent a total value of
$2,371,463.20 based on a price per share of $0.20. The issuance of the Series E
Preferred Stock to Primax Taiwan shall be subject to the terms of the
Reorganization Agreement, including but not limited any representations and
warranties contained therein.
11.2 Taxes.
-----
(a) Storm Primax shall pay or provide for the payment of all sales,
use and transfer taxes, duties and fees imposed on Storm Primax, if any, (except
for any taxes based on Primax Taiwan's income or taxes for which Primax Taiwan
is responsible) due or payable upon the consummation of the transactions under
this Agreement.
(b) Each party shall indemnify, defend and hold the other party and
such other party's directors, officers, employees, agents, successors and
assigns harmless from any tax liability, deficiency, assessment, penalty or
interest has been imposed as a result of its own obligations or actions.
12. Representations and Warranties. Primax Taiwan represents and warrants
------------------------------
the following:
12.1 Original Work. The Deliverables are
-------------
original works of authorship and were created solely by Primax Taiwan.
12.2 Ownership. Primax Taiwan is the sole
---------
and exclusive owner of all right, title and interest in and to the Deliverables
and all Intellectual Property related thereto.
12.3 Encumbrances. The Deliverables and all Intellectual
------------
Property related thereto are free and clear of all encumbrances, including,
without limitation, security interests, licenses, liens, charges or other
restrictions except as set forth in this Agreement and Exhibit 1.23
------------
("Encumbrances and Licenses"); the execution and delivery of this Agreement will
transfer to and vest in Storm Primax good, valid and marketable title to the
Assigned A6 Products: No License, Assigned A6 Products: License Back, Jointly
Owned A6 Products and Assigned Patents: License Back free and clear of all
security interests, liens, encumbrances, charges or other restrictions (except
as set forth in Exhibit 12.3 ("Encumbrances and Licenses").
------------
11
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12.4 Trade Secret. Primax Taiwan has maintained the
------------
Deliverables in confidence, has afforded them all of the intellectual property
protections as are customary and ordinary in the usual conduct of its business
with respect to other similar intellectual property which is proprietary to
Primax Taiwan (but in no event has protected the Deliverables with less than
reasonable care) and has not granted any third party licenses to the
Deliverables except as provided in Exhibit 12.3 ("Encumbrances and Licenses").
------------
12.5 Non-Infringement. Storm Primax's exercise of the rights
----------------
and licenses obtained under this Agreement does not and will not violate any
third party rights to Intellectual Property.
12.6 Copyright. None of the Deliverables have been published as
---------
defined in the Copyright Act of 1976.
12.7 Authority. Primax Taiwan has full power and authority to make
---------
and enter into this Agreement.
12.8 Export. Primax Taiwan represents and warrants that the
------
assignment and license of the Deliverables and the delivery of the Deliverables
to Storm Primax will not violate any applicable export, import or governmental
laws, statutes or regulations of the United States, Republic of China or other
jurisdiction.
13. Indemnification.
---------------
13.1 Indemnity by Primax Taiwan. Primax Taiwan agrees to defend,
--------------------------
indemnify and hold harmless Storm Primax, its officers, directors, employees and
sublicensees against any claims, demands, damages or actions (including
attorneys' fees and legal costs) arising out of (i) a material breach of any of
Primax Taiwan's obligations hereunder; or (ii) an actual or alleged infringement
of any copyrights or patent rights under the laws of the Republic of China,
Japan, United States, Canada and countries which are members of the European
Economic Community by the exercise of Storm Primax's rights under this
Agreement. The foregoing indemnity shall not apply to any infringement claim
arising from any modification of the Deliverables made after the Closing Date
(other than by Primax Taiwan prior to June 30, 1996) or any use of the
Deliverables in conjunction with other software or hardware where use with such
other software or hardware gives rise to the infringement claim.
13.2 Indemnification Procedure. The above indemnity shall be subject
-------------------------
to the following procedures:
(a) Storm Primax will notify Primax Taiwan of any third party
claim, action or demand within ten (10) days after Storm Primax receives notice
thereof; provided, however, that failure or delay to provide such notification
shall not reduce or otherwise affect the obligations of Primax Taiwan, except to
the extent that such failure or delay shall have materially prejudiced Primax
Taiwan's ability to defend against, settle, or satisfy such claim or materially
increase the cost thereof.
12
<PAGE>
(b) Primax Taiwan, at its expense, shall have the right to pay,
compromise, settle or otherwise dispose of any such claim, provided that no
compromise, settlement or disposal of such claim shall be entered into without
the prior written consent of Storm Primax, which consent shall not be
unreasonably withheld.
(c) Storm Primax has the right to reasonably monitor and
participate in Primax Taiwan's defense (including the selection of counsel
reasonably satisfactory to both Primax Taiwan and Storm Primax) of Storm Primax
from any such claims. In any action defended by Primax Taiwan, Storm Primax
shall at all times have the right to employ its own counsel, but the fees and
expenses of such counsel shall be Storm Primax's own expense unless the
employment of such counsel shall have been authorized by Primax Taiwan in
connection with the defense of such claims. In such event, such fees and
expenses shall be borne by Primax Taiwan.
14. Third Party Infringement. No party shall be obligated to bring or
------------------------
prosecute any suits against alleged infringers of any Deliverables, and related
Intellectual Property thereto. Notwithstanding the foregoing, the owner of the
infringed upon Deliverable is entitled to first prosecute any such alleged or
actual third party infringement. If applicable, if the owner of the infringed
upon Deliverable elects not to prosecute such alleged or actual infringement,
the licensee of such Deliverable may elect to prosecute such infringement at its
own expense. Upon the request of the prosecuting party, the other party will
provide information or reasonable assistance, at the prosecuting party's
expense, for the prosecution of any claim of third party infringement. Any
amounts recovered by judgment or settlement against third party infringers of
any Deliverables shall be the property of the prosecuting party, without any
obligation to share any such proceeds with the other party.
15. Consequential Damages Waiver. EXCEPT FOR A BREACH OF SECTIONS 8
----------------------------
("PROPRIETARY RIGHTS"), 12 ("REPRESENTATIONS AND WARRANTIES"), 13
("INDEMNIFICATION") OR 18 ("CONFIDENTIALITY"), NEITHER PARTY SHALL HAVE ANY
LIABILITY FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES ARISING
OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, EVEN IF A
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
16. Covenants.
---------
16.1 Permits and Approvals. Primax Taiwan and Storm Primax agree to
---------------------
cooperate and use their best efforts to obtain (and will immediately prepare all
registration, filings and applications, requests and notices preliminary to) all
Approvals and permits that may be necessary or which may be reasonably required
by Storm Primax or Primax Taiwan to consummate the transactions contemplated by
this Agreement.
16.2 Compliance with Laws. Storm Primax and Primax Taiwan agree to
--------------------
comply with all applicable laws and regulations, including those of the United
States and of the Republic of China. Storm Primax and Primax Taiwan will make
any and all filings for or submissions required under any law, including the
treaties, rules and regulations of the Republic of China and of the European
Economic Community, and the regulations of the United States
13
<PAGE>
Department of Commerce, relating to the export or re-export of technical data
and products. Each party agrees not to export or re-export, directly or
indirectly, any technical data provided by the other party or any products to
any country specified in such regulations of the United States Commerce
Department, unless prior authorization is obtained from the United States Office
of Export Administration. Storm Primax and Primax Taiwan will furnish each other
such necessary information and reasonable assistance as the other may reasonably
request in connection with its preparation of necessary filings or submissions
under the provisions of such laws.
17. Term and Termination.
--------------------
17.1 Term. The rights and licenses granted under Sections 2.6, 2.6 and
----
4 shall take effect on the Closing Date and shall remain in full force and
effect in perpetuity or in the case of any patents assigned or licensed
hereunder, until the last to expire of any patent assigned or licensed
hereunder. This Agreement shall have an indefinite term, which shall be subject
to the termination provisions below.
17.2 Termination with Cause. Any party may immediately terminate this
----------------------
Agreement upon written notice to the other party if (i) any party is in default
of any of its material obligations under this Agreement, (ii) the other party
has given the defaulting party at least ninety (90) days' written notice,
specifying the nature of the default and providing the defaulting party with the
opportunity to cure the default within such period, and (iii) the defaulting
party has failed to cure the default within such period.
17.3 Bankruptcy. The parties acknowledge that the license terms of
----------
this Agreement are "supplementary" to this Agreement as provided in Section
365(n) of Title 11, United States Code (the "Bankruptcy Code"). The parties
acknowledge that if either party, as a debtor in possession or a trustee in
bankruptcy in a case under the Bankruptcy Code, rejects this Agreement, the non-
debtor party may elect to retain its rights under the license provisions of this
Agreement as provided in Section 365(n) of the Bankruptcy Code.
17.4 Effect of Termination Generally. Termination of this Agreement
-------------------------------
will not release any party from any liability which at the time of termination
had already accrued or which thereafter may accrue in respect to any act or
failure to act prior to such termination. Furthermore, the licenses granted in
this Agreement may not be terminated for breach, or upon termination or
expiration of this Agreement, and the non-breaching party's sole and exclusive
remedy shall be an action for damages.
17.5 Survival. The following sections of this Agreement will survive
--------
any termination of this Agreement: 21 ("Assigned A6 Products: No License"), 22
("Assigned A6 Products: License Back), 23 ("Assigned Patents: License Back"),
24 ("Jointly Owned A6 Products"), 25 ("Assigned Trademarks"), 26 ("Assigned
A6 Products: License Back"), 26 ("Assigned Patents: License Back"), 3
("Assignment Procedures"), 4 ("License Grants"), 5 ("Completion of Current A6
Product Projects"), 6 ("Technical Assistance and Inadvertent Exclusions"), 7
("Restrictions"), 8 ("Proprietary Rights"), 10 ("Assignment of Contracts"),
11.2 ("Taxes"), 12 ("Representations and Warranties"), 13 ("Indemnification"),
14 ("Third Party
14
<PAGE>
Infringement"), 15 ("Consequential Damages Waiver"), 162 ("Compliance with
Laws"), 17 ("Terms and Termination"), 18 ("Confidentiality") and 19 ("General
Provision").
18. Confidentiality.
---------------
18.1 Confidentiality of Agreement. Each of the parties covenants to
----------------------------
the other party that it will not in any manner disclose or divulge the contents
of the Agreement or any of the material terms and conditions hereof to any third
party, except as the other parties may expressly consent in advance in writing
or as may be required in obtaining any necessary governmental or regulatory
approval for the transactions contemplated hereby or as may otherwise be
required by any applicable law.
18.2 Treatment of Confidential Information. For a period of five (5)
-------------------------------------
years after receipt of any Confidential Information, each party shall keep and
maintain the other party's Confidential Information in strictest confidence and,
except as otherwise expressly provided herein, each party: (i) shall not use the
other party's Confidential Information, and (ii) shall not provide or otherwise
make available, whether directly or indirectly, any of the other party's
Confidential Information to any party other than: (a) to employees and officers
of a party who require access to such Confidential Information for performance
of their duties and who have signed a written nondisclosure agreement including
the requirement to protect third party proprietary information or (b) to
permitted sublicensees permitted under this Agreement who shall enter into a
nondisclosure agreement to protect Confidential Information on terms no less
restrictive than required in this Agreement, or (c) as required by any
applicable law. Each party shall take all reasonable actions (by instruction,
agreement or otherwise) necessary to maintain the confidentiality of the other
party's Confidential Information. Notwithstanding the foregoing, each party
shall be required to protect the other party's Confidential Information
consistent with the same protections afforded its own Confidential Information
in the ordinary conduct of its business, but in no event with less than
reasonable care.
18.3 Return or Destruction. Upon termination of this Agreement, or at
---------------------
any other time if requested by a party, each party promptly shall return to the
other party all Confidential Information received by it or its representatives
by such other party unless the party provides assurances reasonably satisfactory
to such other party that such Confidential Information has been destroyed.
19. General Provisions.
------------------
19.1 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.
19.2 Assignability. Except in the case of an assignment in connection
-------------
with a merger, reorganization, consolidation, change of domicile or sale of all
or substantially all the assets of a party, neither Storm Primax nor Primax
Taiwan may assign its rights and obligations, in whole or in part, under this
Agreement, without the prior written consent of the other party, which consent
shall not be unreasonably withheld.
15
<PAGE>
19.3 Successors. This Agreement shall be binding upon and shall inure
----------
to the benefit of each party.
19.4 Amendments. This Agreement may be amended or supplemented only by
----------
a writing that is signed by duly authorized representatives of both parties.
19.5 Notices. All notices permitted or required under this Agreement
-------
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (i) by personal delivery when delivered personally, (ii) by
overnight courier upon written verification of receipt, (iii) by telecopy or
facsimile transmission when confirmed by telecopier or facsimile transmission,
or (iv) by certified or registered mail, return receipt requested, five (5) days
after deposit in the mail. All notices must be sent to the addresses below or to
such other address that the receiving party may have provided for the purpose of
notice in accordance with this Section 19.5.
If to Primax Taiwan: Primax Electronics, Ltd.
6F, No. 159, Kang Ning St., Hsi Chih Town
Taipei Hsien, Taiwan, ROC
Attention: Raymond Liang
With a copy to: Law Office of Robert D. Cochran
5201 Great America Parkway, Suite 320
Santa Clara, CA 95054
Attention: Robert D. Cochran
If to Storm Primax: Storm Primax, Inc.
1861 Landings Drive
Mountain View, CA 94043
Attention: L. William Krause
With a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: James M. Koshland
19.6 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
the International Sale of Goods shall not apply to this Agreement in any manner
whatsoever.
19.7 Arbitration. Any dispute arising out of this Agreement shall be
-----------
resolved by binding arbitration. The venue of the arbitration shall be in San
Jose, California if brought by Primax Taiwan, and if brought by Storm Primax,
the venue shall be in Taipei, Taiwan. The rules governing arbitration shall be
the Judicial Arbitration and Mediation Services/Endispute Rules if the
arbitration is in San Jose, and if in Taiwan, the rules governing arbitration
shall be those rules as are customary for international arbitrations in Taiwan
(such rules to be collectively
16
<PAGE>
and individually referred to as the "Rules"). A single arbitrator shall be
selected according to the Rules within thirty (30) days of submission of the
dispute to arbitration. The arbitration shall be conducted in English. Except as
expressly provided above, no discovery of any kind shall be taken by either
party without the written consent of the other party, provided, however, that
either party may seek the arbitrator's permission to take any deposition which
is necessary to preserve the testimony of a witness who either is, or may
become, outside the subpoena power of the arbitrator or otherwise unavailable to
testify at the arbitration. The arbitrator shall not have the power to award
punitive damages, treble damages, or any other damages which are not
compensatory, even if permitted under the laws of the State of California or any
other applicable law. The arbitrator shall award the prevailing party its costs
and its reasonable attorney's fees, and the losing party shall bear the entire
cost of the arbitration, including the arbitrator's fee. The arbitration award
may be enforced in any court having jurisdiction over the parties and the
subject matter of the arbitration.
19.8 Waiver. No term or provision hereof will be considered waived by
------
either party, and no breach excused by either party, unless such waiver or
consent is in a writing signed on behalf of the party against whom the waiver is
asserted. No consent by either party to, or waiver of, a breach by either party,
whether express or implied, will constitute a consent to, waiver of, or excuse
of any other different or subsequent breach by such party.
19.9 Severability. In the event that any provision of this Agreement
------------
shall be unenforceable or invalid under any applicable law or be so held by
applicable court decision, such unenforceability or invalidity shall not render
this Agreement unenforceable or invalid as a whole.
19.10 Force Majeure. Neither party shall be liable hereunder by reason
-------------
of any failure or delay in the performance of its obligations hereunder on
account of strikes, shortages, riots, insurrection, fires, flood, storm,
explosions, acts of God, war, governmental action, labor conditions,
earthquakes, material shortages or any other cause beyond the reasonable control
of such party.
19.11 Entire Agreement. This Agreement, including all Exhibits to this
----------------
Agreement, constitute 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.
19.12 Order of Precedence. In the event of any inconsistency or
-------------------
ambiguity between or among the terms and conditions of this Agreement and the
Reorganization Agreement, the inconsistency or ambiguity shall be resolved in
the following order of precedent: (i) this Agreement; and (ii) the
Reorganization Agreement.
19.13 Effectiveness of Agreement. Although this Agreement has been
--------------------------
executed by the parties on the date first above written, this Agreement shall
become effective only on the occurrence of the closing under the Reorganization
Agreement. If the Reorganization Agreement is terminated pursuant to Section 11
thereof, this Agreement shall become void and of no further force or effect.
17
<PAGE>
19.14 Attorneys' Fees. The prevailing party in any dispute arising out
---------------
of or related to this Agreement shall be entitled to recover its reasonable
attorneys' fees and costs.
19.15 No Agency. Nothing contained herein shall be construed as
---------
creating any agency, partnership or other form of joint enterprise between the
parties.
19.16 Headings. The section headings appearing in this Agreement are
--------
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or extent of such section or in any way affect such
section.
19.17 Injunctive Relief. It is expressly agreed that a breach of
-----------------
Section 18 will cause irreparable harm to the non-breaching party and that a
remedy at law would be inadequate. Therefore, in addition to any and all
remedies available at law, the non-breaching party will be entitled to an
injunction or other equitable remedies in all legal proceedings in the event of
any threatened or actual violation of such provision.
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
Storm Primax: Primax Taiwan:
Storm Primax, Inc. Primax Electronics, Ltd.
By: By:
--------------------- -------------------------
Title: Title:
------------------ ----------------------
19
<PAGE>
Exhibit 1.8
-----------
Assigned A6 Products: No License
--------------------------------
All PhotoDrive products, technology, Engineering Documentation, and associated
Intellectual Property, except for those elements of the PhotoDrive explicitly
described in Exhibits 1.9, 1.11, 1.24, 1.25 and 1.26. PhotoDrive products
---------------------------------------
include all A6 Products or components of A6 Products, as applicable, intended
for distribution either on an OEM or retail basis through any channel or
multiple channels of distribution, which are typically installed into a CPU for
the purpose of reading photos or other printed media into a computer.
All A6 Feeder products, technology, Engineering Documentation and associated
Intellectual Property, except for those elements of the Feeder products
explicitly described in Exhibits 1.9, 1.11, 1.24, 1.25 and 1.26. Feeder
---------------------------------------
products include all A6 Products or components of A6 Products, as applicable,
intended for distribution either on an OEM or retail basis through any channel
or multiple channels of distribution, which enable automatic feeding of photos
or other printed media through a device capable of reading such media into a
computer.
20
<PAGE>
Exhibit 1.9
-----------
Assigned A6 Products: License Back
----------------------------------
Toaster Design Reader Engineering Documentation
Photo Drive ASIC 1 (Scanning Engine)
Photo Drive ASIC 2 (Interface Card)
Photo Drive micro-controller source code
Reader External Tooling
21
<PAGE>
Exhibit 1.10
------------
Assigned Contracts
------------------
Any and all A6 OEM agreements and purchase orders executed on or prior to the
Closing Date by Primax Taiwan.
22
<PAGE>
Exhibit 1.11
------------
Assigned Patents: License Back
------------------------------
Structure of sheet fed scanner (engine + feeder)
Taiwan, Patent No. 96378
Sheet fed scanner with film scanning capability
Taiwan, Patent No. 99165
U.S., Application No. 08/332,710
Sheet fed scanner with floating gear box
Taiwan, Application No. 83207495
Germany, Patent No. G9408666.4
France, Application No. 9314713
United Kingdom, Application No. 9313429.4
U.S., Patent No. 5463256
PC built-in reflective-type scanner
Taiwan, Application No. 84203239
Germany, Patent No. 29514389.4
France, Application No. 9514222
United Kingdom, Application No. 9524870.4
U.S. Application No. 08/417,190
China, Application No. 95223336.3
Japan, Application No. 10207/95
Scanner with dual interfaces (parallel & I/F card)
Taiwan, Application No. 84104737
White-balance circuit for scanner
Taiwan, Application No. 84104738
Slant-type sheet fed scanner
Taiwan, Application No. 83204581
U.S., Application No.081498,539
Skew indication (paper sensor) for sheet fed scanner
Taiwan, Application No. 84208039
U.S., Application No. 08/496,934
Scanner with vertical paper path
Taiwan, Application 84209554
PC built-in scanner with pull-out drawer design
23
<PAGE>
Taiwan, Application No. 84213349
U.S., Application No. 08/541,336
Structure design of sheet fed scanner
Taiwan, Application No. 84213584
U.S., Application No. filed 10/4/95 by H.C. Lee
24
<PAGE>
Exhibit 1.12
------------
Assigned Trademarks
-------------------
Mark Jurisdiction
- ---- ------------
PHOTODRIVE United States
25
<PAGE>
Exhibit 1.24
------------
Jointly Owned A6 Products
-------------------------
All Reader products, technology and associated Intellectual Property, except for
those elements of the Reader products explicitly described in Exhibits 1.8, 1.9,
------------------
1.11, 1.25 and 1.26. Reader products include all A6 Products or components of
- -------------------
A6 Products, as applicable, intended for distribution either on an OEM or retail
basis through any channel or multiple channels of distribution, which are
typically combined with a Feeder product and sold as an integrated unit external
to the CPU and enable reading of photos or other printed media into a computer.
In particular, those elements of the Reader products which are to be jointly
owned include but are not limited to the following: Reader Engineering
Documentation, Reader ASIC 1 (Combo ASIC), Reader ASIC 2 (Interface card plus
parallel port interface), Reader Internal Tooling, etc.
All Connector products, technology and associated Intellectual Property, except
for those elements of the Connector products explicitly described in Exhibits
--------
1.8, 1.9, 1.11, 1.25 and 1.26. In particular, those elements of the Connector
- ------------------------------
products which are to be jointly owned include but are not limited to the
following: Connector Engineering Documentation, Connector Tooling
Mac micro-controller source code
26
<PAGE>
Exhibit 1.25
------------
Licensed A6 Products
--------------------
Twain Driver source code and documentation
27
<PAGE>
Exhibit 1.26
------------
Licensed Patents
----------------
Warm up compensation structure
Taiwan, Patent No. 80028
U.S., Patent No. 5212376
Scanner with IDE interface
Taiwan, Application No. 84110670
U.S., Application filed 10/31/95 under Jason Chen
China, Application No. 95117525.4
28
<PAGE>
Exhibit 5
---------
A6 Product Projects to be Completed by Primax Taiwan
----------------------------------------------------
HP Photo Drive - expected first customer shipment ("FCS") 3/96
Photo ReaderMac for Polaroid - FCS 4/96
Epson PhotoPlus - FCS 4/96
Retail Photo Drive - FCS 5/96
Photo Reader PC (single ASIC, cost reduced reader) - FCS 5/96
Fast parallel port EPP Mode Connector ASIC - FCS 8/96
29
<PAGE>
Exhibit 1.23
------------
Encumbrances and Licenses
-------------------------
List of all encumbrances (security interests, licenses, liens, charges or
other restrictions), if any:
None, except as set forth in the Assigned Contracts.
30
<PAGE>
EXHIBIT 10.15
INTERNATIONAL DISTRIBUTION AGREEMENT
------------------------------------
This Distribution Agreement (the "Agreement") is entered into this 29th day
of February, 1996 by and between Storm Primax, Inc., a California corporation
having a place of business at 1861 Landings Drive, Mountain View, California
94043 ("Storm Primax") and 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").
RECITALS
A. Pursuant to the terms of an Agreement and Plan of Reorganization dated
as of February 24, 1996 (the "Reorganization Agreement"), a wholly-owned
subsidiary of Storm Software, Inc. will be merged into Primax Electronics (USA),
Inc. ("Primax USA") and Primax USA, the surviving entity will become a wholly-
owned subsidiary of Storm Primax, the successor corporation to Storm Software,
Inc.
B. As a condition of the Reorganization Agreement, Storm Primax and Primax
Electronics, Ltd. ("Primax Taiwan") entered into an Asset Transfer Agreement of
even date herewith (the "Asset Transfer Agreement") whereby Storm Primax
acquired from Primax Taiwan certain rights to its then existing A6 image
scanning products.
C. Primax Taiwan wishes to be appointed as Storm Primax's exclusive
distributor in a certain territory and non-exclusive distributor in a certain
other territory so as to make A6 products owned by Storm Primax pursuant to the
Asset Transfer Agreement and certain Storm Primax software products available to
Primax Taiwan's customers in such territories on certain terms and conditions
set forth in this Agreement.
D. This Agreement is an Ancillary Agreement, as defined in the
Reorganization Agreement.
NOW, THEREFORE, in consideration of the mutual representations and
covenants of this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Storm Primax and
Primax Taiwan agree as follows:
1. Definitions. The following definitions shall apply to this Agreement:
-----------
1.1 "A6 Products" means all image scanning products and technology
which accept photos up to a maximum of five (5) inches in width, excluding hand
scanners which are not made to be attached to a feeder base.
1.2 "Asset Transfer Agreement" means the Asset Transfer Agreement by
and between Storm Primax and Primax Taiwan dated as of February 24, 1996, which
agreement is incorporated herein by reference.
1
<PAGE>
1.3 "Bug Event" occurs when (i) an article is published that
criticizes a Localized Software Product or Localized Documentation for
containing material defects (other than in duplication materials and
workmanship); (ii) a Localized Software Product release is requested to correct
such material defects, or (iii) sales of the Localized Software Product decline
due to the existence of such material defects.
1.4 "Closing Date" means the date of the closing under the
Reorganization Agreement.
1.5 "Confidential Information" means the technical information,
know-how, technology, formulae, system designs, prototypes, ideas, inventions,
improvements, layouts, software, concepts, techniques, discoveries, data, files,
supplier and customer identities and lists, accounting records, forecasts,
project management plans, marketing plans and business plans relating to this
Agreement to which a party has proprietary rights, and all copies and tangible
embodiments thereof (in whatever form or medium) conspicuously indicated as
proprietary information, confidential information or a substantially similar
legend that are not generally known by the public; provided, however, that any
of the foregoing shall not be considered Confidential Information if the party
receiving it can show that it: (i) has become publicly known through no wrongful
act or breach of any obligation of confidentiality on the receiving party's or
any third party's part; (ii) was rightfully received by the receiving party from
a third party not in violation of any contractual, legal or fiduciary obligation
by such third party; (iii) was approved for release by written authorization by
the party having rights therein; or (iv) was developed by the receiving party
independently of the party having rights therein without breach of any
confidentiality or other obligations; or (v) was disclosed by court order or
other legal authority, provided that the party having rights therein is given an
opportunity to oppose such disclosure and if disclosed, such information is only
used for the specified legal purposes.
1.6 "Documentation" means the user manuals, guides or other written
instructions generally made available with the Products to End Users.
1.7 "End User" means a purchaser or licensee of computer products
who acquires such products for use rather than distribution or resale.
1.8 "Enhancements" means any updates or bug fixes to a computer
product.
1.9 "House Account" means an account: (a) which is the sole
responsibility of Storm Primax's direct sales force; (b) from which Primax
Taiwan may not solicit or take orders for the sale of Products; and (c) for
which no payments
are due to Primax Taiwan from Storm Primax. The House Accounts are currently
identified in Exhibit 1.9.
-----------
1.10 "Improvements" mean any and all improvements, Enhancements,
modifications and new versions of A6 Products which are created, invented,
discovered or made after the Closing Date.
1.11 "Localized Documentation" means a localized or translated
version of the Documentation created by Primax Taiwan pursuant to Section 2.1
below, and all Improvements thereto.
2
<PAGE>
1.12 "Localized Software Product" means a localized or translated
version of the Software Products created by Primax Taiwan pursuant to Section
2.1 below, and all Improvements thereto.
1.13 "Net Invoice Amount" means the net amount invoiced by Storm
Primax for shipments of OEM Products after deducting all customer discounts,
freight, transportation or other allowances, sales or other taxes, COD or other
delivery charges, insurance, credits, mailing costs and the like.
1.14 "Non-A6 Products" means hand held scanners, non-A6 sheetfed
scanners, non-A6 flatbed scanners and datapen scanners. Digital cameras or any
other image capture products are not included.
1.15 "OEM Customer" means a business entity (other than a House
Account) which engages in distribution or resale of computer products bundled
with other products and repackaged for distribution or resale as a stand-alone
product directly or indirectly through its distribution channels to End Users.
1.16 "OEM Product" means a version of a Storm Primax A6 Product
and/or Software Product for use and distribution by OEM Customers, and includes
all Improvements thereto.
1.17 "Primax Taiwan" means Primax Electronics, Ltd., an ROC
corporation.
1.18 "Products" mean the Retail Products and/or OEM Products, as
applicable, as currently identified on Exhibit 1.18.
------------
1.19 "Reorganization Agreement" means the Agreement and Plan of
Reorganization Agreement dated as of February 24, 1996 by and among Storm
Software, Inc., a California corporation, Storm Acquisition Corporation, a
wholly-owned subsidiary of Storm Software, Inc., Primax Electronics (USA), Inc.,
a California corporation, and Primax Taiwan, which agreement is incorporated
herein by reference.
1.20 "Retail Customer" means an End User or business entity which
engages in distribution or resale of computer products as stand-alone products
to End Users either directly or indirectly.
1.21 "Retail Product" means a version of a Storm Primax A6 Product
and/or Software Product to be distributed to Retail Customers through all
channels of distribution on a stand-alone basis, and includes all Improvements
thereto.
1.22 "Sales Representative Agreement" means the Sales Representative
Agreement by and between Storm Primax and Primax Taiwan dated of even date
herewith, which agreement is incorporated herein by reference.
3
<PAGE>
1.23 "Software Products" means current and future photo-centric
software products which comprise primarily software in object code form
developed and/or distributed by Storm Primax.
1.24 "Storm Primax" means Storm Primax, Inc., a California
corporation, the successor corporation to Storm Software, Inc.
1.25 "Territory" means that territory identified on Exhibit 1.25.
------------
"Exclusive Territory" and "Non-Exclusive Territory" shall be as specified on
Exhibit 1.25.
- ------------
1.26 "Trademarks" means the logos, trade names, trademarks and
service marks as described in Exhibit 1.18, and any other marks as may be
------------
mutually agreed to by the parties from time to time.
2. Licenses.
--------
2.1 Grant of License.
----------------
(a) Subject to the terms and conditions of this Agreement,
effective as of the Closing Date, Storm Primax hereby appoints Primax Taiwan as
Storm Primax's exclusive distributor in the Exclusive Territory and non-
exclusive distributor in the Non-Exclusive Territory for the Products, and for
the purposes of these appointments, Storm Primax hereby grants Primax Taiwan the
following licenses, effective as of the Closing Date:
(A) a non-exclusive, non-transferable license to translate,
adapt and reproduce the Software Products for the sole purpose of creating
Localized Software Products for distribution in the Territories;
(B) a non-exclusive, non-transferable license to translate,
adapt and reproduce the Documentation for the sole purpose of creating Localized
Documentation for distribution in the Territories;
(C) 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 OEM Customers and Retail Customers in the Exclusive Territory
(except that such license shall be exclusive for the country of Japan only with
respect to OEM Customers located in Japan);
(D) 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 and Retail Customers in the Non-Exclusive
Territory.
Primax Taiwan agrees that it has no right under this Agreement to
distribute Products, Documentation, Localized Software Products or Localized
Documentation to any Retail Customers in Japan.
4
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(b) Primax Taiwan may not alter, reconfigure or change the basic
architecture software which controls the operations and functionality of the A6
Products without the prior written consent of Storm Primax.
2.2 Termination of Exclusivity. The above exclusive license grant in
--------------------------
Section 2.1 is subject to Primax Taiwan meeting the minimum annual distribution
quotas for the aggregate of all Products sold to OEM Customers and Retail
Customers in the Exclusive Territory as mutually established by the parties for
the Products within the first month of each calendar year during the term of
this Agreement. The quotas will be based on United States dollars. If Primax
Taiwan does not meet the quotas based on shipments from Storm Primax such that
actual Product distributions meet 65% or more of quota but fail to meet at least
85% of quota for the Products, Primax Taiwan agrees to cooperate and meet with
Storm Primax to examine and evaluate the parties' relationship under this
Agreement, discuss the causes of the quota shortfall and develop a mutually
agreed upon written plan of action to increase Product distributions in the
following year. On the other hand, if Primax Taiwan does not meet the quotas
based on shipments from Storm Primax such that actual Product distributions are
less than 65% of quota for Products, Storm Primax may, in its discretion,
convert the exclusive license into a non-exclusive license upon six (6) months
prior written notice to Primax Taiwan. After the effective conversion of the
license, the license for the Products will remain non-exclusive for at least an
additional six (6) month period, and effective any time thereafter Storm Primax
may terminate the non-exclusive license with respect to the Products upon ninety
(90) days prior written notice to Primax Taiwan. If the licenses for the
Products have been converted to a non-exclusive license, and the time periods
above have expired with respect to the Products, Storm Primax may terminate this
Agreement and each party will have the rights set forth in Section 1.4. However,
in no event will such termination be deemed a termination for cause by Storm
Primax.
2.3 Exceptions to Exclusivity.
-------------------------
(a) Notwithstanding Storm Primax's grant to Primax Taiwan of
certain exclusive distribution rights under this Agreement, Storm Primax may
distribute A6 Products to OEM Customers and Retail Customers in the Exclusive
Territory if the OEM Customer or Retail Customer is not domiciled in the
Exclusive Territory provided that: (i) the OEM Customer or Retail Customer
agrees to purchase an A6 Product with a substantially different design than that
offered by Primax Taiwan; (ii) Primax Taiwan maintains the lowest customer price
relative to all such similar OEM Customers or Retail Customers with a
substantially similar Product sales volume; and (iii) Storm Primax notifies
Primax Taiwan of such prospective relationship not less than 120 days prior to
launch of the A6 Product in the Exclusive Territory.
(b) Storm Primax will have the right to designate new or
additional customer accounts as House Accounts so that they are excluded from
the definition of OEM Customer provided that: (i) any such potential OEM
Customers desire a direct relationship with Storm Primax without Primax Taiwan
acting as an intermediary; (ii) Primax Taiwan does not provide any of the
services to the accounts as contemplated in this Agreement for such OEM
Customer; (iii) Storm Primax does not provide better pricing terms to the OEM
Customer by servicing the account directly relative to the pricing Storm Primax
would offer for Primax
5
<PAGE>
Taiwan to service the account; and (iv) prior to such designation, Storm Primax
obtains Primax Taiwan's prior written consent.
2.4 Competitive Products.
--------------------
(a) Primax Taiwan agrees that during the term of this
Agreement, Primax Taiwan will not distribute any A6 Products which are similar
to or competitive with any Storm Primax A6 Products. Notwithstanding the
foregoing, Primax Taiwan may distribute other products similar to or competitive
with the Storm Primax A6 Products subject to the provisions of this section. If
Primax Taiwan reasonably determines that an A6 Product is not competitive in the
Territories due to distinguishing functionality, quality or cost, Primax Taiwan
will give written notice of such determination to Storm Primax and within thirty
(30) days after such notice, Storm Primax and Primax Taiwan will meet to develop
a mutually agreed upon plan so that Storm Primax can develop a competitive Storm
Primax A6 Product. If Storm Primax does not notify Primax Taiwan within ninety
(90) days of such meeting that it is able to deliver a competitive Storm Primax
A6 Product, Primax Taiwan may distribute a competitive third party product upon
two (2) weeks written notice to Storm Primax after the expiration of the ninety
(90) day period. Primax Taiwan may distribute any products which Storm Primax
does not yet manufacture or distribute, but if Storm Primax makes available to
Primax Taiwan a substantially similar Product to such product, Primax Taiwan
agrees to distribute such Product pursuant to the terms of this Agreement.
(b) If Storm Primax develops an A6 Product which directly
competes with a third-party product already being distributed by Primax Taiwan
(as reasonably determined by Primax Taiwan based on comparable features, quality
and cost), Primax Taiwan agrees that it will use reasonable efforts to cease
distribution of such third-party product in order to distribute Storm Primax's
A6 Product as soon as practical but in any event within 180 days after receiving
written notice from Storm Primax of the commercial availability of such A6
Product.
(c) Primax Taiwan agrees that commencing with Storm Primax's
release of an Improvement to a Product and during the remaining term of this
Agreement, Primax Taiwan will not distribute with any A6 Product or Non-A6
Product any third party software application which is similar to or competitive
with the Software Products, except with Storm Primax's prior written consent,
which consent shall be given on a case by case basis.
(d) In the event that Storm Primax converts the exclusive
distribution license to a non-exclusive license pursuant to Section 2.2, the
restrictions on Primax Taiwan's ability to distribute third party products
similar to or competitive with such Products will be of no further force or
effect.
2.5 Sublicensing. Primax Taiwan's right to sublicense for purposes
------------
of distribution is subject to the provisions of this Section 2.5. Primax Taiwan
shall require each OEM Customer and Retail Customer receiving the Products to
protect Storm Primax's proprietary rights in the Products as are customary and
ordinary in the usual conduct of its business with respect to other similar
intellectual property which is proprietary to Primax Taiwan (but in no event
with less than reasonable care).
6
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3. Localizations and Translations.
------------------------------
3.1 Upon Primax Taiwan's receipt of Storm Primax's written approval
of a Localized Software Product and corresponding Localized Documentation
pursuant to the provisions below, Primax Taiwan may distribute the resulting
Localized Software Product and Localized Documentation pursuant to Section
2.1(a)(C) above.
3.2 Localized Software Products and Localized Documentation prepared
by Primax Taiwan will include translated and localized versions of all copyright
and other proprietary rights notices included in the Software Products.
3.3 Upon Primax Taiwan's completion of the Localized Software
Product or Localized Documentation, Primax Taiwan agrees to provide Storm Primax
with any master disks or master copies of packaging or documentation needed for
Storm Primax's production of the Localized Software Product and Localized
Documentation.
3.4 Storm Primax reserves the right to review and approve the
completed Localized Software Product and Localized Documentation, including the
packaging. In the event Storm Primax elects to exercise such right, Storm Primax
shall notify Primax Taiwan of such election, and shall submit a written approval
or rejection to Primax Taiwan within thirty (30) days after Storm Primax reviews
the Localized Software Product or Localized Documentation, as appropriate.
Approval shall be based on conformance to the documentation and functionality at
least equivalent to the U.S. version of the Software Products. Approval by Storm
Primax shall not be arbitrarily or unreasonably withheld. If Storm Primax
rejects the Localized Software Product or Localized Documentation, Storm Primax
will provide Primax Taiwan with written notice of the reason for the rejection,
and permit Primax Taiwan an opportunity to redeliver the Localized Software
Product or Localized Documentation. Storm Primax's waiver of the foregoing right
to review and approve shall not prevent Storm Primax from subsequently
exercising the foregoing right.
3.5 Primax Taiwan agrees that if a Bug Event occurs within the
lesser of six (6) months after (i) the first commercial shipment of the
Localized Software Product and Localized Documentation or (ii) final approval by
Storm Primax pursuant to Section 3.4 above of the Localized Software Product or
Localized Documentation, and the Bug Event was caused by Primax Taiwan, Primax
Taiwan will provide to Storm Primax an Enhancement to correct the Bug Event.
Such Enhancement shall be supplied to Storm Primax as soon as possible following
the Bug Event.
3.6 The Localized Software Products and Localized Documentation,
including any work in progress, shall be the sole and exclusive property of the
party paying for such localization or translation (subject to Storm Primax's
rights in the preexisting code and portions contained within any localizations
or translations owned by Primax Taiwan). Upon conversion of the exclusive
license to a nonexclusive license pursuant to Section 2.2, Primax Taiwan will
grant a license to Storm Primax for all translations or localizations, if any,
which Primax Taiwan owns pursuant to this section, the terms of such license,
including payment terms, to be subject to the good faith negotiations and mutual
agreement of Primax Taiwan and Storm Primax. Notwithstanding the foregoing,
Primax Taiwan agrees that upon termination of
7
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Primax Taiwan's distribution licenses in Section 2.1, Primax Taiwan will have no
further rights to distribute the Localized Software Products or Localized
Documentation in any form or in any territory in the world whatsoever.
4. New Products and Changes in Products.
------------------------------------
4.1 The parties agree that future Products will be added to this
Agreement as they become available upon written notice from Storm Primax to
Primax Taiwan.
4.2 Storm Primax has the right to discontinue the distribution or
availability of, or modify, update or upgrade, any Product upon 120 days prior
written notice to Primax Taiwan, except that Storm Primax may modify the
Products without notice if such modifications do not have a substantial adverse
effect on the functionality, performance or appearance of the Products. In any
such event, Primax Taiwan will have the right to liquidate its then existing
inventory of the affected Products.
4.3 Storm Primax and Primax Taiwan will meet no less than once every
six (6) months at a mutually agreed upon time and location to examine and
reevaluate the product market and if necessary, develop Product plans to be
implemented in the following twelve to eighteen month period.
5. Order and Shipment Terms.
------------------------
5.1 Order Procedure.
---------------
(a) The terms and conditions of this Agreement shall apply to
all orders for the Products and supersede any different or additional terms on
purchase orders submitted to Storm Primax. Purchase orders submitted to Storm
Primax are solely for the purpose of requesting delivery dates, quantities and
specifying destination. All orders will be subject to the minimum order
quantities specified in Exhibit 1.18 and as mutually agreed to for future
------------
Products. All orders placed with Storm Primax shall be subject to acceptance by
Storm Primax at its principal place of business. Unless Storm Primax rejects a
purchase order by written notice to Primax Taiwan within five (5) working days
after receipt, such purchase order will be deemed accepted. Storm Primax shall
use reasonable efforts to ship Products by the delivery dates stated on accepted
purchase orders, but Storm Primax shall not be liable under any circumstances
for any damages to Primax Taiwan or to any other third party for Storm Primax's
failure to fill, or errors in filling, any orders or delay in delivery. If
orders for the Products exceed Storm Primax's inventory, Storm Primax shall
allocate available inventory on a basis Storm Primax deems equitable in its sole
and absolute discretion.
(b) For all Retail Products, Primax Taiwan will submit purchase
orders directly to Storm Primax.
(c) For all OEM Products, Primax Taiwan will receive purchase
orders from OEM Customers issued to Storm Primax (or its designated supplier)
and forward copies of such purchase orders to Storm Primax for acceptance
pursuant to Section 5.1(a) above. All OEM agreements for the OEM Products will
be between Storm Primax and the OEM
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Customer, with sales service to be provided by Primax Taiwan equivalent to those
required of Storm Primax in Sections 4 and 5 of the Sales Representative
Agreement.
5.2 Delivery. Except as otherwise set forth in a purchase order
--------
or as otherwise mutually agreed upon between Storm Primax and Primax Taiwan,
Storm Primax (or its designated supplier) will ship all ordered Products within
sixty (60) days after Storm Primax's acceptance of the applicable purchase
order.
5.3 Forecasts. By the fifteenth day of each month, Primax Taiwan
---------
will provide Storm Primax with written non-binding rolling 120 day forecasts of
its Product requirements. Such forecasts shall be itemized on a Product by
Product basis between Retail Products and OEM Products.
5.4 Rescheduling and Cancellations.
------------------------------
(a) With Storm Primax's prior written consent, Primax Taiwan 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) Primax Taiwan does not reschedule the shipment date
of the particular purchase order more than two (2) times; (iii) Storm Primax
must receive all rescheduling requests for a particular purchase order within
forty-five (45) days after Storm Primax's original acceptance of such purchase
order; (iv) none of the unit shipments are for less than the minimum order
quantities specified in Exhibit 1.18; and (v) only a maximum of fifty percent
------------
(50%) of each purchase order is to be rescheduled.
(b) Primax Taiwan may not cancel any purchase order accepted by Storm
Primax without the prior written consent of Storm Primax.
5.5 Shipments, Risk of Loss, Title.
------------------------------
(a) Storm Primax will ship (or have its designated supplier ship)
Retail Products F.O.B. shipping port.
(b) Storm Primax will ship directly to OEM Customers (or have its
designated supplier ship) OEM Products F.O.B. shipping port.
6. Payment Terms.
-------------
6.1 Prices.
------
(a) For Retail Products, within a reasonable period after the Closing
Date, the parties will determine the initial prices and such prices shall be
effective until reviewed and adjusted according to this Section 6.1. The
parties will meet to review prices for the Products on mutually agreed to dates
on or within thirty (30) days before January 1, April 1 and September 1 of each
year. Any agreed upon adjustments will be effective for all orders accepted on
or after such related date (January 1, April 1 and September 1) and continue in
effect until further adjusted according to this provision. Pursuant to Section
2.4(a) above, prices must be
9
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competitive with third party prices in order to prevent Primax Taiwan from
distributing competitive products.
(b) Notwithstanding the price reviews, the parties will also meet to
review prices in each of the following situations: (i) release of a new Product;
(ii) material changes in the manufacturing environment involving cost increases
or decreases; or (iii) material changes in the market environment in order for
such current product to remain competitive in the market. For the purposes of
subsection (ii) above, such pricing review must be completed within a 30 day
period.
(c) Primax Taiwan will receive the following payments for
distributions of Products to OEM Customers:
(A) Except as specified below, the price to Primax Taiwan for OEM
Products will be ninety-five percent (95%) of Storm Primax's Net Invoice Amount.
That is, Storm Primax (or its designated supplier) will retain ninety-five
percent (95%) of the Net Invoice Amount and pay over to Primax Taiwan five
percent (5%) of Net Invoice Amount.
(B) Primax Taiwan shall not be entitled to receive any
compensation for sales made to designated House Accounts. If Storm Primax
designates any House Accounts after the Closing Date, as expressly authorized
in Section 2.3(b) above, Primax Taiwan shall be entitled to receive payments
pursuant to Section 6.1(c)(A) above only for those orders which have been
received from OEM Customers and accepted by Storm Primax prior to the
designation of such OEM Customer as a House Account in accordance with Section
2.3(b).
(C) Notwithstanding any other provisions of this Agreement, Primax
Taiwan shall not be entitled to receive payments on sales consummated with OEM
Customers located within the Territory for shipment by Storm Primax to a
destination outside the Territory, except that Primax Taiwan will receive
payment on sales to OEM Customers inside the Territory on Storm Primax's
shipments of Products outside the Territory at one-half the rate provided for in
Section 6.1(c)(A) in the following circumstances: (i) for all distributions of
Products in the first six (6) months after either (x) a customer becomes a new
OEM Customer or (y) an existing OEM Customer purchases a Product not previously
purchased by such customer; and (ii) for so long as orders from an OEM Customer
are received by Primax Taiwan in the Territory for shipments of Products outside
the Territory.
6.2 Taxes and Duties.
----------------
(a) Except as set forth in Section 6.2(b) below, in addition to any
payments due under this Agreement, Primax Taiwan shall pay any taxes, duties or
other amounts, however, designated, which are levied or based upon such
payments, or upon this Agreement, provided, however, that Primax Taiwan shall
not be liable for taxes based on Storm Primax's net income.
(b) In addition to any other payments due under this Agreement, Storm
Primax agrees to pay any taxes imposed by any governmental authority in the
United States with respect to any payment to be made under this Agreement,
payment to be made by
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<PAGE>
Storm Primax under this Agreement or any item to be delivered by Storm Primax to
Primax Taiwan or Primax Taiwan's OEM Customers or Retail Customers under this
Agreement.
6.3 Payment.
-------
(a) Primax Taiwan will be responsible for invoicing Retail Customers
for all deliveries of Retail Products made by Storm Primax directly to Retail
Customers and Primax Taiwan will pay for such Retail Products by wire transfer
in U.S. dollars within ninety (90) days after Storm Primax's invoice to Primax
Taiwan. Primax Taiwan will pay for Retail Products it receives from Storm
Primax within ninety (90) days of Storm Primax's invoice for such Retail
Products.
(b) Storm Primax (or its designated supplier) will invoice all OEM
Customers for OEM Products delivered by Storm Primax (or its designated
supplier) and Storm Primax (or its designated supplier) will be responsible for
ensuring that amounts due to Storm Primax (or its designated supplier) are paid
by from OEM Customers receiving OEM Products pursuant to the terms of the
written agreements between Storm Primax and such OEM Customers. Storm Primax
(or its designated supplier) will bear the risk of delinquent accounts and have
the responsibility for extending credit to its OEM Customers. Primax Taiwan
will have no authority to collect funds or accept payment of any sort for orders
accepted by Storm Primax unless so requested by Storm Primax. Primax Taiwan
shall within three (3) working days remit to Storm Primax any payments which it
inadvertently receives from OEM Customers.
(c) Storm Primax (or its designated supplier) will pay Primax Taiwan
for OEM Products as required by Section 6.1(c) above by wire transfer in U.S.
dollars within five (5) days after Storm Primax (or its designated supplier)
receives payment from OEM Customers.
6.4 Most Favored Nations. During the period that the license in
--------------------
Section 2.1(a)(C) remains exclusive, Storm Primax agrees that the prices,
payment terms and other economic terms and conditions of this Agreement will not
be less favorable than prices, payment terms or other economic terms and
conditions offered to Storm Primax's other customers in other territories for
Products which are substantially similar to those licensed to Primax Taiwan
hereunder.
7. Marketing.
---------
7.1 Branding/Packaging. Primax Taiwan may, in its discretion,
------------------
privately label or distribute the Products under its own product name and
packaging subject to the provisions of this Section 7. Notwithstanding the
foregoing, Primax Taiwan agrees that all Product packaging will include a notice
in substantially the following form: "Developed and manufactured by Storm
Primax, Inc."
7.2 Efforts by Primax Taiwan. Primax Taiwan agrees to include in all
------------------------
advertising of the Products all applicable copyright and trademark notices of
Storm Primax as they appear on or in the Products. Storm Primax may provide, at
its option, a reasonable amount of advertising material, in English, as
requested by Primax Taiwan, for use in Primax Taiwan's efforts to market the
Products.
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7.3 Trademark License.
-----------------
(a) Storm Primax hereby grants to Primax Taiwan a nonexclusive,
limited license (including the right to sublicense through multiple tiers of
sublicenses) to use Trademarks solely in Primax Taiwan's distribution,
advertising and promotion of the Products and subject to the restrictions in
Exhibit 1.18 and requirements of this Section 7.3. Primax Taiwan's use shall be
- ------------
in accordance with applicable law and Storm Primax's policies regarding
advertising and trademark usage as established from time to time. Primax Taiwan
further agrees not to affix any Trademark to products other than the genuine
Products.
(b) Primax Taiwan agrees that the nature and quality of any products
or services it supplies in connection with the Trademarks shall conform to the
standards set by Storm Primax. Primax Taiwan agrees to cooperate with Storm
Primax in facilitating Storm Primax's monitoring and control of the nature and
quality of such products and services, and to supply Storm Primax with specimens
of use of the Trademarks upon request.
(c) At Storm Primax's request, Primax Taiwan shall promptly perform
any act reasonably necessary to secure or maintain any Trademark rights in any
country in which Primax Taiwan is marketing the Products. This assistance shall
include complying with the formalities of local law, including but not limited
to, the execution of any application for registration as a registered user, the
execution of additional license agreements suitable for recording with the
appropriate authorities or providing proof of use of the Trademarks in any other
applicable documents. Storm Primax shall pay the expense of complying with such
formalities.
(d) Primax Taiwan agrees that whenever the Trademarks are used on
Product packaging, in advertising or in any other manner, they shall clearly
indicate Storm Primax as the trademark owner. Primax Taiwan shall not do or
cause to be done any act or anything contesting or in any way impairing or
reducing Storm Primax's right, title and interest in the Trademarks. Primax
Taiwan understands and agrees that use of the Trademarks in connection with the
Products shall not create any right, title or interest in or to the use of the
Trademarks and that all such uses and goodwill associated with the Trademarks
will inure to the benefit of Storm Primax. Primax Taiwan shall take all
necessary steps to ensure its employees comply with all the terms and conditions
herein.
8. Support.
-------
8.1 First-Line Support. Primax Taiwan shall provide a level of
------------------
product support for its End Users equivalent to that provided
by Storm Primax to its customers during the term of this Agreement. Such
support will include, at a minimum, a "hot-line" service during normal business
hours for answering End User questions by telephone, and employing persons
trained and able to answer such questions. Such "hot-line" service shall be
provided to all End Users in the Territory, whether or not such Products were
originally distributed by Primax Taiwan. In-warranty "hot-line" services
shall be provided by Primax Taiwan without charge (other than telephone charges)
to the caller. Primax Taiwan, at its option, may offer extended warranty service
at commercially reasonable prices.
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8.2 Second-Line Support. Storm Primax will provide second-line
-------------------
support to Primax Taiwan by designating a contact person at Storm Primax to
answer questions by a designated Primax Taiwan contact person. There will be no
charge for such second-line support through the Warranty Period (as defined in
Section 11.3 below) or the term of this Agreement, whichever ends later.
9. Proprietary Rights. Primax Taiwan acknowledges that the structure and
------------------
organization of the Products (and all Localized Software Products) are
proprietary to Storm Primax. Storm Primax retains exclusive ownership of the
Products (and all Localized Software Products and Localized Documentation),
except as otherwise provided for in the Asset Transfer Agreement regarding
product technology ownership and licensing. Primax Taiwan will take all
reasonable measures to protect Storm Primax's proprietary rights in the
Products, Localized Software Products and Localized Documentation. Except as
provided herein or in the Asset Transfer Agreement, Primax Taiwan is not granted
any rights to patents, copyrights, trade secrets, trade names, trademarks
(whether registered or unregistered), or any other rights, franchises or
licenses with respect to the Products, Localized Software Products and Localized
Documentation. All rights not expressly granted to Primax Taiwan under this
Agreement are reserved to Storm Primax.
10. Confidentiality.
---------------
10.1 Confidentiality of Agreement. Each of the parties covenants
----------------------------
to the other party that it will not in any manner disclose or divulge the
contents of the Agreement or any of the material terms and conditions hereof to
any third party, except as the other parties may expressly consent in advance in
writing or as may be required in obtaining any necessary governmental or
regulatory approval for the transactions contemplated hereby or as may otherwise
be required by any applicable law.
10.2 Treatment of Confidential Information. For a period of five (5)
-------------------------------------
years after receipt of any Confidential Information, each party shall keep and
maintain the other party's Confidential Information in strictest confidence and,
except as otherwise expressly provided herein, each party: (i) shall not use the
other party's Confidential Information, and (ii) shall not provide or otherwise
make available, whether directly or indirectly, any of the other party's
Confidential Information to any party other than: (a) to employees and officers
of a party who require access to such Confidential Information for performance
of their duties and who have signed a written nondisclosure agreement including
the requirement to protect third party proprietary information or (b) to
permitted sublicensees permitted under this Agreement who shall enter into a
nondisclosure agreement to protect Confidential Information on terms no less
restrictive than required in this Agreement, or (c) as required by any
applicable law. Each party shall take all reasonable actions (by instruction,
agreement or otherwise) necessary to maintain the confidentiality of the other
party's Confidential Information. Notwithstanding the foregoing, each party
shall be required to protect the other party's Confidential Information
consistent with the same protections afforded its own Confidential Information
in the ordinary conduct of its business but in no event with less than
reasonable care.
10.3 Return or Destruction. Upon termination of this Agreement,
---------------------
or at any other time if requested by a party, each party promptly shall return
to the other party all
13
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Confidential Information received by it or its representatives by such other
party unless the party provides assurances reasonably satisfactory to such other
party that such Confidential Information has been destroyed.
10.4 Source Code, etc. Primax Taiwan shall not reverse engineer or
----------------
decompile the Products or otherwise attempt or permit others to attempt to
discover the source code of the Software Products without the express written
consent of Storm Primax. To the extent such consent is given, Primax Taiwan
acknowledges that the source code is a trade secret of Storm Primax and due to
the importance of the confidentiality and trade secret status of the source
code, Primax Taiwan agrees, in addition to complying with the requirements of
this Section 10 as they related to the source code, to: (i) inform any employee
that is granted access to all or any portion of the source code of the
importance of preserving the confidentiality and trade secret status of the
source code; (ii) maintain a controlled, secure environment for the storage and
use of the source code; and (iii) use at least the same degree of care in
preserving the confidentiality of the source code as it uses in the treatment of
its own trade secrets. Primax Taiwan shall not permit others to attempt to
discover the source code without the express written consent of Storm Primax.
Furthermore, Primax Taiwan shall not modify any Storm Primax A6 Products without
the express written consent of Storm Primax.
11. Acceptance and Warranty.
-----------------------
11.1 Product Acceptance. For each unit of Products, Primax Taiwan
------------------
(or its designee) will have ten (10) calendar days from the date such unit is
received by Primax Taiwan (or Retail Customers or OEM Customers) (the
"Acceptance Period") to examine and test the Product for conformity to the
applicable Product specifications. During the Acceptance Period for each unit,
Primax Taiwan (or its designee) may (i) accept the unit or (ii) reject the unit
by notifying Storm Primax in writing of the manner in which the unit fails to
conform to the applicable Product specifications. Any unit not rejected by
Primax Taiwan (or its designee) within the Acceptance Period will be deemed to
be accepted as of the first day following the Acceptance Period. In the event
that a unit is rejected, Primax Taiwan (or its designee) may, at Storm Primax's
expense and without cost to Primax Taiwan, either (i) return the unit to Storm
Primax (or its designated supplier), freight collect, for replacement with a new
conforming unit or (ii) permit the modification of the unit to correct the
nonconformity (e.g., by providing replacement components and modification
instructions). Units that are replaced or modified pursuant to this Section 11.1
will be subject to a new Acceptance Period. With respect to OEM Products, the
acceptance provisions of this Section shall control unless they are inconsistent
with the relevant terms of the written agreement between Storm Primax and its
OEM Customer. In such event, the terms of such written agreement shall govern
acceptance of the OEM Product by the OEM Customer.
11.2 Defect Rates and Remedies.
-------------------------
(a) In addition to the rights of Primax Taiwan to reject units of
Products as more particularly set forth above, Primax Taiwan may, in its sole
and absolute discretion, test (or cause any of its Retail or OEM Customers to
test) any random sample of any Product shipment Primax Taiwan or Primax Taiwan's
Retail or OEM Customers receives pursuant to the provisions of this Section
11.2. Storm Primax and Primax Taiwan will mutually
14
<PAGE>
agree upon the testing procedures for each Product and update or modify such
procedures as reasonably required. A sample of each shipment to be tested will
be tested, and the corresponding shipment accepted or rejected according to the
following guidelines:
Retail Products and Stand Alone OEM Products
<TABLE>
<CAPTION>
Shipment Test Acceptance Rejection
Delivery Size Sample Size Criteria Criteria
- ------------------ ----------- ------------------------- -------------------------
<S> <C> <C> <C>
501-1,200 units 80 units 2 defective units or less 3 defective units or more
1,201-3,200 125 3 defective units or less 4 defective units or more
3,201 + 200 5 defective units or less 6 defective units or more
</TABLE>
OEM Products Built Into PC's
<TABLE>
<CAPTION>
Shipment Test Acceptance Rejection
Delivery Size Sample Size Criteria Criteria
- ------------------ ----------- ------------------------- -------------------------
<S> <C> <C> <C>
501-1,200 units 80 units 1 defective units or less 2 defective units or more
1,201-3,200 125 2 defective units or less 3 defective units or more
3,201 + 200 3 defective units or less 4 defective units or more
</TABLE>
With respect to OEM Products, the acceptance provisions of this Section
shall control unless they are inconsistent with the relevant terms of the
written agreement between Storm Primax and the OEM Customer. In such event, the
terms of such written agreement shall govern random sample testing of OEM
Products by the OEM Customer.
(b) If a shipment is rejected according to the above procedures and
criteria, Primax Taiwan will immediately notify Storm Primax of the rejection.
Storm Primax (or its designated supplier) will then provide all reasonably
requested and necessary technical support to test all units in such shipment and
repair any defective units therein. Storm Primax (or its designated supplier)
shall pay for all such testing and repair of the units in such shipment, and any
related costs or expenses thereof. If Primax Taiwan is unable to complete the
testing and repair of defective units in such shipment within a reasonable
period and with no more than reasonable efforts, Primax Taiwan may return the
entire shipment to Storm Primax (or its designated supplier) for testing and
repair at Storm Primax's (or Storm Primax's designated supplier's) sole expense
(including shipping costs to and from Primax Taiwan or Primax Taiwan's OEM
Customer or Retail Customer). Neither Primax Taiwan nor any of its OEM Customers
or Retail Customers will be invoiced for or have any obligation to pay Storm
Primax (or its designated supplier) for defective units of Product until and
unless such defective units are repaired or replaced and Primax Taiwan (or its
Retail or OEM Customer) confirms their conformance with the applicable Product
specifications.
(c) The "Defect Rate" for each rolling four month period shall be
defined as the fraction (expressed in percentage form) whose numerator is the
number of total units of each specific Product which are both (i) returned to
Primax Taiwan from its OEM
15
<PAGE>
Customers and Retail Customers; and (ii) found by Primax Taiwan to be defective
according to the testing procedures established under Section 11.2(a), and whose
denominator is equal to Primax Taiwan's total unit shipments of Products over
the applicable four month period. If the Defect Rate exceeds three percent (3%)
for any four month period for the combination of Retail Products and Stand Alone
OEM Products, or two percent (2%) for any four month period for OEM Products
built into PC's, Storm Primax shall, at Primax Taiwan's sole option, reimburse
Primax Taiwan, or credit Primax Taiwan on open invoices, an amount equal to all
shipping expenses incurred by Primax Taiwan during such four month period to
repair or replace the number of defective units in excess of the three percent
(3%) or two percent (2%) Defect Rates, as applicable.
11.3 Product Warranty. Storm Primax warrants to Primax Taiwan that,
----------------
for a period of sixteen (16) months from the date of shipment from Storm Primax
(or its designated supplier) to Primax Taiwan (or Primax Taiwan's OEM Customers
or Retail Customers, as applicable) accepts a conforming Product pursuant to
Section 1111 (the "Warranty Period"), such Product will operate in substantial
conformance to the applicable Product specifications and will be free from any
defects in material or workmanship. If any Product fails to substantially
conform to the applicable Product specifications or contains any other defects
discovered during the Warranty Period, Primax Taiwan, in its sole discretion,
may either (i) attempt to repair the Product itself at its own labor expense,
provided that Storm Primax supplies and pays for any required parts or materials
for all Products or (ii) return the defective Product to Storm Primax for repair
or replacement (at Storm Primax's sole expense, including shipping costs from
Primax Taiwan to Storm Primax). Primax Taiwan will be responsible for all costs
of shipping defective units and parts to and from Primax Taiwan's OEM Customers
and Retail Customers and to and from Primax Taiwan (except as provided for in
Section 11.2(c) above). Storm Primax will be responsible for all return shipping
costs of repaired or replacement units to Primax Taiwan. The above warranty
shall not extend to any software or hardware component not provided by Storm
Primax.
11.4 Disclaimer. EXCEPT FOR THE ABOVE WARRANTIES, STORM PRIMAX MAKES
----------
NO OTHER WARRANTIES RELATING TO THE PRODUCTS, EXPRESS OR IMPLIED, AND EXPRESSLY
EXCLUDES ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY.
THE ABOVE LIMITED WARRANTY DOES NOT EXTEND TO ANY DEFECTS IN THE PRODUCTS CAUSED
DIRECTLY BY THE WILFUL MISCONDUCT OF Primax Taiwan, ITS RETAIL CUSTOMERS OR ITS
OEM CUSTOMERS.
12. Indemnification.
---------------
12.1 Indemnity by Storm Primax. Subject to Section 13 below, Storm
-------------------------
Primax agrees to defend, indemnify and hold harmless Primax Taiwan, its
officers, directors, employees and sublicensees against any claims, demands,
damages or actions (including Primax Taiwan's reasonable attorneys' fees and
costs) arising out of an actual or alleged infringement by the Products of any
copyrights or patent rights under the laws of the Republic of China, Japan,
United States, Canada and countries which are members of the European Economic
Community. Upon notice of an alleged infringement or if in Storm Primax's
opinion such a claim is likely, Storm Primax shall have the right, at its
option, to obtain the right to continue the
16
<PAGE>
distribution of the Products, substitute other products with similar operating
capabilities or modify the Products so that they are no longer infringing. In
the event that none of the above options are reasonably available in Storm
Primax's opinion, Primax Taiwan may terminate this Agreement and seek all other
remedies at law or in equity. The foregoing indemnity shall not apply to any
infringement claim arising from any modification of the Products not authorized
by Storm Primax in writing or use of the Products in conjunction with other
software or hardware where such use gives rise to the infringement claim. THE
FOREGOING STATES Primax Taiwan'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO
CLAIMS OF INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS OF ANY KIND. STORM
PRIMAX DISCLAIMS ANY IMPLIED WARRANTY OF NON-INFRINGEMENT OF THIRD PARTY RIGHTS.
12.2 Indemnity by Primax Taiwan. Subject to Section 13 below, Primax
--------------------------
Taiwan agrees to defend, indemnify and hold harmless Storm Primax, its officers,
directors, employees and agents from any claims, demands, damages or actions
(including Storm Primax's reasonable attorneys' fees and costs) made against
Storm Primax as a result of any claims, warranties or representations made by
Primax Taiwan or Primax Taiwan's employees or agents which differ from those
authorized by Storm Primax.
12.3 Indemnification Procedure. The above indemnities shall be
-------------------------
subject to the following procedures:
(a) The party receiving the indemnity ("Indemnitee") will notify the
party with the indemnity obligation ("Indemnitor") of any third party claim,
action or demand within ten (10) days after the Indemnitee receives notice
thereof; provided, however, that failure or delay to provide such notification
shall not reduce or otherwise affect the obligations of the Indemnitor, except
to the extent that such failure or delay shall have materially prejudiced the
Indemnitor's ability to defend against, settle or satisfy such claim or
materially increase the cost thereof.
(b) The Indemnitor, at its expense, shall have the right to pay,
compromise, settle or otherwise dispose of any such claim, provided that no
compromise, settlement or disposal of such claim shall be entered into without
the prior written consent of the Indemnitee, which consent shall not be
unreasonably withheld.
(c) The Indemnitee has the right to reasonably monitor and participate
in the Indemnitor's defense (including the selection of counsel reasonably
satisfactory to both Indemnitor and Indemnitee) or Indemnitee from any such
claims. In any action defended by Indemnitor, Indemnitee shall at all times
have the right to employ its own counsel, but the fees and expenses of such
counsel shall be Indemnitee's own expense unless the employment of such counsel
shall have been authorized by Indemnitor in connection with the defense of such
claims. In such event, such fees and expenses shall be borne by Indemnitor.
13. Consequential Damages Waiver. EXCEPT IN THE CASE OF A BREACH OF
----------------------------
SECTION 10, NEITHER PARTY WILL BE LIABLE FOR ANY LOSS OF USE, INTERRUPTION OF
BUSINESS, OR ANY SPECIAL, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES OF ANY
KIND (INCLUDING LOST PROFITS)
17
<PAGE>
REGARDLESS OF THE FORM OF ACTION WHETHER IN CONTRACT, TORT (INCLUDING
NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
14. Term and Termination.
--------------------
14.1 Term. The term of this Agreement shall commence as of the
----
Closing Date and continue for four (4) years. Thereafter, this Agreement will
renew only upon the mutual written agreement of the parties.
14.2 Termination With Cause.
----------------------
(a) Each party may terminate this Agreement upon ninety (90) days
written notice of a material breach of this Agreement if such breach is not
cured within such ninety (90) day period.
(b) Either party may immediately terminate this Agreement after giving
written notice if the other party shall become insolvent or upon any proceeding
being commenced by or against the other party under any law providing relief to
such other party as debtor.
14.3 Rights Upon Termination. Upon termination of this Agreement:
-----------------------
(a) Primax Taiwan shall immediately cease using the Trademarks and
discontinue all representations that it is a Storm Primax distributor.
(b) In the event of termination by Storm Primax, Storm Primax shall be
entitled to reject all or part of any orders received from Primax Taiwan after
notice but prior to the effective date of termination.
(c) In the event of termination by Primax Taiwan, Primax Taiwan, in it
sole and absolute discretion, may (i) cancel all or part of any purchase orders
submitted to Storm Primax without penalty (despite any acceptance thereof),
provided that Primax Taiwan compensates Storm Primax for any materials, finished
goods or work in process for such canceled orders at the purchase price for such
materials plus reasonable labor costs; (ii) purchase all or part of any Products
manufactured by Storm Primax as of the notice of termination; or (iii) require
Storm Primax's completion of any outstanding purchase orders for Products
notwithstanding the fact that delivery dates for such orders may extend beyond
the effective date of termination.
(d) The payment date of all monies due either party shall
automatically be accelerated so that they shall become due and payable on the
effective date of termination, even if longer terms had been provided
previously.
18
<PAGE>
(e) If Storm Primax chooses not to exercise its rights to repurchase
inventory, Primax Taiwan and its OEM Customers and Retail Customers shall have
180 days from the effective date of termination to distribute their inventory.
(f) Neither party shall be entitled to any compensation, damages or
payments in respect to goodwill that has been established or for any damages on
account of prospective profits or anticipated sales, and neither party shall be
entitled to reimbursement in any amount for any training, advertising, market
development, investments or other costs that shall have been expended by either
party before the termination of this Agreement, regardless of the reason for, or
method of, termination of, this Agreement.
14.4 Survival. The following sections of this Agreement will
--------
survive any termination of this Agreement: 3.6, 6 ("Payment Terms"),
9 ("Proprietary Rights"), 10 ("Confidentiality"), 11 ("Acceptance and
Warranty"), 12 ("Indemnification"), 13 ("Consequential Damages Waiver"),
14 ("Term and Termination") and 15 ("General Provisions").
15. General Provisions.
------------------
15.1 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.
15.2 Assignability. Except in the case of an assignment in
-------------
connection with a merger, reorganization, consolidation, change of domicile or
sale of all or substantially all the assets of a party, neither Storm Primax nor
Primax Taiwan may assign its rights and obligations, in whole or in part, under
this Agreement without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
15.3 Successors. This Agreement shall be binding upon and shall
----------
insure to the benefit of each party.
15.4 Amendments. This Agreement may be amended or supplemented
----------
only by a writing that is signed by duly authorized representatives of both
parties.
15.5 Notices. All notices permitted or required under this
-------
Agreement shall be in writing and shall be delivered as follows with notice
deemed given as indicated: (i) by personal delivery when delivered personally,
(ii) by overnight courier upon written verification of receipt, (iii) by
telecopy or facsimile transmission when confirmed by telecopier or facsimile
transmission, or (iv) by certified or registered mail, return receipt requested,
five (5) days after deposit in the mail. All notices must be sent to the
addresses below or to such other address that the receiving party may have
provided for the purpose of notice in accordance with this Section 16.5.
If to Primax Taiwan: Primax Electronics Ltd.
6F, No. 159 Kang Ning St.
Hsi Chih Town, Taipei Hsien
Taiwan, Republic of China
Attention: Raymond Liang
19
<PAGE>
With a copy to: Law Office of Robert D. Cochran
5201 Great America Parkway, Suite 320
Santa Clara, CA 95054
Attention: Robert D. Cochran
If to Storm Primax: Storm Primax, Inc.
1861 Landings Drive
Mountain View, CA 94043
Attention: L. William Krause
With a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: James M. Koshland
15.6 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.
15.7 Arbitration. Any dispute arising out of this Agreement shall
-----------
be resolved by binding arbitration. The venue of the arbitration shall be in San
Jose, California if brought by Primax Taiwan, and if brought by Storm Primax,
the venue shall be in Taipei, Taiwan. The rules governing arbitration shall be
the Judicial Arbitration and Mediation Services/Endispute Rules if the
arbitration is in San Jose, and if in Taiwan, the rules governing arbitration
shall be those as are customary for international arbitrations in Taiwan (such
rules collectively and individually referred to as the "Rules"). A single
arbitrator shall be selected according to the Rules within thirty (30) days of
submission of the dispute to arbitration. The arbitration shall be conducted in
English. Except as expressly provided above, no discovery of any kind shall be
taken by either party without the written consent of the other party, provided,
however, that either party may seek the arbitrator's permission to take any
deposition which is necessary to preserve the testimony of a witness who either
is, or may become, outside the subpoena power of the arbitrator or otherwise
unavailable to testify at the arbitration. The arbitrator shall not have the
power to award punitive damages, treble damages, or any other damages which are
not compensatory, even if permitted under the laws of the State of California or
any other applicable law. The arbitrator shall award the prevailing party its
costs and its reasonable attorney's fees, and the losing party shall bear the
entire cost of the arbitration, including the arbitrator's fee. The arbitration
award may be enforced in any court having jurisdiction over the parties and the
subject matter of the arbitration.
15.8 Waiver. No term or provision hereof will be considered waived
------
by either party, and no breach excused by either party, unless such waiver or
consent is in a writing signed on behalf of the party against whom the waiver is
asserted. No consent by either party to, or waiver of, a breach by either party,
whether express or implied, will constitute a consent to, waiver of, or excuse
of any other different or subsequent breach by such party.
20
<PAGE>
15.9 Severability. In the event that any provision of this Agreement
------------
shall be unenforceable or invalid under any applicable law or be so held by
applicable court decision, such unenforceability or invalidity shall not render
this Agreement unenforceable or invalid as a whole.
15.10 Force Majeure. Neither party shall be liable hereunder
-------------
by reason of any failure or delay in the performance of its obligations
hereunder (except for the payment of money) on account of strikes, shortages,
riots, insurrection, fires, flood, storm, explosions, acts of God, war,
governmental action, labor conditions, earthquakes, material shortages or any
other cause which is beyond the reasonable control of such party.
15.11 Entire Agreement. This Agreement, including all Exhibits
----------------
to this Agreement, constitute 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.
15.12 Order of Precedence. In the event of any inconsistency or
-------------------
ambiguity between or among the terms and conditions of this Agreement and the
Reorganization Agreement, the inconsistency or ambiguity shall be resolved in
the following order of precedent: (i) this Agreement; and (ii) the
Reorganization Agreement.
15.13 Effectiveness of Agreement. Although this Agreement has
--------------------------
been executed by the parties on the date first above written, this Agreement
shall become effective only on the occurrence of the closing under the
Reorganization Agreement. If the Reorganization Agreement is terminated pursuant
to Section 11 thereof, this Agreement shall become void and of no further force
or effect.
15.14 Attorneys Fees. The prevailing party in any dispute arising
--------------
out of or related to this Agreement shall be entitled to recover its reasonable
attorneys' fees and costs.
15.15 No Agency. Nothing contained herein shall be construed as
---------
creating any agency, partnership or other form of joint enterprise between the
parties.
15.16 Headings. The section headings appearing in this Agreement
--------
are inserted only as a matter of convenience and in no way define, limit,
construe or describe the scope or extent of such section or in any way affect
such section.
15.17 Injunctive Relief. It is expressly agreed that a breach of
-----------------
Section 10 ("Confidentiality") of this Agreement will cause irreparable harm to
the non-breaching party and that a remedy at law would be inadequate. Therefore,
in addition to any and all remedies available at law, each party will be
entitled to an injunction or other equitable remedies in all legal proceedings
in the event of any threatened or actual violation of any or all of the
provisions hereof.
15.18 Export Controls. Primax Taiwan acknowledges that the laws
---------------
and regulations of the United States restrict the export and re-export of
commodities and technical data of United States origin, including the Products.
Primax Taiwan agrees that it will not
21
<PAGE>
export or re-export any of the Products, or any portion of the Products in any
form without the appropriate United States and foreign government licenses.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
Storm Primax: Primax Taiwan:
Storm Primax, Inc. Primax Electronics Ltd.
By:___________________________________ By:___________________________________
Title:________________________________ Title:________________________________
22
<PAGE>
Exhibit 1.9
-----------
House Accounts
--------------
Hewlett-Packard
23
<PAGE>
Exhibit 1.18
------------
Product
<TABLE>
<CAPTION>
A6 Products Trademark Minimum Order Quantities
- ------------------------- --------- ------------------------
<S> <C> <C>
EasyPhoto Reader (PC) EasyPhoto 1,000 units
EasyPhoto Reader (Mac) EasyPhoto 1,000 units
<CAPTION>
Software Products Trademark
- ----------------- ---------
<S> <C>
EasyPhoto (PC) EasyPhoto
EasyPhoto (Mac) EasyPhoto
</TABLE>
24
<PAGE>
Exhibit 1.25
------------
Territory
---------
Exclusive Territory
- -------------------
Japan*, Taiwan, Korea, Hong Kong, China, India and ASEAN countries (Singapore,
Phillipines, Thailand, Malaysia, Vietnam, Indonesia)
Non-Exclusive Territory
- -----------------------
Australia
New Zealand
* Only OEM Customers
25
<PAGE>
EXHIBIT 10.16
INTERNATIONAL DISTRIBUTION AGREEMENT
------------------------------------
This Distribution Agreement (the "Agreement") is entered into this 29th day
of February, 1996 by and between Storm Primax, Inc., a California corporation
having a place of business at 1861 Landings Drive, Mountain View, California
94043 ("Storm Primax") and Primax Electronics Europe B.V., a Netherlands
corporation having a place of business at Godfried Van Seijstlaan 41, P.O. Box
588, 3700 AN Zeist, The Netherlands ("Primax Europe").
RECITALS
A. Pursuant to the terms of an Agreement and Plan of Reorganization dated
as of February 24, 1996 (the "Reorganization Agreement"), a wholly-owned
subsidiary of Storm Software, Inc. will be merged into Primax Electronics (USA),
Inc. ("Primax USA") and Primax USA, the surviving entity will become a wholly-
owned subsidiary of Storm Primax, the successor corporation to Storm Software,
Inc.
B. As a condition of the Reorganization Agreement, Storm Primax and Primax
Electronics, Ltd. ("Primax Taiwan") entered into an Asset Transfer Agreement of
even date herewith (the "Asset Transfer Agreement") whereby Storm Primax
acquired from Primax Taiwan certain rights to its then existing A6 image
scanning products.
C. Primax Europe wishes to be appointed as Storm Primax's exclusive
distributor in a certain territory and non-exclusive distributor in a certain
other territory so as to make A6 products owned by Storm Primax pursuant to the
Asset Transfer Agreement and certain Storm Primax software products available to
Primax Europe's customers in such territories on certain terms and conditions
set forth in this Agreement.
D. This Agreement is an Ancillary Agreement, as defined in the
Reorganization Agreement.
NOW, THEREFORE, in consideration of the mutual representations and
covenants of this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Storm Primax and
Primax Europe agree as follows:
1. Definitions. The following definitions shall apply to this Agreement:
-----------
1.1 "A6 Products" means all image scanning products and technology
which accept photos up to a maximum of five (5) inches in width, excluding hand
scanners which are not made to be attached to a feeder base.
1.2 "Asset Transfer Agreement" means the Asset Transfer Agreement
by and between Storm Primax and Primax Taiwan dated as of February 24, 1996,
which agreement is incorporated herein by reference.
1
<PAGE>
1.3 "Bug Event" occurs when (i) an article is published that
criticizes a Localized Software Product or Localized Documentation for
containing material defects (other than in duplication materials and
workmanship); (ii) a Localized Software Product release is requested to correct
such material defects, or (iii) sales of the Localized Software Product decline
due to the existence of such material defects.
1.4 "Closing Date" means the date of the closing under the
Reorganization Agreement.
1.5 "Confidential Information" means the technical information,
know-how, technology, formulae, system designs, prototypes, ideas, inventions,
improvements, layouts, software, concepts, techniques, discoveries, data, files,
supplier and customer identities and lists, accounting records, forecasts,
project management plans, marketing plans and business plans relating to this
Agreement to which a party has proprietary rights, and all copies and tangible
embodiments thereof (in whatever form or medium) conspicuously indicated as
proprietary information, confidential information or a substantially similar
legend that are not generally known by the public; provided, however, that any
of the foregoing shall not be considered Confidential Information if the party
receiving it can show that it: (i) has become publicly known through no wrongful
act or breach of any obligation of confidentiality on the receiving party's or
any third party's part; (ii) was rightfully received by the receiving party from
a third party not in violation of any contractual, legal or fiduciary obligation
by such third party; (iii) was approved for release by written authorization by
the party having rights therein; or (iv) was developed by the receiving party
independently of the party having rights therein without breach of any
confidentiality or other obligations; or (v) was disclosed by court order or
other legal authority, provided that the party having rights therein is given an
opportunity to oppose such disclosure and if disclosed, such information is only
used for the specified legal purposes.
1.6 "Documentation" means the user manuals, guides or other written
instructions generally made available with the Products to End Users.
1.7 "End User" means a purchaser or licensee of computer products
who acquires such products for use rather than distribution or resale.
1.8 "Enhancements" means any updates or bug fixes to a computer
product.
1.9 "House Account" means an account: (a) which is the sole
responsibility of Storm Primax's direct sales force; (b) from which Primax
Europe may not solicit or take orders for the sale of Products; and (c) for
which no payments are due to Primax Europe from Storm Primax. The House Accounts
are currently identified in Exhibit 1.9.
-----------
1.10 "Improvements" mean any and all improvements, Enhancements,
modifications and new versions of A6 Products which are created, invented,
discovered or made after the Closing Date.
1.11 "Localized Documentation" means a localized or translated
version of the Documentation created by Primax Europe pursuant to Section 2.1
below, and all Improvements thereto.
2
<PAGE>
1.12 "Localized Software Product" means a localized or translated
version of the Software Products created by Primax Europe pursuant to Section
2.1 below, and all Improvements thereto.
1.13 "Net Invoice Amount" means the net amount invoiced by Storm
Primax for shipments of OEM Products after deducting all customer discounts,
freight, transportation or other allowances, sales or other taxes, COD or other
delivery charges, insurance, credits, mailing costs and the like.
1.14 "Non-A6 Products" means hand held scanners, non-A6 sheetfed
scanners, non-A6 flatbed scanners and datapen scanners. Digital cameras or any
other image capture products are not included.
1.15 "OEM Customer" means a business entity (other than a House
Account) which engages in distribution or resale of computer products bundled
with other products and repackaged for distribution or resale as a stand-alone
product directly or indirectly through its distribution channels to End Users.
1.16 "OEM Product" means a version of a Storm Primax A6 Product
and/or Software Product for use and distribution by OEM Customers, and includes
all Improvements thereto.
1.17 "Primax Europe" means Primax Electronics Europe B.V., a
Netherlands corporation.
1.18 "Primax Taiwan" means Primax Electronics, Ltd., an ROC
corporation.
1.19 "Products" mean the Retail Products and/or OEM Products, as
applicable, as currently identified on Exhibit 1.19.
------------
1.20 "Reorganization Agreement" means the Agreement and Plan of
Reorganization Agreement dated as of February 24, 1996 by and among Storm
Software, Inc., a California corporation, Storm Acquisition Corporation, a
wholly-owned subsidiary of Storm Software, Inc., Primax Electronics (USA), Inc.,
a California corporation, and Primax Taiwan, which agreement is incorporated
herein by reference.
1.21 "Retail Customer" means an End User or business entity which
engages in distribution or resale of computer products as stand-alone products
to End Users either directly or indirectly.
1.22 "Retail Product" means a version of a Storm Primax A6 Product
and/or Software Product to be distributed to Retail Customers through all
channels of distribution on a stand-alone basis, and includes all Improvements
thereto.
1.23 "Sales Representative Agreement" means the Sales Representative
Agreement by and between Storm Primax and Primax Taiwan dated of even date
herewith, which agreement is incorporated herein by reference.
3
<PAGE>
1.24 "Software Products" means current and future photo-centric
software products which comprise primarily software in object code form
developed and/or distributed by Storm Primax.
1.25 "Storm Primax" means Storm Primax, Inc., a California
corporation, the successor corporation to Storm Software, Inc.
1.26 "Territory" means that territory identified on Exhibit 1.26.
------------
"Exclusive Territory" and "Non-Exclusive Territory" shall be as
specified on Exhibit 1.26.
------------
1.27 "Trademarks" means the logos, trade names, trademarks and
service marks as described in Exhibit 1.19, and any other marks as may be
------------
mutually agreed to by the parties from time to time.
2. Licenses.
--------
2.1 Grant of License.
----------------
(a) Subject to the terms and conditions of this Agreement,
effective as of the Closing Date, Storm Primax hereby appoints Primax Europe as
Storm Primax's exclusive distributor in the Exclusive Territory and non-
exclusive distributor in the Non-Exclusive Territory for the Products, and for
the purposes of these appointments, Storm Primax hereby grants Primax Europe the
following licenses, effective as of the Closing Date:
(A) a non-exclusive, non-transferable license to
translate, adapt and reproduce the Software Products for the sole purpose of
creating Localized Software Products for distribution in the Territories;
(B) a non-exclusive, non-transferable license to
translate, adapt and reproduce the Documentation for the sole purpose of
creating Localized Documentation for distribution in the Territories;
(C) 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 OEM Customers and Retail Customers in the Exclusive Territory;
(D) 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 and Retail Customers in the Non-
Exclusive Territory.
(b) Primax Europe may not alter, reconfigure or change the
basic architecture software which controls the operations and functionality of
the A6 Products without the prior written consent of Storm Primax.
4
<PAGE>
2.2 Termination of Exclusivity. The above exclusive license grant
--------------------------
in Section 2.1(a)(C) is subject to Primax Europe meeting the minimum annual
distribution quotas for the aggregate of all Products sold to OEM Customers and
Retail Customers in the Exclusive Territory as mutually established by the
parties for the Products within the first month of each calendar year during the
term of this Agreement. The quotas will be based on United States dollars. If
Primax Europe does not meet the quotas based on shipments from Storm Primax such
that actual Product distributions meet 65% or more of quota but fail to meet at
least 85% of quota for the Products, Primax Europe agrees to cooperate and meet
with Storm Primax to examine and evaluate the parties' relationship under this
Agreement, discuss the causes of the quota shortfall and develop a mutually
agreed upon written plan of action to increase Product distributions in the
following year. On the other hand, if Primax Europe does not meet the quotas
based on shipments from Storm Primax such that actual Product distributions are
less than 65% of quota for Products, Storm Primax may, in its discretion,
convert the exclusive license into a non-exclusive license upon six (6) months
prior written notice to Primax Europe. After the effective conversion of the
license, the license for the Products will remain non-exclusive for at least an
additional six (6) month period, and effective any time thereafter Storm Primax
may terminate the non-exclusive license with respect to the Products upon ninety
(90) days prior written notice to Primax Europe. If the licenses for the
Products have been converted to a non-exclusive license, and the time periods
above have expired with respect to the Products, Storm Primax may terminate this
Agreement and each party will have the rights set forth in Section 14. However,
in no event will such termination be deemed a termination for cause by Storm
Primax.
2.3 Exceptions to Exclusivity.
-------------------------
(a) Notwithstanding Storm Primax's grant to Primax Europe of
certain exclusive distribution rights under this Agreement, Storm Primax may
distribute A6 Products to OEM Customers and Retail Customers in the Exclusive
Territory if the OEM Customer or Retail Customer is not domiciled in the
Exclusive Territory provided that: (i) the OEM Customer or Retail Customer
agrees to purchase an A6 Product with a substantially different design than that
offered by Primax Europe; (ii) Primax Europe maintains the lowest customer price
relative to all such similar OEM Customers or Retail Customers with a
substantially similar Product sales volume; and (iii) Storm Primax notifies
Primax Europe of such prospective relationship not less than 120 days prior to
launch of the A6 Product in the Exclusive Territory.
(b) Storm Primax will have the right to designate new or
additional customer accounts as House Accounts so that they are excluded from
the definition of OEM Customer provided that: (i) any such potential OEM
Customers desire a direct relationship with Storm Primax without Primax Europe
acting as an intermediary; (ii) Primax Europe does not provide any of the
services to the accounts as contemplated in this Agreement for such OEM
Customer; (iii) Storm Primax does not provide better pricing terms to the OEM
Customer by servicing the account directly relative to the pricing Storm Primax
would offer for Primax Europe to service the account; and (iv) prior to such
designation, Storm Primax obtains Primax Europe's prior written consent.
2.4 Competitive Products.
--------------------
5
<PAGE>
(a) Primax Europe agrees that during the term of this
Agreement, Primax Europe will not distribute any A6 Products which are similar
to or competitive with any Storm Primax A6 Products. Notwithstanding the
foregoing, Primax Europe may distribute other products similar to or competitive
with the Storm Primax A6 Products subject to the provisions of this section. If
Primax Europe reasonably determines that an A6 Product is not competitive in the
Territories due to distinguishing functionality, quality or cost, Primax Europe
will give written notice of such determination to Storm Primax and within thirty
(30) days after such notice, Storm Primax and Primax Europe will meet to develop
a mutually agreed upon plan so that Storm Primax can develop a competitive Storm
Primax A6 Product. If Storm Primax does not notify Primax Europe within ninety
(90) days of such meeting that it is able to deliver a competitive Storm Primax
A6 Product, Primax Europe may distribute a competitive third party product upon
two (2) weeks written notice to Storm Primax after the expiration of the ninety
(90) day period. Primax Europe may distribute any products which Storm Primax
does not yet manufacture or distribute, but if Storm Primax makes available to
Primax Europe a substantially similar Product to such product, Primax Europe
agrees to distribute such Product pursuant to the terms of this Agreement.
(b) If Storm Primax develops an A6 Product which directly
competes with a third-party product already being distributed by Primax Europe
(as reasonably determined by Primax Europe based on comparable features, quality
and cost), Primax Europe agrees that it will use reasonable efforts to cease
distribution of such third-party product in order to distribute Storm Primax's
A6 Product as soon as practical but in any event within 180 days after receiving
written notice from Storm Primax of the commercial availability of such A6
Product.
(c) Primax Europe agrees that commencing with Storm Primax's
release of an Improvement to a Product and during the remaining term of this
Agreement, Primax Europe will not distribute with any A6 Product or Non-A6
Product any third party software application which is similar to or competitive
with the Software Products, except with Storm Primax's prior written consent,
which consent shall be given on a case by case basis.
(d) In the event that Storm Primax converts the exclusive
distribution license to a non-exclusive license pursuant to Section 2.2, the
restrictions on Primax Europe's ability to distribute third party products
similar to or competitive with such Products will be of no further force or
effect.
2.5 Sublicensing. Primax Europe's right to sublicense for purposes
------------
of distribution is subject to the provisions of this Section 2.5. Primax Europe
shall require each OEM Customer and Retail Customer receiving the Products to
protect Storm Primax's proprietary rights in the Products as are customary and
ordinary in the usual conduct of its business with respect to other similar
intellectual property which is proprietary to Primax Europe (but in no event
with less than reasonable care).
3. Localizations and Translations.
------------------------------
3.1 Upon Primax Europe's receipt of Storm Primax's written approval
of a Localized Software Product and corresponding Localized Documentation
pursuant to the
6
<PAGE>
provisions below, Primax Europe may distribute the resulting Localized Software
Product and Localized Documentation pursuant to Section 2.1(a)(C) above.
3.2 Localized Software Products and Localized Documentation
prepared by Primax Europe will include translated and localized versions of all
copyright and other proprietary rights notices included in the Software
Products.
3.3 Upon Primax Europe's completion of the Localized Software
Product or Localized Documentation, Primax Europe agrees to provide Storm Primax
with any master disks or master copies of packaging or documentation needed for
Storm Primax's production of the Localized Software Product and Localized
Documentation.
3.4 Storm Primax reserves the right to review and approve the
completed Localized Software Product and Localized Documentation, including the
packaging. In the event Storm Primax elects to exercise such right, Storm Primax
shall notify Primax Europe of such election, and shall submit a written approval
or rejection to Primax Europe within thirty (30) days after Storm Primax
reviews the Localized Software Product or Localized Documentation, as
appropriate. Approval shall be based on conformance to the documentation and
functionality at least equivalent to the U.S. version of the Software Products.
Approval by Storm Primax shall not be arbitrarily or unreasonably withheld. If
Storm Primax rejects the Localized Software Product or Localized Documentation,
Storm Primax will provide Primax Europe with written notice of the reason for
the rejection, and permit Primax Europe an opportunity to redeliver the
Localized Software Product or Localized Documentation. Storm Primax's waiver of
the foregoing right to review and approve shall not prevent Storm Primax from
subsequently exercising the foregoing right.
3.5 Primax Europe agrees that if a Bug Event occurs within the
lesser of six (6) months after (i) the first commercial shipment of the
Localized Software Product and Localized Documentation or (ii) final approval by
Storm Primax pursuant to Section 3.4 above of the Localized Software Product or
Localized Documentation, and the Bug Event was caused by Primax Europe, Primax
Europe will provide to Storm Primax an Enhancement to correct the Bug Event.
Such Enhancement shall be supplied to Storm Primax as soon as possible following
the Bug Event.
3.6 The Localized Software Products and Localized Documentation,
including any work in progress, shall be the sole and exclusive property of the
party paying for such localization or translation (subject to Storm Primax's
rights in the preexisting code and portions contained within any localizations
or translations owned by Primax Europe). Upon conversion of the exclusive
license to a nonexclusive license pursuant to Section 2.2, Primax Europe will
grant a license to Storm Primax for all translations or localizations, if any,
which Primax Europe owns pursuant to this section, the terms of such license,
including payment terms, to be subject to the good faith negotiations and mutual
agreement of Primax Europe and Storm Primax. Notwithstanding the foregoing,
Primax Europe agrees that upon termination of Primax Europe's distribution
licenses in Section 2.1, Primax Europe will have no further rights to distribute
the Localized Software Products or Localized Documentation in any form or in any
territory in the world whatsoever.
7
<PAGE>
4. New Products and Changes in Products.
------------------------------------
4.1 The parties agree that future Products will be added to this
Agreement as they become available upon written notice from Storm Primax to
Primax Europe.
4.2 Storm Primax has the right to discontinue the distribution or
availability of, or modify, update or upgrade, any Product upon 120 days prior
written notice to Primax Europe, except that Storm Primax may modify the
Products without notice if such modifications do not have a substantial adverse
effect on the functionality, performance or appearance of the Products. In any
such event, Primax Europe will have the right to liquidate its then existing
inventory of the affected Products.
4.3 Storm Primax and Primax Europe will meet no less than once
every six (6) months at a mutually agreed upon time and location to examine and
reevaluate the product market and if necessary, develop Product plans to be
implemented in the following twelve to eighteen month period.
5. Order and Shipment Terms.
------------------------
5.1 Order Procedure.
---------------
(a) The terms and conditions of this Agreement shall apply
to all orders for the Products and supersede any different or additional terms
on purchase orders submitted to Storm Primax. Purchase orders submitted to Storm
Primax are solely for the purpose of requesting delivery dates, quantities and
specifying destination. All orders will be subject to the minimum order
quantities specified in Exhibit 1.19 and as mutually agreed to for future
------------
Products. All orders placed with Storm Primax shall be subject to acceptance by
Storm Primax at its principal place of business. Unless Storm Primax rejects a
purchase order by written notice to Primax Europe within five (5) working days
after receipt, such purchase order will be deemed accepted. Storm Primax shall
use reasonable efforts to ship Products by the delivery dates stated on accepted
purchase orders, but Storm Primax shall not be liable under any circumstances
for any damages to Primax Europe or to any other third party for Storm Primax's
failure to fill, or errors in filling, any orders or delay in delivery. If
orders for the Products exceed Storm Primax's inventory, Storm Primax shall
allocate available inventory on a basis Storm Primax deems equitable in its sole
and absolute discretion.
(b) For all Retail Products, Primax Europe will submit
purchase orders directly to Storm Primax.
(c) For all OEM Products, Primax Europe will receive
purchase orders from OEM Customers issued to Storm Primax (or its designated
supplier) and forward copies of such purchase orders to Storm Primax for
acceptance pursuant to Section 5.1(a) above. All OEM agreements for the OEM
Products will be between Storm Primax and the OEM Customer, with sales service
to be provided by Primax Europe equivalent to those required of Storm Primax in
Sections 4 and 5 of the Sales Representative Agreement.
8
<PAGE>
5.2 Delivery. Except as otherwise set forth in a purchase order or
--------
as otherwise mutually agreed upon between Storm Primax and Primax Europe, Storm
Primax (or its designated supplier) will ship all ordered Products within sixty
(60) days after Storm Primax's acceptance of the applicable purchase order.
5.3 Forecasts. By the fifteenth day of each month, Primax Europe
---------
will provide Storm Primax with written non-binding rolling 120 day forecasts of
its Product requirements. Such forecasts shall be itemized on a Product by
Product basis between Retail Products and OEM Products.
5.4 Rescheduling and Cancellations.
------------------------------
(a) With Storm Primax's prior written consent, Primax Europe
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) Primax Europe does not reschedule the shipment date
of the particular purchase order more than two (2) times; (iii) Storm Primax
must receive all rescheduling requests for a particular purchase order within
forty-five (45) days after Storm Primax's original acceptance of such purchase
order; (iv) none of the unit shipments are for less than the minimum order
quantities specified in Exhibit 1.19; and (v) only a maximum of fifty percent
------------
(50%) of each purchase order is to be rescheduled.
(b) Primax Europe may not cancel any purchase order accepted
by Storm Primax without the prior written consent of Storm Primax.
5.5 Shipments, Risk of Loss, Title.
------------------------------
(a) Storm Primax will ship (or have its designated supplier
ship) Retail Products F.O.B. shipping port.
(b) Storm Primax will ship directly to OEM Customers (or
have its designated supplier ship) OEM Products F.O.B. shipping port.
6. Payment Terms.
-------------
6.1 Prices.
------
(a) For Retail Products, within a reasonable period after
the Closing Date, the parties will determine the initial prices and such prices
shall be effective until reviewed and adjusted according to this Section 6.1.
The parties will meet to review prices for the Products on mutually agreed to
dates on or within thirty (30) days before January 1, April 1 and September 1 of
each year. Any agreed upon adjustments will be effective for all orders accepted
on or after such related date (January 1, April 1 and September 1) and continue
in effect until further adjusted according to this provision. Pursuant to
Section 2.4(a) above, prices must be competitive with third party prices in
order to prevent Primax Europe from distributing competitive products.
9
<PAGE>
(b) Notwithstanding the price reviews, the parties will also
meet to review prices in each of the following situations: (i) release of a new
Product; (ii) material changes in the manufacturing environment involving cost
increases or decreases; or (iii) material changes in the market environment in
order for such current product to remain competitive in the market. For the
purposes of subsection (ii) above, such pricing review must be completed within
a 30 day period.
(c) Primax Europe will receive the following payments for
distributions of Products to OEM Customers:
(A) Except as specified below, the price to Primax
Europe for OEM Products will be ninety-five percent (95%) of Storm Primax's Net
Invoice Amount. That is, Storm Primax (or its designated supplier) will retain
ninety-five percent (95%) of the Net Invoice Amount and pay over to Primax
Europe five percent (5%) of Net Invoice Amount.
(B) Primax Europe shall not be entitled to receive
any compensation for sales made to designated House Accounts. If Storm Primax
designates any House Accounts after the Closing Date, as expressly authorized in
Section 2.3(b) above, Primax Europe shall be entitled to receive payments
pursuant to Section 6.1(c)(A) above only for those orders which have been
received from OEM Customers and accepted by Storm Primax prior to the
designation of such OEM Customer as a House Account in accordance with Section
2.3(b).
(C) Notwithstanding any other provisions of this
Agreement, Primax Europe shall not be entitled to receive payments on sales
consummated with OEM Customers located within the Territory for shipment by
Storm Primax to a destination outside the Territory, except that Primax Europe
will receive payment on sales to OEM Customers inside the Territory on Storm
Primax's shipments of Products outside the Territory at one-half the rate
provided for in Section 6.1(c)(A) in the following circumstances: (i) for all
distributions of Products in the first six (6) months after either (x) a
customer becomes a new OEM Customer or (y) an existing OEM Customer purchases a
Product not previously purchased by such customer; and (ii) for so long as
orders from an OEM Customer are received by Primax Europe in the Territory for
shipments of Products outside the Territory.
6.2 Taxes and Duties.
----------------
(a) Except as set forth in Section 6.2(b) below, in addition
to any payments due under this Agreement, Primax Europe shall pay any taxes,
duties or other amounts, however, designated, which are levied or based upon
such payments, or upon this Agreement, provided, however, that Primax Europe
shall not be liable for taxes based on Storm Primax's net income.
(b) In addition to any other payments due under this
Agreement, Storm Primax agrees to pay any taxes imposed by any governmental
authority in the United States with respect to any payment to be made under this
Agreement, payment to be made by Storm Primax under this Agreement or any item
to be delivered by Storm Primax to Primax Europe or Primax Europe's OEM
Customers or Retail Customers under this Agreement.
10
<PAGE>
6.3 Payment.
-------
(a) Primax Europe will be responsible for invoicing Retail
Customers for all deliveries of Retail Products made by Storm Primax directly to
Retail Customers and Primax Europe will pay for such Retail Products by wire
transfer in U.S. dollars within ninety (90) days after Storm Primax's invoice to
Primax Europe. Primax Europe will pay for Retail Products it receives from Storm
Primax within ninety (90) days of Storm Primax's invoice for such Retail
Products.
(b) Storm Primax (or its designated supplier) will invoice
all OEM Customers for OEM Products delivered by Storm Primax (or its designated
supplier) and Storm Primax (or its designated supplier) will be responsible for
ensuring that amounts due to Storm Primax (or its designated supplier) are paid
by from OEM Customers receiving OEM Products pursuant to the terms of the
written agreements between Storm Primax and such OEM Customers. Storm Primax (or
its designated supplier) will bear the risk of delinquent accounts and have the
responsibility for extending credit to its OEM Customers. Primax Europe will
have no authority to collect funds or accept payment of any sort for orders
accepted by Storm Primax unless so requested by Storm Primax. Primax Europe
shall within three (3) working days remit to Storm Primax any payments which it
inadvertently receives from OEM Customers.
(c) Storm Primax (or its designated supplier) will pay
Primax Europe for OEM Products as required by Section 6.1(c) above by wire
transfer in U.S. dollars within five (5) days after Storm Primax (or its
designated supplier) receives payment from OEM Customers.
6.4 Most Favored Nations. During the period that the license in
--------------------
Section 2.1(a)(C) remains exclusive, Storm Primax agrees that the prices,
payment terms and other economic terms and conditions of this Agreement will not
be less favorable than prices, payment terms or other economic terms and
conditions offered to Storm Primax's other customers in other territories for
Products which are substantially similar to those licensed to Primax Europe
hereunder.
7. Marketing.
---------
7.1 Branding/Packaging. Primax Europe may, in its discretion,
------------------
privately label or distribute the Products under its own product name and
packaging subject to the provisions of this Section 7. Notwithstanding the
foregoing, Primax Europe agrees that all Product packaging will include a notice
in substantially the following form: "Developed and manufactured by Storm
Primax, Inc."
7.2 Efforts by Primax Europe. Primax Europe agrees to include in
------------------------
all advertising of the Products all applicable copyright and trademark notices
of Storm Primax as they appear on or in the Products. Storm Primax may provide,
at its option, a reasonable amount of advertising material, in English, as
requested by Primax Europe, for use in Primax Europe's efforts to market the
Products.
11
<PAGE>
7.3 Trademark License.
-----------------
(a) Storm Primax hereby grants to Primax Europe a
nonexclusive, limited license (including the right to sublicense through
multiple tiers of sublicenses) to use Trademarks solely in Primax Europe's
distribution, advertising and promotion of the Products and subject to the
restrictions in Exhibit 1.19 and requirements of this Section 7.3. Primax
------------
Europe's use shall be in accordance with applicable law and Storm Primax's
policies regarding advertising and trademark usage as established from time to
time. Primax Europe further agrees not to affix any Trademark to products other
than the genuine Products.
(b) Primax Europe agrees that the nature and quality of any
products or services it supplies in connection with the Trademarks shall conform
to the standards set by Storm Primax. Primax Europe agrees to cooperate with
Storm Primax in facilitating Storm Primax's monitoring and control of the nature
and quality of such products and services, and to supply Storm Primax with
specimens of use of the Trademarks upon request.
(c) At Storm Primax's request, Primax Europe shall promptly
perform any act reasonably necessary to secure or maintain any Trademark rights
in any country in which Primax Europe is marketing the Products. This assistance
shall include complying with the formalities of local law, including but not
limited to, the execution of any application for registration as a registered
user, the execution of additional license agreements suitable for recording with
the appropriate authorities or providing proof of use of the Trademarks in any
other applicable documents. Storm Primax shall pay the expense of complying with
such formalities.
(d) Primax Europe agrees that whenever the Trademarks are
used on Product packaging, in advertising or in any other manner, they shall
clearly indicate Storm Primax as the trademark owner. Primax Europe shall not do
or cause to be done any act or anything contesting or in any way impairing or
reducing Storm Primax's right, title and interest in the Trademarks. Primax
Europe understands and agrees that use of the Trademarks in connection with the
Products shall not create any right, title or interest in or to the use of the
Trademarks and that all such uses and goodwill associated with the Trademarks
will inure to the benefit of Storm Primax. Primax Europe shall take all
necessary steps to ensure its employees comply with all the terms and conditions
herein.
8. Support.
-------
8.1 First-Line Support. Primax Europe shall provide a level of
------------------
product support for its End Users equivalent to that provided by Storm Primax to
its customers during the term of this Agreement. Such support will include, at a
minimum, a "hot-line" service during normal business hours for answering End
User questions by telephone, and employing persons trained and able to answer
such questions. Such "hot-line" service shall be provided to all End Users in
the Territory, whether or not such Products were originally distributed by
Primax Europe. In-warranty "hot-line" services shall be provided by Primax
Europe without charge (other than telephone charges) to the caller. Primax
Europe, at its option, may offer extended warranty service at commercially
reasonable prices.
12
<PAGE>
8.2 Second-Line Support. Storm Primax will provide second-line
-------------------
support to Primax Europe by designating a contact person at Storm Primax to
answer questions by a designated Primax Europe contact person. There will be no
charge for such second-line support through the Warranty Period (as defined in
Section 11.3 below) or the term of this Agreement, whichever ends later.
9. Proprietary Rights. Primax Europe acknowledges that the structure and
------------------
organization of the Products (and all Localized Software Products) are
proprietary to Storm Primax. Storm Primax retains exclusive ownership of the
Products (and all Localized Software Products and Localized Documentation),
except as otherwise provided for in the Asset Transfer Agreement regarding
product technology ownership and licensing. Primax Europe will take all
reasonable measures to protect Storm Primax's proprietary rights in the
Products, Localized Software Products and Localized Documentation. Except as
provided herein or in the Asset Transfer Agreement, Primax Europe is not granted
any rights to patents, copyrights, trade secrets, trade names, trademarks
(whether registered or unregistered), or any other rights, franchises or
licenses with respect to the Products, Localized Software Products and Localized
Documentation. All rights not expressly granted to Primax Europe under this
Agreement are reserved to Storm Primax.
10. Confidentiality.
---------------
10.1 Confidentiality of Agreement. Each of the parties covenants to
----------------------------
the other party that it will not in any manner disclose or divulge the contents
of the Agreement or any of the material terms and conditions hereof to any third
party, except as the other parties may expressly consent in advance in writing
or as may be required in obtaining any necessary governmental or regulatory
approval for the transactions contemplated hereby or as may otherwise be
required by any applicable law.
10.2 Treatment of Confidential Information. For a period of five
-------------------------------------
(5) years after receipt of any Confidential Information, each party shall keep
and maintain the other party's Confidential Information in strictest confidence
and, except as otherwise expressly provided herein, each party: (i) shall not
use the other party's Confidential Information, and (ii) shall not provide or
otherwise make available, whether directly or indirectly, any of the other
party's Confidential Information to any party other than: (a) to employees and
officers of a party who require access to such Confidential Information for
performance of their duties and who have signed a written nondisclosure
agreement including the requirement to protect third party proprietary
information or (b) to permitted sublicensees permitted under this Agreement who
shall enter into a nondisclosure agreement to protect Confidential Information
on terms no less restrictive than required in this Agreement, or (c) as required
by any applicable law. Each party shall take all reasonable actions (by
instruction, agreement or otherwise) necessary to maintain the confidentiality
of the other party's Confidential Information. Notwithstanding the foregoing,
each party shall be required to protect the other party's Confidential
Information consistent with the same protections afforded its own Confidential
Information in the ordinary conduct of its business but in no event with less
than reasonable care.
10.3 Return or Destruction. Upon termination of this Agreement, or
---------------------
at any other time if requested by a party, each party promptly shall return to
the other party all
13
<PAGE>
Confidential Information received by it or its representatives by such other
party unless the party provides assurances reasonably satisfactory to such other
party that such Confidential Information has been destroyed.
10.4 Source Code, etc. Primax Europe shall not reverse engineer or
----------------
decompile the Products or otherwise attempt or permit others to attempt to
discover the source code of the Software Products without the express written
consent of Storm Primax. To the extent such consent is given, Primax Europe
acknowledges that the source code is a trade secret of Storm Primax and due to
the importance of the confidentiality and trade secret status of the source
code, Primax Europe agrees, in addition to complying with the requirements of
this Section 10 as they related to the source code, to: (i) inform any employee
that is granted access to all or any portion of the source code of the
importance of preserving the confidentiality and trade secret status of the
source code; (ii) maintain a controlled, secure environment for the storage and
use of the source code; and (iii) use at least the same degree of care in
preserving the confidentiality of the source code as it uses in the treatment of
its own trade secrets. Primax Europe shall not permit others to attempt to
discover the source code without the express written consent of Storm Primax.
Furthermore, Primax Europe shall not modify any Storm Primax A6 Products without
the express written consent of Storm Primax.
11. Acceptance and Warranty.
-----------------------
11.1 Product Acceptance. For each unit of Products, Primax Europe
------------------
(or its designee) will have ten (10) calendar days from the date such unit is
received by Primax Europe (or Retail Customers or OEM Customers) (the
"Acceptance Period") to examine and test the Product for conformity to the
applicable Product specifications. During the Acceptance Period for each unit,
Primax Europe (or its designee) may (i) accept the unit or (ii) reject the unit
by notifying Storm Primax in writing of the manner in which the unit fails to
conform to the applicable Product specifications. Any unit not rejected by
Primax Europe (or its designee) within the Acceptance Period will be deemed to
be accepted as of the first day following the Acceptance Period. In the event
that a unit is rejected, Primax Europe (or its designee) may, at Storm Primax's
expense and without cost to Primax Europe, either (i) return the unit to Storm
Primax (or its designated supplier), freight collect, for replacement with a new
conforming unit or (ii) permit the modification of the unit to correct the
nonconformity (e.g., by providing replacement components and modification
instructions). Units that are replaced or modified pursuant to this Section 11.1
will be subject to a new Acceptance Period. With respect to OEM Products, the
acceptance provisions of this Section shall control unless they are inconsistent
with the relevant terms of the written agreement between Storm Primax and its
OEM Customer. In such event, the terms of such written agreement shall govern
acceptance of the OEM Product by the OEM Customer.
11.2 Defect Rates and Remedies.
-------------------------
(a) In addition to the rights of Primax Europe to reject
units of Products as more particularly set forth above, Primax Europe may, in
its sole and absolute discretion, test (or cause any of its Retail or OEM
Customers to test) any random sample of any Product shipment Primax Europe or
Primax Europe's Retail or OEM Customers receives pursuant to the provisions of
this Section 11.2. Storm Primax and Primax Europe will mutually
14
<PAGE>
agree upon the testing procedures for each Product and update or modify such
procedures as reasonably required. A sample of each shipment to be tested will
be tested, and the corresponding shipment accepted or rejected according to the
following guidelines:
Retail Products and Stand Alone OEM Products
<TABLE>
<CAPTION>
Shipment Test Acceptance Rejection
Delivery Size Sample Size Criteria Criteria
- ------------------ ----------- ------------------------- -------------------------
<S> <C> <C> <C>
501-1,200 units 80 units 2 defective units or less 3 defective units or more
1,201-3,200 125 3 defective units or less 4 defective units or more
3,201 + 200 5 defective units or less 6 defective units or more
</TABLE>
OEM Products Built Into PC's
<TABLE>
<CAPTION>
Shipment Test Acceptance Rejection
Delivery Size Sample Size Criteria Criteria
- ------------------ ----------- ------------------------- -------------------------
<S> <C> <C> <C>
501-1,200 units 80 units 1 defective units or less 2 defective units or more
1,201-3,200 125 2 defective units or less 3 defective units or more
3,201 + 200 3 defective units or less 4 defective units or more
</TABLE>
With respect to OEM Products, the acceptance provisions of this Section
shall control unless they are inconsistent with the relevant terms of the
written agreement between Storm Primax and the OEM Customer. In such event, the
terms of such written agreement shall govern random sample testing of OEM
Products by the OEM Customer.
(b) If a shipment is rejected according to the above
procedures and criteria, Primax Europe will immediately notify Storm Primax of
the rejection. Storm Primax (or its designated supplier) will then provide all
reasonably requested and necessary technical support to test all units in such
shipment and repair any defective units therein. Storm Primax (or its designated
supplier) shall pay for all such testing and repair of the units in such
shipment, and any related costs or expenses thereof. If Primax Europe is unable
to complete the testing and repair of defective units in such shipment within a
reasonable period and with no more than reasonable efforts, Primax Europe may
return the entire shipment to Storm Primax (or its designated supplier) for
testing and repair at Storm Primax's (or Storm Primax's designated supplier's)
sole expense (including shipping costs to and from Primax Europe or Primax
Europe's OEM Customer or Retail Customer). Neither Primax Europe nor any of its
OEM Customers or Retail Customers will be invoiced for or have any obligation to
pay Storm Primax (or its designated supplier) for defective units of Product
until and unless such defective units are repaired or replaced and Primax Europe
(or its Retail or OEM Customer) confirms their conformance with the applicable
Product specifications.
(c) The "Defect Rate" for each rolling four month period
shall be defined as the fraction (expressed in percentage form) whose numerator
is the number of total units of each specific Product which are both (i)
returned to Primax Europe from its OEM
15
<PAGE>
Customers and Retail Customers; and (ii) found by Primax Europe to be defective
according to the testing procedures established under Section 11.2(a), and whose
denominator is equal to Primax Europe's total unit shipments of Products over
the applicable four month period. If the Defect Rate exceeds three percent (3%)
for any four month period for the combination of Retail Products and Stand Alone
OEM Products, or two percent (2%) for any four month period for OEM Products
built into PC's, Storm Primax shall, at Primax Europe's sole option, reimburse
Primax Europe, or credit Primax Europe on open invoices, an amount equal to all
shipping expenses incurred by Primax Europe during such four month period to
repair or replace the number of defective units in excess of the three percent
(3%) or two percent (2%) Defect Rates, as applicable.
11.3 Product Warranty. Storm Primax warrants to Primax Europe that,
----------------
for a period of sixteen (16) months from the date of shipment from Storm Primax
(or its designated supplier) to Primax Europe (or Primax Europe's OEM Customers
or Retail Customers, as applicable) accepts a conforming Product pursuant to
Section 11.1 (the "Warranty Period"), such Product will operate in substantial
conformance to the applicable Product specifications and will be free from any
defects in material or workmanship. If any Product fails to substantially
conform to the applicable Product specifications or contains any other defects
discovered during the Warranty Period, Primax Europe, in its sole discretion,
may either (i) attempt to repair the Product itself at its own labor expense,
provided that Storm Primax supplies and pays for any required parts or materials
for all Products or (ii) return the defective Product to Storm Primax for repair
or replacement (at Storm Primax's sole expense, including shipping costs from
Primax Europe to Storm Primax). Primax Europe will be responsible for all costs
of shipping defective units and parts to and from Primax Europe's OEM Customers
and Retail Customers and to and from Primax Europe (except as provided for in
Section 11.2(c) above). Storm Primax will be responsible for all return shipping
costs of repaired or replacement units to Primax Europe. The above warranty
shall not extend to any software or hardware component not provided by Storm
Primax.
11.4 Disclaimer. EXCEPT FOR THE ABOVE WARRANTIES, STORM PRIMAX
----------
MAKES NO OTHER WARRANTIES RELATING TO THE PRODUCTS, EXPRESS OR IMPLIED, AND
EXPRESSLY EXCLUDES ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR
MERCHANTABILITY. THE ABOVE LIMITED WARRANTY DOES NOT EXTEND TO ANY DEFECTS IN
THE PRODUCTS CAUSED DIRECTLY BY THE WILFUL MISCONDUCT OF Primax Europe, ITS
RETAIL CUSTOMERS OR ITS OEM CUSTOMERS.
12. Indemnification.
---------------
12.1 Indemnity by Storm Primax. Subject to Section 13 below, Storm
-------------------------
Primax agrees to defend, indemnify and hold harmless Primax Europe, its
officers, directors, employees and sublicensees against any claims, demands,
damages or actions (including Primax Europe's reasonable attorneys' fees and
costs) arising out of an actual or alleged infringement by the Products of any
copyrights or patent rights under the laws of the Republic of China, Japan,
United States, Canada and countries which are members of the European Economic
Community. Upon notice of an alleged infringement or if in Storm Primax's
opinion such a claim is likely, Storm Primax shall have the right, at its
option, to obtain the right to continue the
17
<PAGE>
distribution of the Products, substitute other products with similar operating
capabilities or modify the Products so that they are no longer infringing. In
the event that none of the above options are reasonably available in Storm
Primax's opinion, Primax Europe may terminate this Agreement and seek all other
remedies at law or in equity. The foregoing indemnity shall not apply to any
infringement claim arising from any modification of the Products not authorized
by Storm Primax in writing or use of the Products in conjunction with other
software or hardware where such use gives rise to the infringement claim. THE
FOREGOING STATES PRIMAX EUROPE'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO
CLAIMS OF INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS OF ANY KIND. STORM
PRIMAX DISCLAIMS ANY IMPLIED WARRANTY OF NON-INFRINGEMENT OF THIRD PARTY RIGHTS.
12.2 Indemnity by Primax Europe. Subject to Section 13 below,
--------------------------
Primax Europe agrees to defend, indemnify and hold harmless Storm Primax, its
officers, directors, employees and agents from any claims, demands, damages or
actions (including Storm Primax's reasonable attorneys' fees and costs) made
against Storm Primax as a result of any claims, warranties or representations
made by Primax Europe or Primax Europe's employees or agents which differ from
those authorized by Storm Primax.
12.3 Indemnification Procedure. The above indemnities shall be
-------------------------
subject to the following procedures:
(a) The party receiving the indemnity ("Indemnitee") will
notify the party with the indemnity obligation ("Indemnitor") of any third party
claim, action or demand within ten (10) days after the Indemnitee receives
notice thereof; provided, however, that failure or delay to provide such
notification shall not reduce or otherwise affect the obligations of the
Indemnitor, except to the extent that such failure or delay shall have
materially prejudiced the Indemnitor's ability to defend against, settle or
satisfy such claim or materially increase the cost thereof.
(b) The Indemnitor, at its expense, shall have the right to
pay, compromise, settle or otherwise dispose of any such claim, provided that no
compromise, settlement or disposal of such claim shall be entered into without
the prior written consent of the Indemnitee, which consent shall not be
unreasonably withheld.
(c) The Indemnitee has the right to reasonably monitor and
participate in the Indemnitor's defense (including the selection of counsel
reasonably satisfactory to both Indemnitor and Indemnitee) or Indemnitee from
any such claims. In any action defended by Indemnitor, Indemnitee shall at all
times have the right to employ its own counsel, but the fees and expenses of
such counsel shall be Indemnitee's own expense unless the employment of such
counsel shall have been authorized by Indemnitor in connection with the defense
of such claims. In such event, such fees and expenses shall be borne by
Indemnitor.
13. Consequential Damages Waiver. EXCEPT IN THE CASE OF A BREACH OF
----------------------------
SECTION 10, NEITHER PARTY WILL BE LIABLE FOR ANY LOSS OF USE, INTERRUPTION OF
BUSINESS, OR ANY SPECIAL, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES OF ANY
KIND (INCLUDING LOST PROFITS)
17
<PAGE>
REGARDLESS OF THE FORM OF ACTION WHETHER IN CONTRACT, TORT (INCLUDING
NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF SUCH PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
14. Term and Termination.
--------------------
14.1 Term. The term of this Agreement shall commence as of the
----
Closing Date and continue for four (4) years. Thereafter, this Agreement will
renew only upon the mutual written agreement of the parties.
14.2 Termination With Cause.
----------------------
(a) Each party may terminate this Agreement upon ninety (90)
days written notice of a material breach of this Agreement if such breach is not
cured within such ninety (90) day period.
(b) Either party may immediately terminate this Agreement
after giving written notice if the other party shall become insolvent or upon
any proceeding being commenced by or against the other party under any law
providing relief to such other party as debtor.
14.3 Rights Upon Termination. Upon termination of this Agreement:
-----------------------
(a) Primax Europe shall immediately cease using the
Trademarks and discontinue all representations that it is a Storm Primax
distributor.
(b) In the event of termination by Storm Primax, Storm
Primax shall be entitled to reject all or part of any orders received from
Primax Europe after notice but prior to the effective date of termination.
(c) In the event of termination by Primax Europe, Primax
Europe, in it sole and absolute discretion, may (i) cancel all or part of any
purchase orders submitted to Storm Primax without penalty (despite any
acceptance thereof), provided that Primax Europe compensates Storm Primax for
any materials, finished goods or work in process for such canceled orders at the
purchase price for such materials plus reasonable labor costs; (ii) purchase all
or part of any Products manufactured by Storm Primax as of the notice of
termination; or (iii) require Storm Primax's completion of any outstanding
purchase orders for Products notwithstanding the fact that delivery dates for
such orders may extend beyond the effective date of termination.
(d) The payment date of all monies due either party shall
automatically be accelerated so that they shall become due and payable on the
effective date of termination, even if longer terms had been provided
previously.
18
<PAGE>
(e) If Storm Primax chooses not to exercise its rights to
repurchase inventory, Primax Europe and its OEM Customers and Retail Customers
shall have 180 days from the effective date of termination to distribute their
inventory.
(f) Neither party shall be entitled to any compensation,
damages or payments in respect to goodwill that has been established or for any
damages on account of prospective profits or anticipated sales, and neither
party shall be entitled to reimbursement in any amount for any training,
advertising, market development, investments or other costs that shall have been
expended by either party before the termination of this Agreement, regardless of
the reason for, or method of, termination of, this Agreement.
14.4 Survival. The following sections of this Agreement will
--------
survive any termination of this Agreement: 3.6, 6 ("Payment Terms"), 9
("Proprietary Rights"), 10 ("Confidentiality"), 11 ("Acceptance and
Warranty"), 12 ("Indemnification"), 13 ("Consequential Damages Waiver"), 14
("Term and Termination") and 15 ("General Provisions").
15. General Provisions.
------------------
15.1 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.
15.2 Assignability. Except in the case of an assignment in
--------------
connection with a merger, reorganization, consolidation, change of domicile or
sale of all or substantially all the assets of a party, neither Storm Primax nor
Primax Europe may assign its rights and obligations, in whole or in part, under
this Agreement without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
15.3 Successors. This Agreement shall be binding upon and shall
----------
insure to the benefit of each party.
15.4 Amendments. This Agreement may be amended or supplemented only
----------
by a writing that is signed by duly authorized representatives of both parties.
15.5 Notices. All notices permitted or required under this
-------
Agreement shall be in writing and shall be delivered as follows with notice
deemed given as indicated: (i) by personal delivery when delivered personally,
(ii) by overnight courier upon written verification of receipt, (iii) by
telecopy or facsimile transmission when confirmed by telecopier or facsimile
transmission, or (iv) by certified or registered mail, return receipt requested,
five (5) days after deposit in the mail. All notices must be sent to the
addresses below or to such other address that the receiving party may have
provided for the purpose of notice in accordance with this Section 16.5.
If to Primax Europe: Primax Electronics Europe B.V.
Godfried Van Seijstlaan 41
P.O. Box 588
3700 AN Zeist
The Netherlands
19
<PAGE>
Attention: Ko Goes
With a copy to: Law Office of Robert D. Cochran
5201 Great America Parkway, Suite 320
Santa Clara, CA 95054
Attention: Robert D. Cochran
If to Storm Primax: Storm Primax, Inc.
1861 Landings Drive
Mountain View, CA 94043
Attention: L. William Krause
With a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: James M. Koshland
15.6 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.
15.7 Arbitration. Any dispute arising out of this Agreement shall
-----------
be resolved by binding arbitration. The venue of the arbitration shall be in San
Jose, California if brought by Primax Europe, and if brought by Storm Primax,
the venue shall be in Zeist, The Netherlands. The rules governing arbitration
shall be the Judicial Arbitration and Mediation Services/Endispute Rules if the
arbitration is in San Jose, and if in The Netherlands, the rules governing
arbitration shall be those as are customary for international arbitrations in
The Netherlands (such rules collectively and individually referred to as the
"Rules"). A single arbitrator shall be selected according to the Rules within
thirty (30) days of submission of the dispute to arbitration. The arbitration
shall be conducted in English. Except as expressly provided above, no discovery
of any kind shall be taken by either party without the written consent of the
other party, provided, however, that either party may seek the arbitrator's
permission to take any deposition which is necessary to preserve the testimony
of a witness who either is, or may become, outside the subpoena power of the
arbitrator or otherwise unavailable to testify at the arbitration. The
arbitrator shall not have the power to award punitive damages, treble damages,
or any other damages which are not compensatory, even if permitted under the
laws of the State of California or any other applicable law. The arbitrator
shall award the prevailing party its costs and its reasonable attorney's fees,
and the losing party shall bear the entire cost of the arbitration, including
the arbitrator's fee. The arbitration award may be enforced in any court having
jurisdiction over the parties and the subject matter of the arbitration.
15.8 Waiver. No term or provision hereof will be considered waived
------
by either party, and no breach excused by either party, unless such waiver or
consent is in a writing signed on behalf of the party against whom the waiver is
asserted. No consent by either party to, or
20
<PAGE>
waiver of, a breach by either party, whether express or implied, will constitute
a consent to, waiver of, or excuse of any other different or subsequent breach
by such party.
15.9 Severability. In the event that any provision of this
------------
Agreement shall be unenforceable or invalid under any applicable law or be so
held by applicable court decision, such unenforceability or invalidity shall not
render this Agreement unenforceable or invalid as a whole.
15.10 Force Majeure. Neither party shall be liable hereunder by
-------------
reason of any failure or delay in the performance of its obligations hereunder
(except for the payment of money) on account of strikes, shortages, riots,
insurrection, fires, flood, storm, explosions, acts of God, war, governmental
action, labor conditions, earthquakes, material shortages or any other cause
which is beyond the reasonable control of such party.
15.11 Entire Agreement. This Agreement, including all Exhibits to
----------------
this Agreement, constitute 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.
15.12 Order of Precedence. In the event of any inconsistency or
-------------------
ambiguity between or among the terms and conditions of this Agreement and the
Reorganization Agreement, the inconsistency or ambiguity shall be resolved in
the following order of precedent: (i) this Agreement; and (ii) the
Reorganization Agreement.
15.13 Effectiveness of Agreement. Although this Agreement has been
--------------------------
executed by the parties on the date first above written, this Agreement shall
become effective only on the occurrence of the closing under the Reorganization
Agreement. If the Reorganization Agreement is terminated pursuant to Section 11
thereof, this Agreement shall become void and of no further force or effect.
15.14 Attorneys Fees. The prevailing party in any dispute arising
--------------
out of or related to this Agreement shall be entitled to recover its reasonable
attorneys' fees and costs.
15.15 No Agency. Nothing contained herein shall be construed as
---------
creating any agency, partnership or other form of joint enterprise between the
parties.
15.16 Headings. The section headings appearing in this Agreement are
--------
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or extent of such section or in any way affect such
section.
15.17 Injunctive Relief. It is expressly agreed that a breach of
-----------------
Section 10 ("Confidentiality") of this Agreement will cause irreparable harm to
the non-breaching party and that a remedy at law would be inadequate. Therefore,
in addition to any and all remedies available at law, each party will be
entitled to an injunction or other equitable remedies in all legal proceedings
in the event of any threatened or actual violation of any or all of the
provisions hereof.
21
<PAGE>
15.18 Export Controls. Primax Europe acknowledges that the laws and
---------------
regulations of the United States restrict the export and re-export of
commodities and technical data of United States origin, including the Products.
Primax Europe agrees that it will not export or re-export any of the Products,
or any portion of the Products in any form without the appropriate United States
and foreign government licenses.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
Storm Primax: Primax Europe:
Storm Primax, Inc. Primax Electronics Europe B.V.
By:____________________________________ By:_______________________________
Title:_________________________________ Title:____________________________
22
<PAGE>
Exhibit 1.9
-----------
House Accounts
--------------
Hewlett-Packard
23
<PAGE>
Exhibit 1.19
------------
Product
<TABLE>
<CAPTION>
A6 Products Trademark Minimum Order Quantities
- ------------------------- --------- ------------------------
<S> <C> <C>
EasyPhoto Reader (PC) EasyPhoto 1,000 units
EasyPhoto Reader (Mac) EasyPhoto 1,000 units
Software Products Trademark
- ----------------- ---------
EasyPhoto (PC) EasyPhoto
EasyPhoto (Mac) EasyPhoto
</TABLE>
24
<PAGE>
Exhibit 1.26
------------
Territory
---------
Exclusive Territory
- -------------------
Europe
Non-Exclusive Territory
- -----------------------
Middle East
Africa
<PAGE>
EXHIBIT 10.17
DISTRIBUTION AGREEMENT
This Distribution Agreement (the "Agreement") is entered into this 29th day
of February, 1996 by and between Storm Primax, Inc., a California corporation
having a place of business at 1861 Landings Drive, Mountain View, California
94043 ("Storm Primax") and 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").
RECITALS
A. Pursuant to the terms of an Agreement and Plan of Reorganization dated
as of February 24, 1996 (the "Reorganization Agreement"), a wholly-owned
subsidiary of Storm Software, Inc. will be merged into Primax Electronics (USA),
Inc. ("Primax USA"), and Primax USA, the surviving entity will become a wholly-
owned subsidiary of Storm Primax, the successor corporation to Storm Software,
Inc.
B. As a condition of the Reorganization Agreement, Storm Primax and Primax
Electronics, Ltd. ("Primax Taiwan") entered into an Asset Transfer Agreement of
even date herewith (the "Asset Transfer Agreement") whereby Storm Primax
acquired from Primax Taiwan certain rights to its then existing A6 image
scanning products.
C. Notwithstanding Primax Taiwan's transfer of certain rights to its A6
image scanning products, Primax Taiwan retains rights to its non-A6 image
capture products.
D. Storm Primax wishes to be appointed as Primax Taiwan's exclusive
distributor in a certain territory and non-exclusive in a certain other
territory so as to make Primax Taiwan's non-A6 products available to Storm
Primax's customers in such territories on certain terms and conditions set forth
in this Agreement.
E. This Agreement is an Ancillary Agreement, as defined in the
Reorganization Agreement.
NOW, THEREFORE, in consideration of the mutual representations and
covenants of this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Primax Taiwan and
Storm Primax agree as follows:
1. Definitions. The following definitions shall apply to this Agreement:
-----------
1.1 "Asset Transfer Agreement" means the Asset Transfer Agreement by
and between Storm Primax and Primax Taiwan dated as of February 24, 1996, which
agreement is incorporated herein by reference.
1.2 "Closing Date" means the date of the closing under the
Reorganization Agreement.
1
<PAGE>
1.3 "Confidential Information" means the technical information, know-
how, technology, formulae, system designs, prototypes, ideas, inventions,
improvements, layouts, software, concepts, techniques, discoveries, data, files,
supplier and customer identities and lists, accounting records, forecasts,
project management plans, marketing plans and business plans relating to this
Agreement to which a party has proprietary rights, and all copies and tangible
embodiments thereof (in whatever form or medium) conspicuously indicated as
proprietary information, confidential information or a substantially similar
legend that are not generally known by the public; provided, however, that any
of the foregoing shall not be considered Confidential Information if the party
receiving it can show that it: (i) has become publicly known through no wrongful
act or breach of any obligation of confidentiality on the receiving party's or
any third party's part; (ii) was rightfully received by the receiving party from
a third party not in violation of any contractual, legal or fiduciary obligation
by such third party; (iii) was approved for release by written authorization by
the party having rights therein; or (iv) was developed by the receiving party
independently of the party having rights therein without breach of any
confidentiality or other obligations; or (v) was disclosed by court order or
other legal authority, provided that the party having rights therein is given an
opportunity to oppose such disclosure and if disclosed, such information is only
used for the specified legal purposes.
1.4 "Documentation" means the user manuals, guides or other written
instructions generally made available with the Products to End Users.
1.5 "End User" means a purchaser or licensee of computer products who
acquires such products for use rather than distribution or resale.
1.6 "Enhancements" means any updates or bug fixes to a computer
product.
1.7 "House Account" means an account: (a) which is the sole
responsibility of Primax Taiwan's direct sales force; (b) from which Storm
Primax may not solicit or take orders for the sale of Products; and (c) for
which no payments are due to Storm Primax from Primax Taiwan. The House Accounts
are currently identified in Exhibit 1.8.
-----------
1.8 "Improvements" means any and all improvements, Enhancements,
modifications and new versions of Non-A6 Products which are created, invented,
discovered or made after the Closing Date.
1.9 "Net Invoice Amount" means the net amount invoiced by Primax
Taiwan for shipments of OEM Products after deducting all customer discounts,
freight, transportation or other allowances, sales or other taxes, COD or other
delivery charges, insurance, credits, mailing costs and the like.
1.10 "Non-A6 Products" means hand held scanners, non-A6 sheetfed
scanners, non-A6 flatbed scanners and datapen scanners. Digital cameras or any
other image capture devices are not included.
1.11 "OEM Customer" means a business entity (other than a House
Account) which engages in distribution or resale of computer products bundled
with other products and
2
<PAGE>
repackaged for distribution or resale as a stand-alone product directly or
indirectly through its distribution channels to End Users.
1.12 "OEM Product" means a version of a Primax Taiwan Non-A6 Product
and associated software, as applicable, for use and distribution by OEM
Customers, and includes all Improvements thereto.
1.13 "Primax Taiwan" means Primax Electronics, Ltd., an ROC
corporation.
1.14 "Primax USA" means Primax Electronics (USA), Inc., a California
corporation.
1.15 "Product Category(ies)" means those categories of Products as
defined in Exhibit 1.19.
------------
1.16 "Products" means Retail Products and/or OEM Products, as
applicable, as currently identified on Exhibit 1.19.
------------
1.17 "Reorganization Agreement" means the Agreement and Plan of
Reorganization Agreement dated as of February 24, 1996 by and among Storm
Software, Inc., a California corporation, Storm Acquisition Corporation, a
wholly-owned subsidiary of Storm Software, Inc., Primax Electronics (USA), Inc.,
a California corporation, and Primax Taiwan, which agreement is incorporated
herein by reference.
1.18 "Retail Customer" means an End User or business entity which
engages in distribution or resale of computer products as stand-alone products
to End Users either directly or indirectly.
1.19 "Retail Product" means a version of a Primax Taiwan Non-A6
Product and associated software, as applicable, to be distributed to Retail
Customers through all channels of distribution on a stand-alone basis, and
includes all Improvements thereto.
1.20 "Sales Representative Agreement" means the Sales Representative
Agreement by and between Storm Primax and Primax Taiwan dated of even date
herewith, which agreement is incorporated herein by reference.
1.21 "Storm Primax" means Storm Primax, Inc., a California
corporation, the successor corporation to Storm Software, Inc.
1.22 "Territory(ies)" means that territory identified on Exhibit
-------
1.25. "Exclusive Territory" and "Non-Exclusive Territory" shall be as specified
- ----
on Exhibit 1.25.
------------
1.23 "Trademarks" means the logos, trade names, trademarks and
service marks as described in Exhibit 1.19, and any other marks as may be
------------
mutually agreed to by the parties from time to time.
2. Licenses.
--------
3
<PAGE>
2.1 Grant of License.
----------------
(a) Subject to the terms and conditions of this Agreement, effective
as of the Closing Date, Primax Taiwan hereby appoints Storm Primax as Primax
Taiwan's distributor in the Territories for the Products and for the purposes of
this appointment, Primax Taiwan grants Storm Primax, the following licenses,
effective as of the Closing Date:
(A) a non-exclusive, non-transferable license to translate,
adapt and reproduce the software component of the Products for the sole purpose
of creating Localized Software Products for distribution in the Territories;
(B) a non-exclusive, non-transferable license to translate,
adapt and reproduce the Documentation for the sole purpose of creating Localized
Documentation for distribution in the Territories;
(C) 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 OEM Customers and Retail Customers in the Exclusive Territory;
and
(D) 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 and Retail Customers in the Non-Exclusive
Territory.
(b) Storm Primax may not alter, reconfigure or change the basic
architecture software which controls the operations and functionality of the
Non-A6 Products without the prior written consent of Primax Taiwan, except that
it is expressly understood that Storm Primax may develop and provide its own
driver software to control the operations and functionality of such Products
with regard to photos.
2.2 Termination of Exclusivity. The above exclusive license grant
--------------------------
in Section 1.10, 2.1 is subject to Storm Primax meeting the minimum annual
distribution quotas for each Product Category in the Exclusive Territory as
mutually established by the parties within the first month of each calendar year
during the term of this Agreement. The quotas will be based on United States
dollars. If Storm Primax does not meet the quotas based on shipments from Primax
Taiwan such that actual Product distributions meet 65% or more of quota but fail
to meet at least 85% of quota for a particular Product Category, Storm Primax
agrees to cooperate and meet with Primax Taiwan to examine and evaluate the
parties' relationship under this Agreement, discuss the causes of the quota
shortfall and develop a mutually agreed upon written plan of action to increase
Product distributions in the following year. On the other hand, if Storm Primax
does not meet quotas based on shipments from Primax Taiwan such that actual
Product distributions are less than 65% of quota for a particular Product
Category, Primax Taiwan may, in its discretion, convert the exclusive license to
a non-exclusive license upon six (6) months prior written notice to Storm
Primax. After the effective conversion of the license, the license for such
Product Category will remain non-exclusive for at least an additional six (6)
month period, and effective anytime thereafter Primax Taiwan may terminate the
non-exclusive
4
<PAGE>
license with respect to such Product Category upon ninety (90) days prior
written notice to Storm Primax. If the licenses for all Product Categories have
been converted to non-exclusive licenses, and the time periods above have
expired with respect to each Product Category, Primax Taiwan may terminate this
Agreement and each party will have the rights set forth in Section 14. However,
in no event will such termination be deemed a termination for cause by Primax
Taiwan.
2.3 Exceptions to Exclusivity.
-------------------------
(a) Notwithstanding Primax Taiwan's grant to Storm Primax of certain
exclusive distribution rights under this Agreement, Primax Taiwan may distribute
Non-A6 Products to OEM Customers and Retail Customers in the Exclusive Territory
if the OEM Customer or Retail Customer is not domiciled in the Exclusive
Territory provided that: (i) the OEM Customer or Retail Customer agrees to
purchase a Non-A6 Product with a substantially different design than that
offered by Storm Primax; (ii) the OEM Customer or 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 OEM Customers or Retail Customers with a substantially similar Product
sales volume; and (iv) Primax Taiwan notifies Storm Primax of such prospective
relationship not less than 120 days prior to launch of the Non-A6 Product in the
Exclusive Territory.
(b) Primax Taiwan will have the right to designate new or additional
customer accounts as House Accounts so that they are excluded from the
definition of OEM Customer provided that: (i) any such potential OEM Customers
desire a direct relationship with Primax Taiwan without Storm Primax acting as
an intermediary; (ii) Storm Primax does not provide any of the services to the
account as contemplated in this Agreement for such OEM Customer; (iii) Primax
Taiwan does not provide better pricing terms to the OEM Customer by servicing
the account directly relative to the pricing Primax Taiwan would offer for Storm
Primax to service the account; and (iv) prior to such designation, Primax Taiwan
obtains Storm Primax's prior written consent.
2.4 Competitive Products.
--------------------
(a) Storm Primax agrees that during the term of this Agreement,
Storm Primax will not distribute any Non-A6 Products which are similar to or
competitive with any Primax Taiwan Non-A6 Products. Notwithstanding the
foregoing, Storm Primax may distribute other products similar to or competitive
with the Primax Taiwan Non-A6 Products subject to the provisions of this
section. If Storm Primax reasonably determines that a Primax Taiwan Non-A6
Product is not competitive in the Territories due to distinguishing
functionality, quality or cost, Storm Primax will give written notice of such
determination to Primax Taiwan and within thirty (30) days after such notice,
Storm Primax and Primax Taiwan will meet to develop a mutually agreed upon plan
so that Primax Taiwan can develop a competitive Primax Taiwan Non-A6 Product. If
Primax Taiwan does not notify Storm Primax within ninety (90) days of such
meeting that it is able to deliver a competitive Primax Taiwan Non-A6 Product,
Storm Primax may distribute a competitive third party product upon two (2) weeks
written notice to Primax Taiwan after the expiration of the ninety (90) day
period.
5
<PAGE>
(b) If Primax Taiwan develops a Non-A6 Product which directly
competes with a third-party product already being distributed by Storm Primax
(as reasonably determined by Storm Primax based on comparable features, quality
and cost), Storm Primax agrees that it will use reasonable efforts to cease
distribution of such third-party product in order to distribute Primax Taiwan's
Non-A6 Product as soon as practical but in any event within 180 days after
receiving written notice from Primax Taiwan of the commercial availability of
such Non-A6 Product.
(c) In the event that Primax Taiwan converts the exclusive
distribution license to a non-exclusive license for a particular Product
Category pursuant to Section 2.2, the restrictions on Storm Primax's ability to
distribute third party products similar to or competitive with Primax Taiwan's
Non-A6 Products in such Product Category will be of no further force and effect.
2.5 Sublicensing. Storm Primax's right to sublicense is subject
------------
to the provisions of this Section 2.5. Storm Primax shall require each OEM
Customer and Retail Customer receiving the Products to protect Primax Taiwan's
proprietary rights in the Products as are customary and ordinary in the usual
conduct of its business with respect to other similar intellectual property
which is proprietary to Storm Primax (but in no event with less than reasonable
care).
3. New Products and Changes in Products.
------------------------------------
3.1 The parties agree that future Products will be added to this
Agreement as they become available upon written notice from Primax Taiwan to
Storm Primax.
3.2 Primax Taiwan has the right to discontinue the distribution or
availability of, or modify, update, or upgrade, any Product upon 120 days prior
written notice to Storm Primax, except that Primax Taiwan may modify the
Products without notice if such modifications do not have a substantial adverse
affect on the functionality, performance or appearance of the Products. In any
such event, Storm Primax will have the right to liquidate its then existing
inventory of the affected Products.
3.3 Primax Taiwan and Storm Primax will meet no less than once every
six (6) months at a mutually agreed upon time and location to examine and
reevaluate the product market and if necessary, develop Product plans to be
implemented in the following twelve to eighteen month period.
4. Order and Shipment Terms.
------------------------
4.1 Order Procedure.
---------------
(a) The terms and conditions of this Agreement shall apply to all
orders for the Products and supersede any different or additional terms on
purchase orders submitted to Primax Taiwan. Purchase orders submitted to Primax
Taiwan are solely for the purpose of requesting delivery dates, quantities and
specifying destination. All orders will be subject to the minimum order
quantities specified in Exhibit 1.19 and as mutually agreed to for
------------
6
<PAGE>
future Products. All orders placed with Primax Taiwan shall be subject to
acceptance by Primax Taiwan at its principal place of business. Unless Primax
Taiwan rejects a purchase order by written notice to Storm Primax within five
(5) working days after receipt, such purchase order will be deemed accepted.
Primax Taiwan shall use reasonable efforts to ship Products by the delivery
dates stated on accepted purchase orders, but Primax Taiwan shall not be liable
under any circumstances for any damages to Storm Primax or to any other third
party for Primax Taiwan's failure to fill, or errors in filling, any orders or
delay in delivery. If orders for the Products exceed Primax Taiwan's inventory,
Primax Taiwan shall allocate available inventory on a basis Primax Taiwan deems
equitable in its sole and absolute discretion.
(b) For all Retail Products, Storm Primax will submit purchase
orders directly to Primax Taiwan.
(c) For all OEM Products, Storm Primax will receive purchase orders
from OEM Customers issued to Primax Taiwan and forward copies of such purchase
orders to Primax Taiwan for acceptance pursuant to Section 5.1 above. All OEM
agreements for the OEM Products will be between Primax Taiwan and the OEM
Customer, with sales service to be provided by Storm Primax in accordance with
Sections 4 and 5 of the Sales Representative Agreement.
4.2 Delivery. Except as otherwise set forth in a purchase order or
--------
as otherwise mutually agreed upon between Primax Taiwan and Storm Primax, Primax
Taiwan will ship all ordered Products within sixty (60) days after Primax
Taiwan's acceptance of the applicable purchase order.
4.3 Forecasts. By the fifteenth day of each month, Storm Primax
---------
will provide Primax Taiwan with written non-binding rolling 120 day forecasts of
its Product requirements. Such forecasts shall be itemized on a Product by
Product basis between Retail Products and OEM Products.
4.4 Rescheduling and Cancellations.
------------------------------
(a) With Primax Taiwan's prior written consent, 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 unit shipments are for less than the minimum order
quantities specified in Exhibit 1.19; and (v) only a maximum of fifty percent
------------
(50%) of each purchase order is to be rescheduled.
(b) Storm Primax may not cancel any purchase order accepted by
Primax Taiwan without the prior written consent of Primax Taiwan.
4.5 Shipments, Risk of Loss, Title.
------------------------------
7
<PAGE>
(a) Primax Taiwan will ship Retail Products F.O.B. shipping port.
(b) Primax Taiwan will ship OEM Products directly to OEM Customers
F.O.B. shipping port.
5. Payment Terms.
-------------
5.1 Prices.
------
(a) For Retail Products, within a reasonable period after the
Closing Date, the parties will determine the initial prices and such prices
shall be effective until reviewed and adjusted according to this Section 5.1.
The parties will meet to review prices for the Products on mutually agreed to
dates on or within thirty (30) days before January 1, April 1 and September 1 of
each year. Any agreed upon adjustments will be effective for all orders accepted
on or after such related date (January 1, April 1 and September 1) and continue
in effect until further adjusted according to this provision. Pursuant to
Section 2.4 above, prices must be competitive with third party prices in order
to prevent Storm Primax from distributing competitive products.
(b) Notwithstanding the price reviews, the parties will also meet to
review prices in each of the following situations: (i) release of a new Product;
(ii) material changes in the manufacturing environment involving cost increases
or decreases; or (iii) material changes in the market environment in order for
such current product to remain competitive in the market. For the purposes of
subsection (iii) above, such pricing review must be completed within a 30 day
period.
(c) Storm Primax will receive the following payments for
distributions of Products to OEM Customers:
(A) Except as specified below, the price to Storm Primax for
OEM Products will be ninety-five percent (95%) of Primax Taiwan's Net Invoice
Amount. That is, Primax Taiwan will retain ninety-five percent (95%) of its Net
Invoice Amount and pay over to Storm Primax five percent (5%) of the Net Invoice
Amount.
(B) Storm Primax shall not be entitled to receive any
compensation for sales made to designated House Accounts. If Primax Taiwan
designates any House Accounts after the Closing Date, as expressly authorized in
Section 2.3 above, Storm Primax shall be entitled to receive payments pursuant
to Section 5.1 above only for those orders which have been received from OEM
Customers and accepted by Primax Taiwan prior to the designation of such OEM
Customer as a House Account in accordance with Section 2.3.
(C) Notwithstanding any other provisions of this Agreement,
Storm Primax shall not be entitled to receive payments on sales consummated with
OEM Customers located within the Territory for shipment by Primax Taiwan to a
destination outside the Territory, except that Storm Primax will receive payment
on sales to OEM Customers inside the Territory on Primax Taiwan's shipments of
Product outside the Territory at one-half the rate
8
<PAGE>
provided for in Section 6.1 in the following circumstances: (i) for all
distributions of Products in the first six (6) months after either (x) a
customer becomes a new OEM Customer or (y) an existing OEM Customer purchases a
Product not previously purchased by such customer; and (ii) for so long as
orders from an OEM Customer are received by Storm Primax in the Territory for
shipments of Products outside the Territory.
5.2 Taxes and Duties.
--- ----------------
(a) Except as set forth in Section 6.2 below, in addition to any
payments due under this Agreement, Storm Primax shall pay any taxes, duties or
other amounts, however designated, which are levied or based upon such payments,
or upon this Agreement, provided, however, that Storm Primax shall not be liable
for taxes based on Primax Taiwan's net income.
(b) In addition to any other payments due under this Agreement,
Primax Taiwan agrees to pay any taxes imposed by any governmental authority in
the Republic of China with respect to any payment to be made under this
Agreement, payment to be made by Primax Taiwan under this Agreement or any item
to be delivered by Primax Taiwan to Storm Primax or Storm Primax's OEM Customers
or Retail Customers under this Agreement.
5.3 Payment.
-------
(a) Storm Primax will be responsible for invoicing Retail
Customers for all deliveries of Retail Products made by Primax Taiwan directly
to Retail Customers and Storm Primax will pay for such Retail Products by wire
transfer in U.S. dollars within ninety (90) days after Primax Taiwan's invoice
to Storm Primax. Storm Primax will pay for Retail Products it receives directly
from Primax Taiwan within ninety (90) days of Primax Taiwan's invoice for such
Retail Products.
(b) Primax Taiwan will invoice all OEM Customers for OEM
Products delivered by Primax Taiwan and Storm Primax will be responsible for
ensuring that amounts due to Primax Taiwan are paid by OEM Customers receiving
OEM Products pursuant to the terms of the written agreements between Primax
Taiwan and such OEM Customers. Primax Taiwan will bear the risk of delinquent
accounts and have the responsibility for extending credit to its OEM Customers.
Storm Primax will have no authority to collect funds or accept payment of any
sort for orders accepted by Primax Taiwan unless so requested by Primax Taiwan.
Storm Primax shall within three (3) working days remit to Primax Taiwan any
payments which it inadvertently receives from OEM Customers.
(c) Primax Taiwan will pay Storm Primax for OEM Products as
required by Section 6.1 above by wire transfer in U.S. dollars within five (5)
days after Primax Taiwan receives payment from OEM Customers.
5.4 Most Favored Nations. During the period that the license in
--------------------
Section 1.10, 2.1 remains exclusive, Primax Taiwan agrees that the prices,
payment terms and other economic terms and conditions of this Agreement will not
be less favorable than prices, payment terms or other economic terms and
conditions offered to Primax Taiwan's other customers in other
9
<PAGE>
territories for Products which are substantially similar to those licensed to
Storm Primax hereunder.
6. Marketing.
---------
6.1 Branding/Packaging. Storm Primax may, in its discretion,
------------------
privately label or distribute the Products under its own product name and
packaging subject to the provisions of this Section 7. Notwithstanding the
foregoing, Storm Primax agrees that all Product packaging will include a notice
in substantially the following form: "Developed and manufactured by Primax
Electronics, Ltd."
6.2 Efforts by Storm Primax. Storm Primax agrees to include in all
-----------------------
advertising of the Products all applicable copyright and trademark notices of
Primax Taiwan as they appear on or in the Products. Primax Taiwan may provide,
at its option, a reasonable amount of advertising material, in English, as
requested by Storm Primax, for use in Storm Primax's efforts to market the
Products.
6.3 Trademark License.
-----------------
(a) Primax Taiwan hereby grants to Storm Primax a nonexclusive,
limited license (including the right to sublicense through multiple tiers of
sublicenses) to use Trademarks solely in Storm Primax's distribution,
advertising and promotion of the Products and subject to the restrictions in
Exhibit 1.19 and the requirements of this Section 7.3. Storm Primax's use shall
- ------------
be in accordance with applicable law and Primax Taiwan's policies regarding
advertising and trademark usage as established from time to time. Storm Primax
further agrees not to affix any Trademark to products other than the genuine
Products.
(b) Storm Primax agrees that the nature and quality of any
products or services it supplies in connection with the Trademarks shall conform
to the standards set by Primax Taiwan. Storm Primax agrees to cooperate with
Primax Taiwan in facilitating Primax Taiwan's monitoring and control of the
nature and quality of such products and services, and to supply Primax Taiwan
with specimens of use of the Trademarks upon request.
(c) At Primax Taiwan's request, Storm Primax shall promptly
perform any act reasonably necessary to secure or maintain any Trademark rights
in any country in which Storm Primax is marketing the Products. This assistance
shall include complying with the formalities of local law, including but not
limited to, the execution of any application for registration as a registered
user, the execution of additional license agreements suitable for recording with
the appropriate authorities or providing proof of use of the Trademarks in any
other applicable documents. Primax Taiwan shall pay the expense of complying
with such formalities.
(d) Storm Primax agrees that whenever the Trademarks are used on
Product packaging, in advertising or in any other manner, they shall clearly
indicate Primax Taiwan as the trademark owner. Storm Primax shall not do or
cause to be done any act or anything contesting or in any way impairing or
reducing Primax Taiwan's right, title and interest in the Trademarks. Storm
Primax understands and agrees that use of the Trademarks in
10
<PAGE>
connection with the Products shall not create any right, title or interest in or
to the use of the Trademarks and that all such uses and goodwill associated with
the Trademarks will inure to the benefit of Primax Taiwan. Storm Primax shall
take all necessary steps to ensure its employees comply with all the terms and
conditions herein.
7. Support.
-------
7.1 First-Line Support. Storm Primax shall provide a level of
------------------
product support for its End Users equivalent to that provided by Primax Taiwan
to its customers during the term of this Agreement. Such support will include,
at a minimum, a "hot-line" service during normal business hours for answering
End User questions by telephone, and employing persons trained and able to
answer such questions. Such "hot-line" service shall be provided to all End
Users in the Territory, whether or not such Products were originally distributed
by Storm Primax. In-warranty "hot-line" services shall be provided by Storm
Primax without charge (other than telephone charges) to the caller. Storm
Primax, at its option, may offer extended warranty service at commercially
reasonable prices.
7.2 Second-Line Support. Primax Taiwan will provide second-line
-------------------
support to Storm Primax by designating a contact person at Primax Taiwan to
answer questions by a designated Storm Primax contact person. There will be no
charge for such second-line support through the Warranty Period (as defined in
Section 1.13 below) or the term of this Agreement, whichever ends later.
8. Proprietary Rights. Storm Primax acknowledges that the structure and
------------------
organization of the Products are proprietary to Primax Taiwan. Primax Taiwan
retains exclusive ownership of the Products, except as otherwise provided for in
the Asset Transfer Agreement regarding product and technology ownership and
licensing. Storm Primax will take all reasonable measures to protect Primax
Taiwan's proprietary rights in the Products. Except as provided herein or in the
Asset Transfer Agreement, Storm Primax is not granted any rights to patents,
copyrights, trade secrets, trade names, trademarks (whether registered or
unregistered), or any other rights, franchises or licenses with respect to the
Products. All rights not expressly granted to Storm Primax under this Agreement
are reserved to Primax Taiwan.
9. Confidentiality.
---------------
9.1 Confidentiality of Agreement. Each of the parties covenants to
----------------------------
the other party that it will not in any manner disclose or divulge the contents
of the Agreement or any of the material terms and conditions hereof to any third
party, except as the other parties may expressly consent in advance in writing
or as may be required in obtaining any necessary governmental or regulatory
approval for the transactions contemplated hereby or as may otherwise be
required by any applicable law.
9.2 Treatment of Confidential Information. For a period of five (5)
-------------------------------------
years after receipt of any Confidential Information, each party shall keep and
maintain the other party's Confidential Information in strictest confidence and,
except as otherwise expressly provided herein, each party: (i) shall not use the
other party's Confidential Information, and (ii) shall not provide or otherwise
make available, whether directly or indirectly, any of the other party's
11
<PAGE>
Confidential Information to any party other than: (a) to employees and officers
of a party who require access to such Confidential Information for performance
of their duties and who have signed a written nondisclosure agreement including
the requirement to protect third party proprietary information or (b) to
permitted sublicensees permitted under this Agreement who shall enter into a
nondisclosure agreement to protect Confidential Information on terms no less
restrictive than required in this Agreement, or (c) as required by any
applicable law. Each party shall take all reasonable actions (by instruction,
agreement or otherwise) necessary to maintain the confidentiality of the other
party's Confidential Information. Notwithstanding the foregoing, each party
shall be required to protect the other party's Confidential Information
consistent with the same protections afforded its own Confidential Information
in the ordinary conduct of its business but in no event with less than
reasonable care.
9.3 Return or Destruction. Upon termination of this Agreement, or
---------------------
at any other time if requested by a party, each party promptly shall return to
the other party all Confidential Information received by it or its
representatives by such other party unless the party provides assurances
reasonably satisfactory to such other party that such Confidential Information
has been destroyed.
9.4 Reverse Engineering, Etc. Storm Primax shall not reverse
-------------------------
engineer or decompile any software component of the Products or otherwise
attempt to permit others to attempt to discover the source code of such software
without the express written consent of Primax Taiwan. Further, Storm Primax
shall not modify any Primax Taiwan Non-A6 Products without the express written
consent of Primax Taiwan.
10. Acceptance and Warranty.
-----------------------
10.1 Product Acceptance. For each unit of Products, Storm Primax
------------------
(or its designee) will have ten (10) calendar days from the date such unit is
received by Storm Primax (or Retail Customers or OEM Customers) (the "Acceptance
Period") to examine and test the Product for conformity to the applicable
Product specifications. During the Acceptance Period for each unit, Storm Primax
(or its designee) may (i) accept the unit or (ii) reject the unit by notifying
Primax Taiwan in writing of the manner in which the unit fails to conform to the
applicable Product specifications. Any unit not rejected by Storm Primax (or its
designee) within the Acceptance Period will be deemed to be accepted as of the
first day following the Acceptance Period. In the event that a unit is rejected,
Storm Primax (or its designee) may, at Primax Taiwan's expense and without cost
to Storm Primax, either (i) return the unit to Primax Taiwan, freight collect,
for replacement with a new conforming unit or (ii) permit the modification of
the unit to correct the nonconformity (e.g., by providing replacement components
and modification instructions). Units that are replaced or modified pursuant to
this Section 1.11 will be subject to a new Acceptance Period. With respect to
OEM Products, the acceptance provisions of this Section shall control unless
they are inconsistent with the relevant terms of the written agreement between
Primax Taiwan and its OEM Customer. In such event, the terms of such written
agreement shall govern acceptance of the OEM Product by the OEM Customer.
10.2 Defect Rates and Remedies.
-------------------------
12
<PAGE>
(a) In addition to the rights of Storm Primax to reject units of
Products as more particularly set forth above, Storm Primax may, in its sole and
absolute discretion, test (or cause any of its Retail or OEM Customers to test)
any random sample of any Product shipment Storm Primax or Storm Primax's Retail
or OEM Customers receives pursuant to the provisions of this Section 1.12.
Primax Taiwan and Storm Primax will mutually agree upon the testing procedures
for each Product and update or modify such procedures as reasonably required. A
sample of each shipment to be tested will be tested, and the corresponding
shipment accepted or rejected according to the following guidelines:
Retail Products and Stand Alone OEM Products
<TABLE>
<CAPTION>
Shipment Test Acceptance Rejection
Delivery Size Sample Size Criteria Criteria
- ------------- ----------- ---------- ---------
<S> <C> <C> <C>
501-1,200 units 80 units 2 defective units or less 3 defective units or more
1,201-3,200 125 3 defective units or less 4 defective units or more
3,201+ 200 5 defective units or less 6 defective units or more
</TABLE>
OEM Products Built Into PC's
<TABLE>
<CAPTION>
Shipment Test Acceptance Rejection
Delivery Size Sample Size Criteria Criteria
- ------------- ----------- ---------- ---------
<S> <C> <C> <C>
501-1,200 units 80 units 1 defective units or less 2 defective units or more
1,201-3,200 125 2 defective units or less 3 defective units or more
3,201+ 200 3 defective units or less 4 defective units or more
</TABLE>
With respect to OEM Products, the acceptance provisions of this Section
shall control unless they are inconsistent with the relevant terms of the
written agreement between Primax Taiwan and the OEM Customer. In such event, the
terms of such written agreement shall govern random sample testing of OEM
Products by the OEM Customer.
(b) If a shipment is rejected according to the above procedures
and criteria, Storm Primax will immediately notify Primax Taiwan of the
rejection. Primax Taiwan will then provide all reasonably requested and
necessary technical support to test all units in such shipment and repair any
defective units therein. Primax Taiwan shall pay for all such testing and repair
of the units in such shipment, and any related costs or expenses thereof. If
Storm Primax is unable to complete the testing and repair of defective units in
such shipment within a reasonable period and with no more than reasonable
efforts, Storm Primax may return the entire shipment to Primax Taiwan for
testing and repair at Primax Taiwan's sole expense (including shipping costs to
and from Storm Primax or Storm Primax's OEM Customer or Retail Customer).
Neither Storm Primax nor any of its OEM Customers or Retail Customers will be
invoiced for or have any obligation to pay Primax Taiwan for defective units of
Product until and unless such defective units are repaired or replaced and Storm
Primax (or its Retail or OEM Customer) confirms their conformance with the
applicable Product specifications.
13
<PAGE>
(c) The "Defect Rate" for each rolling four month period shall
be defined as the fraction (expressed in percentage form) whose numerator is the
number of total units of each specific Product which are both (i) returned to
Storm Primax from its OEM Customers and Retail Customers; and (ii) found by
Storm Primax to be defective according to the testing procedures established
under Section 1.12, and whose denominator is equal to Storm Primax's total unit
shipments of Products over the applicable four month period. If the Defect Rate
exceeds three percent (3%) for any four month period for the combination of
Retail Products and Stand Alone OEM Products, or two percent (2%) for any four
month period for OEM Products built into PC's, Primax Taiwan shall, at Storm
Primax's sole option, reimburse Storm Primax, or credit Storm Primax on open
invoices, an amount equal to all shipping expenses incurred by Storm Primax
during such four month period to repair or replace the number of defective units
in excess of the three percent (3%) or two percent (2%) Defect Rates, as
applicable.
10.3 Product Warranty. Primax Taiwan warrants to Storm Primax that,
----------------
for a period of sixteen (16) months from the date of shipment from Primax Taiwan
to Storm Primax (or Storm Primax's OEM Customers or Retail Customers, as
applicable) accepts a conforming Product pursuant to Section 1.11 (the "Warranty
Period"), such Product will operate in substantial conformance to the applicable
Product specifications and will be free from any defects in material or
workmanship. If any Product fails to substantially conform to the applicable
Product specifications or contains any other defects discovered during the
Warranty Period, Storm Primax, in its sole discretion, may either (i) attempt to
repair the Product itself at its own labor expense, provided that Primax Taiwan
supplies and pays for any required parts or materials for all Products or (ii)
return the defective Product to Primax Taiwan for repair or replacement (at
Primax Taiwan's sole expense, including shipping costs from Storm Primax to
Primax Taiwan). Storm Primax will be responsible for all costs of shipping
defective units and parts to and from Storm Primax's OEM Customers and Retail
Customers and to and from Storm Primax (except as provided for in Section 1.12
above). Primax Taiwan will be responsible for all return shipping costs of
repaired or replacement units to Storm Primax. The above warranty shall not
extend to any software or hardware component not provided by Primax Taiwan.
10.4 Primax USA Products. Primax Taiwan agrees that it will
-------------------
comply with and assume all obligations under Primax USA's product warranties for
the Products distributed to OEM Customers and Retail Customers. Storm Primax
will use reasonable efforts to modify the existing product warranties of such
Products as soon as reasonably practicable but in no event later than upon the
release of an Improvement for such Products or whenever the current distribution
agreement with an OEM Customer or Retail Customer expires, whichever occurs
first.
10.5 Disclaimer. EXCEPT FOR THE ABOVE WARRANTIES, PRIMAX TAIWAN
----------
MAKES NO OTHER WARRANTIES RELATING TO THE PRODUCTS, EXPRESS OR IMPLIED, AND
EXPRESSLY EXCLUDES ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR
MERCHANTABILITY. THE ABOVE LIMITED WARRANTY DOES NOT EXTEND TO ANY DEFECTS IN
THE PRODUCTS CAUSED DIRECTLY BY THE WILFUL MISCONDUCT OF STORM PRIMAX, ITS
RETAIL CUSTOMERS OR ITS OEM CUSTOMERS.
14
<PAGE>
11. Indemnification.
---------------
11.1 Indemnity by Primax Taiwan. Primax Taiwan shall defend,
--------------------------
indemnify and hold harmless Storm Primax, its officers, directors, employees and
sublicensees against any claims, demand, damages or actions (including Storm
Primax's reasonable attorneys' fees and costs) arising out of an actual or
alleged infringement by the Products of any copyrights or patent rights under
the laws of the Republic of China, Japan, United States, Canada and countries
which are members of the European Economic Community. Upon notice of an alleged
infringement or if in Primax Taiwan's opinion such a claim is likely, Primax
Taiwan shall have the right, at its option, to obtain the right to continue the
distribution of the Products, substitute other products with similar operating
capabilities or modify the Products so that they are no longer infringing. In
the event that none of the above options are reasonably available in Primax
Taiwan's opinion, Storm Primax may terminate this Agreement and seek all other
remedies at law or in equity. The foregoing indemnity shall not apply to any
infringement claim arising from any modification of the Products not authorized
by Primax Taiwan in writing or use of the Products in conjunction with other
software or hardware where such use gives rise to the infringement claim. THE
FOREGOING STATES STORM PRIMAX'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO CLAIMS
OF INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS OF ANY KIND. PRIMAX TAIWAN
DISCLAIMS ANY IMPLIED WARRANTY OF NON-INFRINGEMENT OF THIRD PARTY RIGHTS.
11.2 Indemnity by Storm Primax. Storm Primax agrees to defend,
-------------------------
indemnify and hold harmless Primax Taiwan its officers, directors, employees and
agents from any claims, demands, damages or actions (including Primax Taiwan's
reasonable attorneys' fees and costs) made against Primax Taiwan as a result of
any claims, warranties or representations made by Storm Primax or Storm Primax's
employees or agents which differ from those authorized by Primax Taiwan.
11.3 Indemnification Procedure. The above indemnities shall be
-------------------------
subject to the following procedures:
(a) The party receiving the indemnity ("Indemnitee") will notify the
party with the indemnity obligation ("Indemnitor") of any third party claim,
action or demand within ten (10) days after the Indemnitee receives notice
thereof; provided, however, that failure or delay to provide such notification
shall not reduce or otherwise affect the obligations of the Indemnitor, except
to the extent that such failure or delay shall have materially prejudiced the
Indemnitor's ability to defend against, settle or satisfy such claim or
materially increase the cost thereof.
(b) The Indemnitor, at its expense, shall have the right to pay,
compromise, settle or otherwise dispose of any such claim, provided that no
compromise, settlement or disposal of such claim shall be entered into without
the prior written consent of the Indemnitee, which consent shall not be
unreasonably withheld.
(c) The Indemnitee has the right to reasonably monitor and participate
in the Indemnitor's defense (including the selection of counsel reasonably
satisfactory
15
<PAGE>
to both Indemnitor and Indemnitee) or Indemnitee from any such claims. In any
action defended by Indemnitor, Indemnitee shall at all times have the right to
employ its own counsel, but the fees and expenses of such counsel shall be
Indemnitee's own expense unless the employment of such counsel shall have been
authorized by Indemnitor in connection with the defense of such claims. In such
event, such fees and expenses shall be borne by Indemnitor.
12. Consequential Damages Waiver. EXCEPT IN THE CASE OF A BREACH OF
----------------------------
SECTION 10, NEITHER PARTY WILL BE LIABLE FOR ANY LOSS OF USE, INTERRUPTION OF
BUSINESS, OR ANY SPECIAL, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES OF ANY
KIND (INCLUDING LOST PROFITS) REGARDLESS OF THE FORM OF ACTION WHETHER IN
CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
13. Term and Termination.
--------------------
13.1 Term. The term of this Agreement shall commence as of the
----
Closing Date and continue for four (4) years. Thereafter, this Agreement will
renew only upon the mutual written agreement of the parties.
13.2 Termination With Cause.
----------------------
(a) Each party may terminate this Agreement upon ninety (90) days
written notice of a material breach of this Agreement if such breach is not
cured within such ninety (90) day period.
(b) Either party may immediately terminate this Agreement after
giving written notice if the other party shall become insolvent or upon any
proceeding being commenced by or against the other party under any law providing
relief to such other party as debtor.
13.3 Rights Upon Termination. Upon termination of this Agreement:
-----------------------
(a) Storm Primax shall immediately cease using the Trademarks and
discontinue all representations that it is a Primax Taiwan distributor.
(b) In the event of termination by Primax Taiwan, Primax Taiwan
shall be entitled to reject all or part of any orders received from Storm Primax
after notice but prior to the effective date of termination.
(c) In the event of termination by Storm Primax, Storm Primax, in it
sole and absolute discretion, may (i) cancel all or part of any purchase orders
submitted to Primax Taiwan without penalty (despite any acceptance thereof),
provided that Storm Primax compensates Primax Taiwan for any materials, finished
goods or work in process for such canceled orders at the purchase price for such
materials plus reasonable labor costs; (ii) purchase all or part of any Products
manufactured by Primax Taiwan as of the notice of termination; or
16
<PAGE>
(iii) require Primax Taiwan's completion of any outstanding purchase orders for
Products notwithstanding the fact that delivery dates for such orders may extend
beyond the effective date of termination.
(d) The payment date of all monies due either party shall
automatically be accelerated so that they shall become due and payable on the
effective date of termination, even if longer terms had been provided
previously.
(e) If Primax Taiwan chooses not to exercise its rights to
repurchase inventory, Storm Primax and its OEM Customers and Retail Customers
shall have one hundred eighty (180) days from the effective date of termination
to distribute their inventory.
(f) Neither party shall be entitled to any compensation, damages or
payments in respect to goodwill that has been established or for any damages on
account of prospective profits or anticipated sales, and neither party shall be
entitled to reimbursement in any amount for any training, advertising, market
development, investments or other costs that shall have been expended by either
party before the termination of this Agreement, regardless of the reason for, or
method of, termination of, this Agreement.
13.4 Survival. The following sections of this Agreement will
--------
survive any termination of this Agreement: 3.6, 6 ("Payment Terms"), 9
("Proprietary Rights"), 10 ("Confidentiality"), 11 ("Acceptance and Warranty"),
12, 12.2 ("Indemnification"), 13 ("Consequential Damages Waiver"), 14 ("Term and
Termination") and 15 ("General Provisions").
14. General Provisions.
------------------
14.1 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.
14.2 Assignability. Except in the case of an assignment in
-------------
connection with a merger, reorganization, consolidation, change of domicile or
sale of all or substantially all the assets of a party, neither Storm Primax nor
Primax Taiwan may assign its rights and obligations, in whole or in part, under
this Agreement without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
14.3 Successors. This Agreement shall be binding upon and shall
----------
insure to the benefit of each party.
14.4 Amendments. This Agreement may be amended or supplemented
----------
only by a writing that is signed by duly authorized representatives of both
parties.
14.5 Notices. All notices permitted or required under this
-------
Agreement shall be in writing and shall be delivered as follows with notice
deemed given as indicated: (i) by personal delivery when delivered personally,
(ii) by overnight courier upon written verification of receipt, (iii) by
telecopy or facsimile transmission when confirmed by telecopier or facsimile
transmission,
17
<PAGE>
or (iv) by certified or registered mail, return receipt requested, five (5) days
after deposit in the mail. All notices must be sent to the addresses below or to
such other address that the receiving party may have provided for the purpose of
notice in accordance with this Section 15.5:
If to Primax Taiwan: Primax Electronics, Ltd.
6F, No. 159, Kang Ning St., Hsi Chih Town
Taipei Hsien, Taiwan, ROC
Attention: Raymond Liang
With a copy to: Law Office of Robert D. Cochran
5201 Great America Parkway, Suite 320
Santa Clara, CA 95054
Attention: Robert D. Cochran
If to Storm Primax: Storm Primax, Inc.
1861 Landings Drive
Mountain View, CA 94043
Attention: L. William Krause
With a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: James M. Koshland
14.6 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.
14.7 Arbitration. Any dispute arising out of this Agreement shall
-----------
be resolved by binding arbitration. The venue of the arbitration shall be in San
Jose, California if brought by Primax Taiwan, and if brought by Storm Primax,
the venue shall be in Taipei, Taiwan. The rules governing arbitration shall be
the Judicial Arbitration and Mediation Services/Endispute Rules if the
arbitration is in San Jose, and if in Taiwan, the rules governing arbitration
shall be those as are customary for international arbitrations in Taiwan (such
rules collectively and individually referred to as the "Rules"). A single
arbitrator shall be selected according to the Rules within thirty (30) days of
submission of the dispute to arbitration. The arbitration shall be conducted in
English. Except as expressly provided above, no discovery of any kind shall be
taken by either party without the written consent of the other party, provided,
however, that either party may seek the arbitrator's permission to take any
deposition which is necessary to preserve the testimony of a witness who either
is, or may become, outside the subpoena power of the arbitrator or otherwise
unavailable to testify at the arbitration. The arbitrator shall not have the
power to award punitive damages, treble damages, or any other damages which are
not compensatory, even if permitted under the laws of the State of California or
any other applicable law. The arbitrator shall award the prevailing party its
costs and its reasonable attorney's fees, and the losing party shall bear the
entire cost of the arbitration, including the arbitrator's fee.
18
<PAGE>
The arbitration award may be enforced in any court having jurisdiction over the
parties and the subject matter of the arbitration.
14.8 Waiver. No term or provision hereof will be considered waived
------
by either party, and no breach excused by either party, unless such waiver or
consent is in a writing signed on behalf of the party against whom the waiver is
asserted. No consent by either party to, or waiver of, a breach by either party,
whether express or implied, will constitute a consent to, waiver of, or excuse
of any other different or subsequent breach by such party.
14.9 Severability. In the event that any provision of this Agreement
------------
shall be unenforceable or invalid under any applicable law or be so held by
applicable court decision, such unenforceability or invalidity shall not render
this Agreement unenforceable or invalid as a whole.
14.10 Force Majeure. Neither party shall be liable hereunder by
-------------
reason of any failure or delay in the performance of its obligations hereunder
(except for the payment of money) on account of strikes, shortages, riots,
insurrection, fires, flood, storm, explosions, acts of God, war, governmental
action, labor conditions, earthquakes, material shortages or any other cause
which is beyond the reasonable control of such party.
14.11 Entire Agreement. This Agreement, including all Exhibits to
----------------
this Agreement, constitute 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.
14.12 Order of Precedence. In the event of any inconsistency or
-------------------
ambiguity between or among the terms and conditions of this Agreement and the
Reorganization Agreement, the inconsistency or ambiguity shall be resolved in
the following order of precedent: (i) this Agreement; and (ii) the
Reorganization Agreement.
14.13 Effectiveness of Agreement. Although this Agreement has been
--------------------------
executed by the parties on the date first above written, this Agreement shall
become effective only on the occurrence of the closing under the Reorganization
Agreement. If the Reorganization Agreement is terminated pursuant to Section 11
thereof, this Agreement shall become void and of no further force or effect.
14.14 Attorneys Fees. The prevailing party in any dispute arising
--------------
out of or related to this Agreement shall be entitled to recover its reasonable
attorneys' fees and costs.
14.15 No Agency. Nothing contained herein shall be construed as
---------
creating any agency, partnership or other form of joint enterprise between the
parties.
14.16 Headings. The section headings appearing in this Agreement
--------
are inserted only as a matter of convenience and in no way define, limit,
construe or describe the scope or extent of such section or in any way affect
such section.
19
<PAGE>
14.17 Injunctive Relief. It is expressly agreed that a breach of
-----------------
Section 10 ("Confidentiality") of this Agreement will cause irreparable harm to
Primax Taiwan and that a remedy at law would be inadequate. Therefore, in
addition to any and all remedies available at law, each party will be entitled
to an injunction or other equitable remedies in all legal proceedings in the
event of any threatened or actual violation of any or all of the provisions
hereof.
IN WITNESS 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: By:
-------------------------- ---------------------------
Title: Title:
----------------------- ------------------------
20
<PAGE>
Exhibit 1.8
-----------
House Accounts
--------------
Computer City
Color Hand Scanner (private label)
Panasonic
A4 Sheetfed (grey scale only)
21
<PAGE>
Exhibit 1.19
------------
Products
--------
<TABLE>
<CAPTION>
Product Category Trademarks Minimum Order Quantities
- ---------------- ---------- ------------------------
<S> <C> <C>
Non-A6 Sheetfed Scanners
PaperEase (PC) PaperEase 1,000 units
Non-A6 Flatbed Scanners
ScanEase (PC) ScanEase 1,000 units
Datapen Scanners
DataPen (Mac) DataPen 1,000 units
DataPen (PC) DataPen 1,000 units
Hand Held Scanners
ColorHand Scanner (PC) N/A 1,000 units
ColorMobile Direct (PC) ColorMobile 1,000 units
ScanBasic (PC) ScanBasic 1,000 units
</TABLE>
22
<PAGE>
Exhibit 1.19
------------
Territory
---------
Exclusive
- ---------
United States
Canada
Non-Exclusive
- -------------
South America
Mexico
Central America
23
<PAGE>
EXHIBIT 10.18
SALES REPRESENTATIVE AGREEMENT
This Sales Representative Agreement (the "Agreement") is entered into
this 29th day of February, 1996 ("Effective Date") 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. Pursuant to the terms of an Agreement and Plan of Reorganization
dated as of February 24, 1996 (the "Reorganization Agreement"), a wholly-owned
subsidiary of Storm Software, Inc. will be merged into Primax Electronics (USA),
Inc. ("Primax USA") and Primax USA, the surviving entity will become a wholly-
owned subsidiary of Storm Primax, the successor corporation to Storm Software,
Inc.
B. Notwithstanding that Primax Taiwan and Storm Primax entered into
an Asset Transfer Agreement dated as of February 24, 1996 whereby Storm Primax
acquired from Primax Taiwan certain rights to its then existing A6 image
scanning products, Primax Taiwan will continue to engage in the business of
designing, manufacturing and selling pointing devices.
C. Storm Primax wishes to act as an OEM sales representative for
pointing device products produced by Primax Taiwan on certain terms and
conditions set forth in this Agreement.
D. This Agreement is an Ancillary Agreement, as defined in the
Reorganization Agreement.
NOW, THEREFORE, in consideration of the mutual representations and
covenants of this Agreement and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Storm Primax and
Primax Taiwan agree as follows:
1. Definitions. The following definitions shall apply to this
-----------
Agreement:
1.1 "Closing Date" means the date of the closing under the
Reorganization Agreement.
1.2 "Confidential Information" means the technical information,
know-how, technology, formulae, system designs, prototypes, ideas, inventions,
improvements, layouts, software, concepts, techniques, discoveries, data, files,
supplier and customer identities and lists, accounting records, forecasts,
project management plans, marketing plans and business plans relating to this
Agreement to which a party has proprietary rights, and all copies and tangible
embodiments thereof (in whatever form or medium) conspicuously indicated as
proprietary information, confidential information or a substantially similar
legend that are not generally known by the public; provided, however, that any
of the foregoing shall not be considered
1
<PAGE>
Confidential Information if the party receiving it can show that it: (i) has
become publicly known through no wrongful act or breach of any obligation of
confidentiality on the receiving party's or any third party's part; (ii) was
rightfully received by the receiving party from a third party not in violation
of any contractual, legal or fiduciary obligation by such third party; (iii) was
approved for release by written authorization by the party having rights
therein; or (iv) was developed by the receiving party independently of the party
having rights therein without breach of any confidentiality or other
obligations; or (v) was disclosed by court order or other legal authority,
provided that the party having rights therein is given an opportunity to oppose
such disclosure and if disclosed, such information is only used for the
specified legal purposes.
1.3 "End User" means a purchaser or licensee of computer products who
acquires such products for use rather than distribution or resale.
1.4 "Net Invoice Amount" means the net amount invoiced by Primax
Taiwan for shipments of Products after deducting all customer discounts,
freight, transportation or other allowances, sales or other taxes, COD or other
delivery charges, insurance, credits, mailing costs and the like.
1.5 "OEM Customer" means either Microsoft Corporation or a business
entity which engages in manufacturing and development of CPU's directly or
indirectly through its distribution channels to End Users.
1.6 "Primax Taiwan" means Primax Electronics, Ltd., an ROC
corporation.
1.7 "Products" means those current and future pointing device
products developed, manufactured and/or distributed by Primax Taiwan for use and
distribution by OEM Customers, with such products as of the Closing Date
described in Exhibit 1.7.
-----------
1.8 "Reorganization Agreement" means the Agreement and Plan of
Reorganization dated as of February 24, 1996 by and among Storm Software, Inc.,
a California corporation, Storm Acquisition Corporation, a wholly-owned
subsidiary of Storm Software, Inc., Primax Electronics (USA), Inc., a California
corporation and Primax Taiwan, which agreement is incorporated herein by
reference.
1.9 "Storm Primax" means Storm Primax, Inc., a California
corporation, the successor corporation to Storm Software, Inc.
1.10 "Territory" means that geographic area
described in Exhibit 1.10.
------------
2. Appointment of Storm Primax.
---------------------------
2.1 Appointment.
-----------
(a) Primax Taiwan appoints Storm Primax, and Storm Primax shall
represent Primax Taiwan, effective as of the Closing Date, as its exclusive
sales representative for the Territory to solicit and obtain orders for Products
from OEM Customers and potential OEM Customers solely within the Territory.
2
<PAGE>
(b) Storm Primax shall have the right during the term of this
Agreement to represent to the public that it is an authorized independent sales
representative of Primax Taiwan.
(c) The exclusive appointment in Section 2.1(a) is subject to
Storm Primax meeting the minimum annual sales quotas for the aggregate of all
Products in the Territory as mutually established by the parties within the
first month of each calendar year during the term of this Agreement. The quotas
will be based on United States dollars. If Storm Primax does not meet the
quotas based on shipments from Primax Taiwan such that actual sales of Products
meet 65% or more of quota but fail to meet at least 85% of quota for the
Products, Storm Primax agrees to cooperate and meet with Primax Taiwan to
examine and evaluate the parties' relationship under this Agreement, discuss the
causes of the quota shortfall and develop a mutually agreed upon written plan of
action to increase Product sales in the following year. On the other hand, if
Storm Primax does not meet quotas based on shipments from Primax Taiwan such
that actual Product sales are less than 65% of quota for the Products, Primax
Taiwan may, in its discretion, convert the exclusive appointment to a non-
exclusive appointment upon six (6) months prior written notice to Storm Primax.
After the effective conversion of the appointment, the appointment for the
Products will remain non-exclusive for at least an additional six (6) month
period, and effective anytime thereafter Primax Taiwan may terminate this
Agreement upon ninety (90) days prior written notice to Storm Primax. In such
event, each party will have the rights set forth in Section 14. However, in no
event will such termination be deemed a termination for cause by Primax Taiwan.
2.2 Independent Contractor. Storm Primax is and at all times shall
----------------------
be an independent contractor in all matters relating to this Agreement. Storm
Primax and its employees are not agents of Primax Taiwan for any purposes and
have no power or authority, whether apparent, actual, ostensible or otherwise,
to bind or commit Primax Taiwan in any way. Storm Primax and its employees are
not and shall not act as employees of Primax Taiwan for any purpose, including,
but not limited to, under the meaning or application of any federal, state or
local unemployment insurance laws, social security laws, workers' compensation
or industrial accident laws or under any other laws or regulations which would
or might impute any obligation or liability to Primax Taiwan by reason of any
employment relationship.
2.3 Prohibitions.
------------
(a) Storm Primax shall not enter into any agreement, contract or
arrangement with any government or government representative or with any other
person, firm, corporation, entity or enterprise imposing any legal obligation or
liability of any kind on Primax Taiwan. Without limiting the generality of the
foregoing, Storm Primax specifically shall not sign Primax Taiwan's name to any
commercial paper, contract or other instrument and shall not contract any debt
or enter into any agreement, either express or implied, binding Primax Taiwan to
the payment of money and/or in any other regard.
(b) Storm Primax agrees that during the term of this Agreement,
Storm Primax will not distribute any third party pointing device product which
is similar to or competitive with the Products, except with Primax Taiwan's
prior written consent, which consent shall be given on a case by case basis.
3
<PAGE>
3. Storm Primax's General Duties. Storm Primax shall (a) introduce,
-----------------------------
promote the sale of, solicit and obtain orders (subject to acceptance by Primax
Taiwan, as described in Section 9.1(a) for Products from OEM Customers in the
Territory in accordance with the terms of this Agreement; (b) attempt to expand
the OEM Customer base of business for Primax Taiwan and otherwise promote demand
for Products in the Territory on Primax Taiwan's behalf; (c) provide coverage of
existing and potential OEM Customers within the Territory on a regular basis;
and (d) cooperate in implementing all lawful sales programs, policies,
directions, requests and general instructions of Primax Taiwan.
4. Storm Primax's Specific Duties and Prohibitions. Without in any
-----------------------------------------------
way limiting the generality of the preceding Section, Storm Primax agrees as
follows:
4.1 Facilities. Storm Primax shall maintain its own office space and
----------
facilities, with the entire costs of these items and activities to be borne
solely by Storm Primax.
4.2 Personnel. Storm Primax shall provide and maintain, at its own
---------
expense a competent and adequately trained, skilled and motivated sales
organization for the sale of Products in the Territory.
4.3 Forecasts. By the fifteenth day of each month, Storm Primax will
---------
provide Primax Taiwan with written non-binding rolling 120 day forecasts of its
Product requirements. Such forecasts shall be itemized on a Product by Product
basis.
4.4 Activity Reports. On a semi-monthly basis during the term of
----------------
this Agreement, Storm Primax will provide Primax Taiwan with a written summary
of its sales account activities and other activities and efforts conducted
during the reporting period, including, but not limited to, call reports, OEM
Customer inquiries, OEM Customer identities, sales volume, information regarding
any negotiation or order, any identified or identifiable operating problems and
recommended solutions thereto, all as applicable. This semi-monthly activity
report shall also contain a summary of pertinent information known to Storm
Primax concerning the activities of Primax Taiwan's competitors within the
Territory as available.
4.5 Cooperation and Follow-Up. Storm Primax shall cooperate with and
-------------------------
assist Primax Taiwan in sales promotion efforts within the Territory. Whenever
reasonably requested by Primax Taiwan, Storm Primax shall follow up on sales
correspondence between Primax Taiwan and any OEM Customer or prospective OEM
Customer of Products within the Territory, and shall assist in the resolution of
commercial or technical issues which may arise between Primax Taiwan and any
such OEM Customer or prospective OEM Customer. Storm Primax will additionally
provide reasonable services to OEM Customers to ensure that Product shipments
are scheduled and delivered in accordance with OEM Customer orders.
4.6 Forwarding of Information. Storm Primax shall forward within
-------------------------
three (3) working days to Primax Taiwan for attention and handling:
(a) All OEM Customer Product specifications concerning orders or
potential orders for the sale of Products in the Territory.
4
<PAGE>
(b) All sales orders, including confirming purchase orders,
solicited by Storm Primax for consideration and acceptance by Primax Taiwan with
regard to its Products.
4.7 Primax Taiwan Material. Storm Primax shall not use any Primax
----------------------
Taiwan stationery, forms or printed material of any kind, for any purpose,
except as may otherwise be provided herein, without obtaining in each instance
Primax Taiwan's prior written consent for such use.
4.8 Changes in Terms of Sale, Etc. Storm Primax shall not make any
-----------------------------
changes in Primax Taiwan's quotations or terms of sale, nor make any allowances
or adjustments in accounts or authorize the return of any Products, without the
express written consent of Primax Taiwan (which consent will not be unreasonably
withheld).
4.9 Credit Information. Storm Primax shall furnish Primax Taiwan's
------------------
credit department with any information which Storm Primax may have from time to
time relating to the credit standing of any of Primax Taiwan's OEM Customers and
potential OEM Customers. Storm Primax shall also furnish Primax Taiwan with
credit references when requested.
4.10 Problems, Resolutions and Suggestions. Storm Primax shall keep
-------------------------------------
Primax Taiwan informed via the required semi-monthly activity report described
in Section 4.4 of problems encountered and resolutions thereof with regard to
the sales representative relationship established by this Agreement. Storm
Primax shall also communicate within five (5) working days to Primax Taiwan in
writing (in the semi-monthly activity report, and sooner if appropriate) any and
all modifications, design changes or improvements of Products suggested by any
OEM Customer or potential OEM Customer, or by any employee or agent of Storm
Primax. Primax Taiwan shall be and remain the sole and exclusive owner of all
such information.
4.11 Warranties. Storm Primax shall have no right or authority,
----------
express or implied, directly or indirectly, to alter, enlarge or limit the
representations or guarantees expressly contained in Primax Taiwan's most
current written Product warranty as distributed by Primax Taiwan for the
applicable Product. Primax Taiwan may, in its sole discretion, amend the
Product warranty from time to time, and the Product warranty as amended will
become a part of the Agreement for purposes of this paragraph after Primax
Taiwan has delivered a copy of it to Storm Primax. Storm Primax will accept
returns of Products from OEM Customers and provide warranty service to OEM
Customers as reasonably requested by Primax Taiwan, provided that any costs and
expenses of such service (including but not limited to labor and shipping costs)
shall be reimbursed to Storm Primax by Primax Taiwan within ten (10) days after
invoice thereof. Storm Primax will provide Return Materials Authorization (RMA)
numbers to OEM Customers (subject to Storm Primax receiving the necessary RMA
numbers from Primax Taiwan) for return of Products directly to Primax Taiwan,
provided that such Product returns comply with Primax Taiwan's applicable
Product warranty.
5. Primax Taiwan's Assistance to Storm Primax.
------------------------------------------
5.1 Orders. Primax Taiwan shall reasonably assist Storm Primax in
------
soliciting and obtaining orders for the sale of Products in the Territory,
including but not limited to providing weekly updates regarding the status of
manufacturing and production schedules for
5
<PAGE>
Products to be delivered to OEM Customers. Primax Taiwan agrees that all OEM
Customers in the Territory contacting Primax Taiwan directly will first be
referred to Storm Primax.
5.2 Literature. Primax Taiwan shall furnish Storm Primax, without
----------
charge, technical, advertising and selling information and literature, in
English, concerning Products, in the quantities reasonably requested by Storm
Primax, which Primax Taiwan may from time to time produce or have available for
trade circulation.
5.3 Other Assistance. Primax Taiwan shall provide Storm Primax with
----------------
such other sales, engineering and technical assistance and training regarding
Products as necessary, in the interests of Primax Taiwan and its OEM Customers
and potential OEM Customers, to promote and sell Products in the Territory, and
as necessary for Storm Primax to perform its obligations under this Agreement.
Primax Taiwan will also be available on at least a bi-monthly basis to accompany
Storm Primax to OEM Customer or prospective OEM Customer sites to aid in the
selling process as requested by Storm Primax.
6. Proprietary Rights. Storm Primax acknowledges that the structure and
------------------
organization of the Products are proprietary to Primax Taiwan. Primax Taiwan
retains exclusive ownership of the Products, except as otherwise provided for in
the Asset Transfer Agreement regarding product and technology ownership and
licensing. Storm Primax will take all reasonable measures to protect Primax
Taiwan's proprietary rights in the Products. Except as provided herein or in the
Asset Transfer Agreement, Storm Primax is not granted any rights to patents,
copyrights, trade secrets, trade names, trademarks (whether registered or
unregistered), or any other rights, franchises or licenses with respect to the
Products. All rights not expressly granted to Storm Primax under this Agreement
are reserved to Primax Taiwan.
7. Trademark License.
-----------------
7.1 Primax Taiwan hereby grants to Storm Primax a nonexclusive,
limited license (including the right to sublicense through multiple tiers of
sublicenses) to use Trademarks solely in Storm Primax's distribution,
advertising and promotion of the Products. Storm Primax's use shall be in
accordance with applicable law and Primax Taiwan's policies regarding
advertising and trademark usage as established from time to time. Storm Primax
further agrees not to affix any Trademark to products other than the genuine
Products.
7.2 Storm Primax agrees that the nature and quality of any products
or services it supplies in connection with the Trademarks shall conform to the
standards set by Primax Taiwan. Storm Primax agrees to cooperate with Primax
Taiwan in facilitating Primax Taiwan's monitoring and control of the nature and
quality of such products and services, and to supply Primax Taiwan with
specimens of use of the Trademarks upon request.
7.3 At Primax Taiwan's request, Storm Primax shall promptly perform
any act reasonably necessary to secure or maintain any Trademark rights in any
country in which Storm Primax is marketing the Products. This assistance shall
include complying with the formalities of local law, including but not limited
to, the execution of any application for registration as a registered user, the
execution of additional license agreements suitable for recording with the
appropriate authorities or providing proof of use of the Trademarks in any
6
<PAGE>
other applicable documents. Primax Taiwan shall pay the expense of complying
with such formalities.
7.4 Storm Primax agrees that whenever the Trademarks are used in
advertising or in any other manner, they shall clearly indicate Primax Taiwan as
the trademark owner. Storm Primax shall not do or cause to be done any act or
anything contesting or in any way impairing or reducing Primax Taiwan's right,
title and interest in the Trademarks. Storm Primax understands and agrees that
use of the Trademarks in connection with the Products shall not create any
right, title or interest in or to the use of the Trademarks and that all such
uses and goodwill associated with the Trademarks will inure to the benefit of
Primax Taiwan. Storm Primax shall take all necessary steps to ensure its
employees comply with all the terms and conditions herein.
8. Commissions. In consideration for the services performed by Storm
-----------
Primax hereunder, Primax Taiwan shall pay to Storm Primax commissions in
accordance with the provisions hereof.
8.1 OEM Customer Sales.
------------------
(a) OEM Commission Rate. Except as otherwise provided herein,
-------------------
Primax Taiwan shall pay to Storm Primax a commission of three and one-half
percent (3.5%) of the Net Invoice Amount on sales made to OEM Customers.
(b) Payment of OEM Commissions. With respect to the commissions
--------------------------
calculated in accordance with Section 8.1(a), Primax Taiwan will pay Storm
Primax by wire transfer in U.S. dollars by the fifth day of each month for
payments Primax Taiwan received from OEM Customers in the preceding month.
8.2 Other Commission Provisions.
---------------------------
(a) Exclusions. Notwithstanding any other provisions of this
----------
Agreement, Storm Primax shall not be entitled to receive commissions on sales
consummated with OEM Customers located within the Territory for shipment by
Primax Taiwan to a destination outside the Territory, except that commissions
will be paid on sales to OEM Customers inside the Territory on shipments of
Product outside the Territory at one-half the rate provided for in Section
8.1(a) in the following circumstances: (i) for all distributions of Products in
the first six (6) months after either (x) a customer becomes a new OEM Customer
or (y) an existing OEM Customer purchases a Product not previously purchased by
such customer; and (ii) for so long as orders from an OEM Customer are received
by Storm Primax in the Territory for shipments of Products outside the
Territory.
(b) No Other Compensation. Storm Primax's sole source of
---------------------
compensation for rendering services on Primax Taiwan's behalf pursuant to this
Agreement shall be the commissions payable pursuant hereto. Storm Primax shall
have no right to receive any other compensation from Primax Taiwan for services
rendered as an authorized Primax Taiwan sales representative or to receive
reimbursement of any expenses or other costs incurred by Storm Primax in
connection therewith, unless specifically authorized by Primax Taiwan.
7
<PAGE>
(c) Adjustments.
-----------
(A) In the case of a purchase order cancellation by an OEM
Customer, Storm Primax shall be entitled to receive a commission only for the
following:
(a) For the sale of Products which are actually
invoiced and shipped before cancellation of the purchase order.
(b) For additional amounts invoiced to the OEM
Customer resulting from increased unit prices for Products actually shipped
before cancellation of the purchase order.
(B) The Net Invoice Amount, and Storm Primax's
corresponding commission, will be adjusted if Primax Taiwan finds it necessary
or appropriate to make a settlement, credit, modification or other form of
adjustment with an OEM Customer for an amount less than the Net Invoice Amount.
(d) Product Deletions. Storm Primax shall be entitled to
-----------------
receive a commission despite Primax Taiwan's deletion of Products from Exhibit
-------
1.7, provided that Primax Taiwan has accepted a purchase order for such Product
- ---
prior to the effective date of such deletion (at the rate, to the extent and
when it would otherwise have been entitled to receive such commissions).
8.3 Commissions Upon Expiration or Termination. Upon expiration of
------------------------------------------
this Agreement or upon any termination of this Agreement with cause pursuant to
Sections 14.2 hereof, Storm Primax shall be entitled to receive full commissions
(at the rate, to the extent and when it would otherwise have been entitled to
receive such commissions) on all Product orders which have been accepted by
Primax Taiwan before the effective termination date.
9. Order and Shipment Terms.
------------------------
9.1 Order Procedure.
---------------
(a) All orders placed with Primax Taiwan shall be subject to
acceptance by Primax Taiwan at its principal place of business. Unless Primax
Taiwan rejects a purchase order by written notice to Storm Primax within five
(5) days after receipt, such purchase order will be deemed accepted. Primax
Taiwan may refuse any order either for lack of credit of the OEM Customer or for
any other reason which, in Primax Taiwan's judgment, is reasonable grounds for
such refusal.
(b) Storm Primax will receive purchase orders from OEM Customers
issued to Primax Taiwan and forward copies of the purchase orders to Primax
Taiwan for acceptance pursuant to Section 9.1(a) above. All OEM agreements for
the Products will be between Primax Taiwan and the OEM Customer, with sales
services to be provided by Storm Primax.
8
<PAGE>
9.2 Quotations. Primax Taiwan may change or withdraw any quotation
----------
made by it (or by Storm Primax on its behalf) at any time only upon fifteen (15)
days prior written notice to Storm Primax.
9.3 Terms of Sale. All sales shall be at Primax Taiwan's then-
-------------
current price and terms, and Primax Taiwan shall have the absolute right, in its
sole discretion, to establish, change, alter or amend such prices and other
terms and conditions of sale from time to time as it deems necessary or
appropriate.
9.4 Shipments, Risk of Loss, Title. All Products for which orders
------------------------------
are accepted by Primax Taiwan will be shipped and billed directly to the OEM
Customer per the terms of the agreement between Primax Taiwan and the OEM
Customer. Primax Taiwan may withhold delivery or deliver only against cash
payment in the event of delinquencies in a customer's account, and such action
by Primax Taiwan is not and will not be considered to be a breach of this
Agreement. Primax Taiwan will attempt to make shipments on all orders accepted
by it in accordance with the terms of such acceptance, but Primax Taiwan shall
not be responsible to Storm Primax for any delays in shipment. Title shall pass
directly from Primax Taiwan to the OEM Customer and the terms of title transfer
and risk of loss shall be governed by the written agreement between Primax
Taiwan and the OEM Customer.
9.5 Collection. Storm Primax will be responsible for the collection
----------
of overdue accounts. Primax Taiwan will bear the risk of delinquent accounts
and have the responsibility for extending credit to OEM Customers. Storm Primax
shall have no authority to collect funds or accept payment of any sort for
orders accepted by Primax Taiwan unless so requested by Primax Taiwan. Storm
Primax shall within three (3) working days remit to Primax Taiwan any payments
which it inadvertently receives from OEM Customers. All invoice payments for
orders accepted by Primax Taiwan shall be made directly to Primax Taiwan.
10. Additions to and Deletions from Products. Primax Taiwan shall be
----------------------------------------
under no obligation to Storm Primax to continue its business or to continue,
discontinue, change, retain, manufacture, sell or supply any model or type of
any of its Products. Primax Taiwan may, in its sole discretion, discontinue the
manufacture of any or all Products or make whatever changes to those Products it
deems necessary, desirable or appropriate. Primax Taiwan may, in its sole
discretion, add Products to or delete Products from the list of Products
described in Exhibit 1.7 upon thirty (30) days written notice to Storm Primax.
-----------
11. Confidential Information.
------------------------
11.1 Confidentiality of Agreement. Each of the parties covenants to
----------------------------
the other party that it will not in any manner disclose or divulge the contents
of the Agreement or any of the material terms and conditions hereof to any third
party, except as the other parties may expressly consent in advance in writing
or as may be required in obtaining any necessary governmental or regulatory
approval for the transactions contemplated hereby or as may otherwise be
required by any applicable law.
11.2 Treatment of Confidential Information. For a period of five (5)
-------------------------------------
years after receipt of any Confidential Information, each party shall keep and
maintain the other party's
9
<PAGE>
Confidential Information in strictest confidence and, except as otherwise
expressly provided herein, each party: (i) shall not use the other party's
Confidential Information, and (ii) shall not provide or otherwise make
available, whether directly or indirectly, any of the other party's Confidential
Information to any party other than: (a) to employees and officers of a party
who require access to such Confidential Information for performance of their
duties and who have signed a written nondisclosure agreement including the
requirement to protect third party proprietary information or (b) to permitted
sublicensees permitted under this Agreement who shall enter into a nondisclosure
agreement to protect Confidential Information on terms no less restrictive than
required in this Agreement, or (c) as required by any applicable law. Each party
shall take all reasonable actions (by instruction, agreement or otherwise)
necessary to maintain the confidentiality of the other party's Confidential
Information. Notwithstanding the foregoing, each party shall be required to
protect the other party's Confidential Information consistent with the same
protections afforded its own Confidential Information in the ordinary conduct of
its business but in no event with less than reasonable care.
11.3 Return or Destruction. Upon termination of this Agreement, or
---------------------
at any other time if requested by a party, each party promptly shall return to
the other party all Confidential Information received by it or its
representatives by such other party unless the party provides assurances
reasonably satisfactory to such other party that such Confidential Information
has been destroyed.
12. Indemnification.
---------------
12.1 Indemnity by Primax Taiwan. Primax Taiwan shall defend,
--------------------------
indemnify and hold harmless Storm Primax, its officers, directors, employees and
sublicensees against any claims, demand, damages or actions (including Storm
Primax's reasonable attorneys' fees and costs) arising out of an actual or
alleged infringement by the Products of any copyrights or patent rights under
the laws of the Republic of China, Japan, United States, Canada and countries
which are members of the European Economic Community. The foregoing indemnity
shall not apply to any infringement claim arising from any modification of the
Products not authorized by Primax Taiwan in writing or use of the Products in
conjunction with other software or hardware where such use gives rise to the
infringement claim. THE FOREGOING STATES STORM PRIMAX'S SOLE AND EXCLUSIVE
REMEDY WITH RESPECT TO CLAIMS OF INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS
OF ANY KIND. PRIMAX TAIWAN DISCLAIMS ANY IMPLIED WARRANTY OF NON-INFRINGEMENT
OF THIRD PARTY RIGHTS.
12.2 Indemnity by Storm Primax. Storm Primax agrees to defend,
-------------------------
indemnify and hold harmless Primax Taiwan its officers, directors, employees and
agents from any claims, demands, damages or actions (including Primax Taiwan's
reasonable attorneys' fees and costs) made against Primax Taiwan as a result of
any claims, warranties or representations made by Storm Primax or Storm Primax's
employees or agents which differ from those authorized by Primax Taiwan.
12.3 Indemnification Procedure. The above indemnities shall be
-------------------------
subject to the following procedures:
10
<PAGE>
(a) The party receiving the indemnity ("Indemnitee") will notify the
party with the indemnity obligation ("Indemnitor") of any third party
claim, action or demand within ten (10) days after the Indemnitee receives
notice thereof; provided, however, that failure or delay to provide such
notification shall not reduce or otherwise affect the obligations of the
Indemnitor, except to the extent that such failure or delay shall have
materially prejudiced the Indemnitor's ability to defend against, settle or
satisfy such claim or materially increase the cost thereof.
(b) The Indemnitor, at its expense, shall have the right to pay,
compromise, settle or otherwise dispose of any such claim, provided that no
compromise, settlement or disposal of such claim shall be entered into without
the prior written consent of the Indemnitee, which consent shall not be
unreasonably withheld.
(c) The Indemnitee has the right to reasonably monitor and participate
in the Indemnitor's defense (including the selection of counsel reasonably
satisfactory to both Indemnitor and Indemnitee) or Indemnitee from any such
claims. In any action defended by Indemnitor, Indemnitee shall at all times
have the right to employ its own counsel, but the fees and expenses of such
counsel shall be Indemnitee's own expense unless the employment of such counsel
shall have been authorized by Indemnitor in connection with the defense of such
claims. In such event, such fees and expenses shall be borne by Indemnitor.
13. Consequential Damages Waiver. EXCEPT IN THE CASE OF A BREACH OF
----------------------------
SECTION 1.1, NEITHER PARTY WILL BE LIABLE FOR ANY LOSS OF USE, INTERRUPTION OF
BUSINESS, OR ANY SPECIAL, INCIDENTAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES OF ANY
KIND (INCLUDING LOST PROFITS) REGARDLESS OF THE FORM OF ACTION WHETHER IN
CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
14. Term and Termination.
--------------------
14.1 Term. The term of this Agreement shall commence as of the
----
Closing Date and continue for four (4) years. Thereafter, this Agreement will
renew only upon the mutual written agreement of the parties.
14.2 Termination With Cause.
----------------------
(a) Either party may terminate this Agreement upon ninety (90) days
written notice of a material breach of this Agreement if such breach is not
cured within such ninety (90) day period.
(b) Either party may immediately terminate this Agreement after giving
written notice if the other party shall become insolvent or upon any proceeding
being commenced by or against the other party under any law providing relief to
such other party as debtor.
11
<PAGE>
14.3 Rights Upon Termination. Upon termination of this Agreement:
-----------------------
(a) Storm Primax's entitlement to commissions shall immediately cease
as of the effective termination date, except as expressly set forth in Section
8.3.
(b) Primax Taiwan's acceptance of any order after the expiration or
termination of this Agreement shall not be construed as a renewal or extension
of this Agreement, or as a waiver of the right to terminate or of any other
matter or right. Primax Taiwan shall have the right after the termination of
this Agreement to deal with, and solicit orders from, any and all persons and
entities, including OEM Customers or potential OEM Customers, who dealt with or
placed orders through Storm Primax, without any liability of any kind to Storm
Primax, except as expressly provided herein.
(c) Storm Primax must give written notice to Primax Taiwan of any
claims against Primax Taiwan arising under or in any way relating to this
Agreement or the selling representation created hereby within six (6) months
after the effective termination date of this Agreement.
14.4 Survival. The following sections of this Agreement will survive
--------
any termination or expiration of this Agreement: 6 ("Proprietary Rights"), 8
("Commissions"), 11 ("Confidential Information"), 12 ("Indemnification"), 13
("Consequential Damages Waiver"), 14 ("Term and Termination") and 15 ("General
Provisions").
15. General Provisions.
------------------
15.1 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.
15.2 Assignability. Except in the case of an assignment in
-------------
connection with a merger, reorganization, consolidation, change of domicile or
sale of all or substantially all the assets of a party, neither Storm Primax nor
Primax Taiwan may assign its rights and obligations, in whole or in part, under
this Agreement without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
15.3 Successors. This Agreement shall be binding upon and shall
----------
insure to the benefit of each party.
15.4 Amendments. This Agreement may be amended or supplemented only
----------
by a writing that is signed by duly authorized representatives of both parties.
15.5 Notices. All notices permitted or required under this Agreement
-------
shall be in writing and shall be delivered as follows with notice deemed given
as indicated: (i) by personal delivery when delivered personally, (ii) by
overnight courier upon written verification of receipt, (iii) by telecopy or
facsimile transmission when confirmed by telecopier or facsimile transmission,
or (iv) by certified or registered mail, return receipt requested, five (5) days
after deposit in the
12
<PAGE>
mail. All notices must be sent to the addresses below or to such other address
that the receiving party may have provided for the purpose of notice in
accordance with this Section 16.5.
If to Primax Taiwan: Primax Electronics, Ltd.
6F, No. 159, Kang Ning St., Hsi Chih Town
Taipei Hsien, Taiwan, ROC
Attention: Raymond Liang
With a copy to: Law Office of Robert D. Cochran
5201 Great America Parkway, Suite 320
Santa Clara, CA 95054
Attention: Robert D. Cochran
If to Storm Primax: Storm Primax, Inc.
1861 Landings Drive
Mountain View, CA 94043
Attention: L. William Krause
With a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: James M. Koshland
15.6 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.
15.7 Arbitration. Any dispute arising out of this Agreement shall be
-----------
resolved by binding arbitration. The venue of the arbitration shall be in San
Jose, California if brought by Primax Taiwan, and if brought by Storm Primax,
the venue shall be in Taipei, Taiwan. The rules governing arbitration shall be
the Judicial Arbitration and Mediation Services/Endispute Rules if the
arbitration is in San Jose, and if in Taiwan, the rules governing arbitration
shall be those as are customary for international arbitrations in Taiwan (such
rules collectively and individually referred to as the "Rules"). A single
arbitrator shall be selected according to the Rules within thirty (30) days of
submission of the dispute to arbitration. The arbitration shall be conducted in
English. Except as expressly provided above, no discovery of any kind
shall be taken by either party without the written consent of the other party,
provided, however, that either party may seek the arbitrator's permission to
take any deposition which is necessary to preserve the testimony of a witness
who either is, or may become, outside the subpoena power of the arbitrator or
otherwise unavailable to testify at the arbitration. The arbitrator shall not
have the power to award punitive damages, treble damages, or any other damages
which are not compensatory, even if permitted under the laws of the State of
California or any other applicable law. The arbitrator shall award the
prevailing party its costs and its reasonable attorney's fees, and the losing
party shall bear the entire cost of the arbitration, including the arbitrator's
fee.
13
<PAGE>
The arbitration award may be enforced in any court having jurisdiction over the
parties and the subject matter of the arbitration.
15.8 Waiver. No term or provision hereof will be considered waived
------
by either party, and no breach excused by either party, unless such waiver or
consent is in a writing signed on behalf of the party against whom the waiver is
asserted. No consent by either party to, or waiver of, a breach by either
party, whether express or implied, will constitute a consent to, waiver of, or
excuse of any other different or subsequent breach by such party.
15.9 Severability. In the event that any provision of this Agreement
------------
shall be unenforceable or invalid under any applicable law or be so held by
applicable court decision, such unenforceability or invalidity shall not render
this Agreement unenforceable or invalid as a whole.
15.10 Force Majeure. Neither party shall be liable hereunder by
-------------
reason of any failure or delay in the performance of its obligations hereunder
(except for the payment of money) on account of strikes, shortages, riots,
insurrection, fires, flood, storm, explosions, acts of God, war, governmental
action, labor conditions, earthquakes, material shortages or any other cause
which is beyond the reasonable control of such party.
15.11 Entire Agreement. This Agreement, including all Exhibits to
----------------
this Agreement, constitute 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.
15.12 Order of Precedence. In the event of any inconsistency or
-------------------
ambiguity between or among the terms and conditions of this Agreement and the
Reorganization Agreement, the inconsistency or ambiguity shall be resolved in
the following order of precedent: (i) this Agreement; and (ii) the
Reorganization Agreement.
15.13 Effectiveness of Agreement. Although this Agreement has been
--------------------------
executed by the parties on the date first above written, this Agreement shall
become effective only on the occurrence of the closing under the Reorganization
Agreement. If the Reorganization Agreement is terminated pursuant to Section 11
thereof, this Agreement shall become void and of no further force or effect.
15.14 Attorneys Fees. The prevailing party in any dispute arising
--------------
out of or related to this Agreement shall be entitled to recover its reasonable
attorneys' fees and costs.
15.15 No Agency. Nothing contained herein shall be construed as
---------
creating any agency, partnership or other form of joint enterprise between the
parties.
15.16 Headings. The section headings appearing in this Agreement are
--------
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or extent of such section or in any way affect such
section.
14
<PAGE>
15.17 No Representations. Storm Primax represents and acknowledges
------------------
that it is relying solely on its own judgment, including its own estimate of the
market for Products in the Territory, in entering into this Agreement, and that
Primax Taiwan has made no written or verbal representations or warranties,
either express or implied, regarding the subject matter hereof, including,
without limitation, the duration of the selling representation created hereby,
the circumstances under which this Agreement shall or may be terminated, the
size of the market for Products in the Territory or the amount of commissions
which Storm Primax will, could or might expect to receive hereunder.
IN WITNESS 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: By:
-------------------------- ---------------------------
Title: Title:
----------------------- ------------------------
15
<PAGE>
Exhibit 1.7
-----------
Products
--------
All current and future pointing device products produced by Primax Taiwan and
intended for OEM Customers, including but not limited to the following:
mice
game pads
joysticks
track balls
touch pads
remote cursor control devices
16
<PAGE>
Exhibit 1.10
------------
Territory
---------
United States
Canada
17
<PAGE>
EXHIBIT 11.1
CALCULATION OF PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
Year Ended March 31, March 31,
December 31, 1995(1) 1996(1)
1995(1) (Unaudited) (Unaudited)
----------- ------------------ ------------------
<S> <C> <C> <C>
Weighted Average Common and Common
Equivalent Shares:
Series A Preferred Stock 1,000,000 1,000,000 1,000,000
Series B Preferred Stock 159,722 159,722 159,722
Series C Preferred Stock 1,090,957 1,090,957 1,090,957
Series D Preferred Stock 846,099 811,152 919,863
Series E Preferred Stock 5,516,940 5,516,940 5,575,157
Series F Preferred Stock 118,174 118,174 118,174
Common Stock 1,656,988 1,656,969 1,657,555
Common Stock Options 507,685 507,685 507,685
Warrants 26,812 26,812 26,812
----------- ---------- ----------
10,923,377 10,888,411 11,055,925
=========== ========== ==========
Net loss ($3,396,000) ($741,000) ($6,519,000)
=========== ========== ==========
Pro forma net loss per common and common
equivalent share ($0.31) ($0.07) ($0.59)
=========== ========== ==========
</TABLE>
(1) See Note 2 of Notes to the Company's Consolidated Financial Statements.
<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 Primax, 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."
/s/ Price Waterhouse LLP
San Jose, California
June 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STORM PRIMAX
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 MAR-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 1,865 703
<SECURITIES> 0 932
<RECEIVABLES> 2,832 4,042
<ALLOWANCES> 156 699
<INVENTORY> 1,212 3,392
<CURRENT-ASSETS> 5,819 9,076
<PP&E> 567 631
<DEPRECIATION> 407 441
<TOTAL-ASSETS> 5,979 10,135
<CURRENT-LIABILITIES> 3,246 10,607
<BONDS> 0 0
0 0
3 9
<COMMON> 1 1
<OTHER-SE> 2,729 (482)
<TOTAL-LIABILITY-AND-EQUITY> 5,979 10,135
<SALES> 5,245 2,435
<TOTAL-REVENUES> 5,794 2,529
<CGS> 3,735 1,981
<TOTAL-COSTS> 9,246 9,067
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 29 165
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (3,396) (6,519)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,396) (6,519)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,396) (6,519)
<EPS-PRIMARY> (0.31) (0.18)
<EPS-DILUTED> (0.31) (0.18)
</TABLE>
